The Role of Value-Informed Pricing in Market-Oriented Product Innovation Management

Although the positive effect of a market orientation on new product success is widely accepted and the market orientation literature has increased its understanding of how a market orientation leads to performance, the extant literature has overlooked the role of value-informed pricing in the relationship. Value-informed pricing is a pricing practice in which the decision makers base the price of the new product on the customers' perceptions of the benefits that the product offers and how these benefits are traded by customers against the price (that has yet to be determined). Considering that pricing mistakes may hit hard on the profitability of product innovations, it is important to firms to have a good understanding of its role. This study develops a framework in which value-informed pricing is integrated in the relationship between market orientation and new product performance. A distinction is made between customer and competitor orientations, and relative product advantage is also included in the conceptual model. The model is tested on data obtained from managers based on a cross sectional sample of 144 firms. The respondents were involved in a decision-making process of the pricing of a new product. The model is tested using structural equations modeling. The results show that value-informed pricing has a strong effect on new product performance. It also reveals that each component of a market orientation fulfills a specific role in a market-oriented organization. Value-informed pricing is found to have important mediating effects in the market orientation-new product performance relationship. Results show that firms with a strong customer orientation engage in value-informed pricing and develop superior benefits to customers in an advantageous product. In turn, both value-informed pricing and relative product advantage positively affect new product market performance. However, no significant effect of competitor orientation on value-informed pricing is found. Combined with the finding that competitor orientation negatively affects relative product advantage, this suggests that competitor orientation may hurt new product performance when this orientation is not balanced with a strong customer orientation. The results also portray that value-informed pricing leads to higher product advantage. Interestingly, this relation is contingent on the degree of interfunctional coordination within the firm. This suggests that the relationship between market orientation and new product performance is strongest if firms integrate value-informed pricing in the new product development process. In this sense, a market-oriented firm mirrors the customer value perception that makes a trade-off between benefits and price.