Evolving pricing practices: the role of new

business models
Dhruv Grewal and Anne L. Roggeveen
Babson College, Babson Park, Massachusetts, USA
Larry D. Compeau
Clarkson University, Potsdam, New York, USA, and
Michael Levy
Babson College, Babson Park, Massachusetts, USA

Abstract
Purpose – In this brief paper, the aim is to highlight three important pricing areas: the business strategies and pricing models that have evolved over
the past 20 years of research, the customers that have been targeted, and the role of the internet on pricing. The advent of social media, mobile
marketing and display technologies are likely to encourage researchers to pursue additional research on these topics.
Design/methodology/approach – The current paper is an essay aimed at stimulating pricing research in three major domains.
Findings – The authors review illustrative current practices and research findings pertaining to emerging pricing business models, customer target
marketing and price dispersion on the web.
Research limitations/implications – The paper highlights areas that need empirical investigation.
Practical implications – Managers need to explicitly understand the role of these emerging technologies (e.g. social media, mobile media, and web-
application) and appropriately incorporate them into their pricing strategies.
Originality/value – The paper’s central contribution is to stimulate additional research on key pricing areas.

Keywords Pricing, Pricing models, Pricing strategies, Price dispersion, Price positioning, Marketing strategy

Paper type General review

As is well known, pricing is a key component of any marketing volume-based pricing (Grewal et al. 2010) to generate profit
strategy. However, in recent years, the importance of pricing with smaller unit markups in return for greater volume.
has been elevated as a central component of a marketing Another goal is to bring new customers into the business.
strategy to that of an overall business model. This progression Others developing their business models around the power of
has been made possible both due to the recent economic pricing include Gilt and RueLaLa. These fashion web sites
downturn, but also the increasing adoption of new offer invitation-only promotions to members. Consistent
technologies such as social media and mobile web-enabled across these new business models is the ability to provide
devices. These new technologies allow consumers to be more consumers with a regular price and a sale price which are
connected both with other consumers and with deals which likely to impact the quality and value inferences that the
companies offer. Simultaneously, retailers are able to create consumers form about the merchandise being offered.
more targeted promotions based on customer insights gleaned These new strategic and tactical applications which are
from the multitude of data available to them from things such based around pricing present a range of issues ripe for
as click-stream data and loyalty programs. additional research. In this article we limit our discussion to
Consider group buying sites such as Groupon and two areas – understanding target customers and price
LivingSocial as examples. The central tenant of these dispersion, however, clearly other issues such as the impact
business models is to offer large discounts on products or of these technologies on previous public policy concerns
services provided a predetermined number of people agree to (Compeau and Grewal, 1998) are important to study as well.
purchase the product or service. One goal of the business Clearly there are boundless other opportunities for important
models used in these web sites, which utilize the power of research. In fact, at the recent Pricing Conference held at
social media to have consumers encourage their contacts to Babson College (Summer 2010), a number of papers were
participate in the deal, is based on an innovative adaption of presented which indicate the wide range of pricing related
issues being studied by scholars around the world. In addition
The current issue and full text archive of this journal is available at to the presentations made at that conference, several of those
www.emeraldinsight.com/1061-0421.htm projects were further developed and are now published
including three in this special section of Journal of Product
& Brand Management and over ten others in a special issue of
Journal of Product & Brand Management the Journal of Retailing. As will be detailed below, this special
20/7 (2011) 510– 513
q Emerald Group Publishing Limited [ISSN 1061-0421]
section includes three papers that focus on understanding the
[DOI 10.1108/10610421111181813] target marketing and pricing issues on the web.

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Dhruv Grewal et al. Volume 20 · Number 7 · 2011 · 510 –513

Understanding target customers individualism/collectivism) influence price perceptions

offering insights for “practitioners who are involved in
As discussed above, many of the new business models take international business or trying to expand their business to
advantage of the fact that consumers are increasingly other countries.” This research highlights the importance of
connected with others via social media and thus can act as a understanding the inherent cultural traits that are likely to
conduit through which firms can communicate offers. vary across countries, yet be quite similar within certain
However, much more is needed to be understood regarding blocks of countries. Thus, a firm must employ various forms
the role of social media and the characteristics assigned to it of pricing strategies, tactics, and price presentation offers to
by consumers that affect their behavior. For example, to our best communicate the value of their offering based on these
knowledge little has been done to study the source credibility cultural similarities and differences.
associated with friends forwarding and referring other friends
to particular price promotions and retail sites. Additional
dimensions of these new business models include the Price dispersion
opportunity to offer customers localized offers in the range Another important area for retailers to understand is how the
of product and service categories. Previously, much of the wide variety of offers available online impacts consumer
research on price offers has tended to be in the domain of perceptions of these offers. Differences between these offers
products. However, firms like Groupon offer numerous deals may include the degree to which the offer is time limited or
(i.e., a new deal every day in the cities that they serve) that the sense of exclusivity the offer provides. As noted above,
pertain to services including restaurants, spas, entertainment social media as well as other tools make it increasingly easy for
events, etc. Clearly additional research is needed to shed light consumers to share deal information and offers with others. In
on what service factors (e.g., reputation), event factors (e.g., addition to making it easier to “push” price knowledge to
going to the event alone or with a friend), and usage factors other consumers, it is also increasingly easy for consumers to
(e.g., for self or for gift) are likely to moderate the “pull” price knowledge from the marketplace. For example,
effectiveness of these offers. The effectiveness of these offers mobile phone apps such as Bakodo, Barcode Scanner, and
could be viewed in terms of how quickly the deal reaches it ShopSavvy allow consumers to scan bar codes of products in
closing capacity, but more important is the need to study the retailers to real-time search where they can find the same
behavioral and financial ramifications for the service provider. product for cheaper.
Are these deals largely being acquired by existing buyers or It is important for retailers to understand how this ability to
new buyers? Are these deals generating one time business or understand price dispersion in the marketplace actually
repeat business from the new buyers? Is the profit model impacts customers. Past research has provided some insights
based on the fact that a good number of people buy the deal, into the price dispersion in conventional retailing (e.g. Grewal
but may not use prior to expiration? However, newer sites are and Marmorstein, 1994) and more recent work has provided
coming on-line that allow purchasers of such deals to resell some insights into price dispersion on the web (e.g. Lindsey-
them; this should increase the overall redemption rates and Mullikin and Grewal, 2006). Building on this domain of
will likely change the profitability dynamics for a given service research, Petrescu examines this topic in her article published
provider, however these conjectures have yet to be studied in this special issue. More specifically Petrescu examines price
empirically. dispersion in the context of internet-based shopping malls
Additionally, although newer technologies have enabled finding that price dispersion is impacted by the average
manufacturers and retailers to increase their sophistication in product price, product type, and shipping charges. A
targeting customers, because social media enhances the power particularly interesting finding in the context of social media
of peer-to-peer communication firms should expect that these is that the number of customer reviews significantly influences
carefully constructed targeted offers may well become viewed online price dispersion.
by a broader audience, including audiences never targeted. In this brief discussion, we have highlighted three areas that
Thus, it is critical for retailers to develop a richer have been gaining more traction both in academics and
understanding of how different audiences may respond to practice: the business strategy and pricing models that have
their offers. evolved, the customers that have been targeted and the role of
Two articles in this special issue discuss how different the internet on pricing. We feel the role of these topics and
audiences respond to prices. Damay, Guichard, and Clauzel others such as social media and mobile marketing, display
examine how young consumers select product prices based on technologies and the presentation of prices and price offers
their presentation. As they describe, these “results might be are likely to engender additional research interest. We hope
used particularly by a manufacturer that designs specific store that this brief paper will encourage researchers to pursue
formats for the youngest consumers; retail managers also additional research on these topics, as there are numerous
could adapt price presentations to appeal to children (e.g. use unanswered questions that could provide valuable insights to
round prices for expensive products). Studying children’s both the theory and practice of pricing.
buying behavior related to price (considering the pricing We also would like to acknowledge the helpful reviews
policies of the store and product brand) can reveal their likely provided by a number of scholars: Michael Brady (Florida
price behavior in the longer term and support the State University), Abhijit Biswas (Wayne State University),
development of a pertinent loyalty strategy for such Jane Cai (University of Rhode Island), Lan Xia (Bentley
customers.” College), Nancy Puccinelli (Oxford University), Gopal Iyer
In the second article, Meng examines how cultural factors (Florida Atlantic University), Joan Lindsey-Mullikin
(i.e. long-term orientation, uncertainty avoidance, (California Polytechnic State University), Hooman Estelami

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Dhruv Grewal et al. Volume 20 · Number 7 · 2011 · 510 –513

(Fordham University), Sarah Maxwell (Fordham University), the Academy of Marketing Science, Journal of Retailing, and
Eric Dolansky (Brock University), Keith Coulter (Clark Marketing Letters. Additionally she has presented her research
University) and Fei Lee Weisstein (University of Texas-Pan at numerous national and international conferences. She has
American). won a number of awards for her research including the
M. Wayne DeLozier Best Conference Paper Award, AMS
References 2008; the Stanley C. Hollander Best Retailing Paper, AMS
2008; Babson College Faculty Scholarship Award 2008; Best
Compeau, L.D. and Grewal, D. (1998), “Comparative price Paper Consumer Behavior Track Paper, Winter AMA 2009;
advertising: an integrative review”, Journal of Public Policy William R. Davidson Journal of Retailing Best Paper Award
& Marketing, Vol. 17, Fall, pp. 257-73. 2010; and Best Conference Paper La Londe Conference
Grewal, D. and Marmorstein, H. (1994), “Market price 2011. She is currently co-editing a special issue of the Journal
variation, perceived price variation and consumers’ price of Retailing for 2012 and a special issue of Product and Brand
search decisions for durable goods”, Journal of Consumer Management. Dr Roggeveen currently serves on the editorial
Research, Vol. 21, December, pp. 453-60. boards of the Journal of Retailing and Journal of Service
Grewal, D., Janakiraman, R., Kalyanam, K., Kannan, P.K.,
Research. Additionally, Dr Roggeveen has co-chaired 2010
Ratchford, B., Song, R. and Tolerico, S. (2010), “Strategic
Conference on Pricing in a Global Marketplace, 2011 Direct/
management of online and offline retail pricing: a research
Interactive Marketing Research Summit, and 2012 AMA/
agenda”, Journal of Interactive Marketing, Vol. 24, May,
ACRA Retailing Conference. Her industry experience
pp. 138-54.
Lindsey-Mullikin, J. and Grewal, D. (2006), “Market price includes work for State Street Corporation, Lotus
variation: the availability of internet market information”, Development Corporation, First Night, and the
Journal of the Academy of Marketing Science, Vol. 34 No. 2, Commonwealth Institute in London.
pp. 236-43. Dr Larry D. Compeau (PhD Virginia Tech) is Professor of
Consumer and Organizational Studies at Clarkson University
School of Business. His research interests are in consumer
About the authors behavior and pricing, focusing on public policy implications.
Dhruv Grewal (PhD Virginia Tech) is the Toyota Chair in His research has won numerous awards and has appeared in
Commerce and Electronic Business and a Professor of top journals including the Journal of the Academy of Marketing
Marketing at Babson College. He was awarded the 2010 Science, Journal of Public Policy & Marketing, Journal of
Lifetime Achievement Award in Retailing (AMA Retailing Business Research, Journal of Consumer Affairs, Review of
SIG), 2005 Lifetime Achievement in Behavioral Pricing Marketing Research and Pricing Strategy and Practice: An
Award (Fordham University, November 2005) and the AMS International Journal. He co-edited a special issue of the
Cutco/Vector Distinguished Educator Award in May 2010. Journal of Public Policy & Marketing focusing on pricing and is
He is a Distinguished Fellow of the Academy of Marketing currently co-editing a special issue of the Journal of Retailing
Science. He has also coauthored Marketing Research for 2012 and a special issue of Product and Brand Management.
(publisher: Houghton Mifflin Co., 1st ed. 2004, 2nd ed. He co-chaired the 2010 Pricing Conference. Dr Compeau
2007), Marketing (publisher McGraw-Hill 1e 2008, 2e 2010- currently serves on the editorial boards of four journals
Awarded Revision of the Year, McGraw-Hill Corporate including the Journal of Retailing, the Journal of Public Policy
Achievement Award for Marketing, 2nd ed. with & Marketing, the Journal of Consumer Affairs and the Journal of
ConnectMarketing in the category of Content and Product & Brand Management. Dr Compeau’s work and
Analytical Excellence, 3rd ed. 2012) and M Series: expertise has been relied on in articles published in prominent
Marketing (publisher McGraw-Hill 1st ed. 2009, 2nd ed. popular press including Time magazine, Newsweek, The
2011). He was co-editor of Journal of Retailing (2001-2007). Washington Post, National Public Radio, Christian Science
He has taught executive seminars/courses and/or worked on Monitor, and major news organizations including the
research projects with numerous firms, such as Dell, Associated Press, CanWest, NBC, CBS, and ABC. His
ExxonMobil, Symphony/IRI, TJX, Radio Shack, Telcordia, expertise has also been a critical component as an expert
Khimetriks, Profit-Logic, Monsanto, McKinsey, Ericsson, witness in several precedent setting legal cases on pricing
Met-Life, AT&T, Motorola, Nextel, FP&L, Lucent, Sabre, practices and has offered consulting and executive seminars to
Goodyear Tire & Rubber Company, Sherwin Williams, Asahi major firms including Xerox, Goodyear Tire & Rubber
and numerous law firms. He has taught seminars in the USA, Company, IBM, the Filene Institute and several credit unions.
Europe and Asia. Dhruv Grewal is the corresponding author Dr Compeau teaches consumer psychology, new products,
and can be contacted at: [email protected] and marketing strategy and has won numerous awards for his
Anne L. Roggeveen (PhD Columbia University) is teaching including the Clarkson University Distinguished
Associate Professor of Marketing at Babson College. Her Teaching Award and MBA Professor of the Year Award, three
research interests are in the area of consumer and managerial times.
information processing and decision making. She investigates Michael Levy, PhD, is the Charles Clarke Reynolds
judgment formation based on both a consumer’s experience Professor of Marketing and Director of the Retail Supply
with a product, as well as on communications such as pricing, Chain Institute at Babson College. He received his PhD in
advertising, promotions, and research reports. She has also business administration from The Ohio State University and
investigated service recovery strategies. Her research has been his undergraduate and MS degrees in business administration
published in the Journal of Marketing Research, Journal of from the University of Colorado at Boulder. He taught at
Consumer Research, Journal of Consumer Psychology, Journal of Southern Methodist University before joining the faculty as

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professor and chair of the marketing department at the of Retailing Management, 8th ed., Marketing, 3rd ed., and M-
University of Miami. Professor Levy has developed a strong Marketing, 2nd ed. (McGraw-Hill, Irwin). Professor Levy was
stream of research in retailing, business logistics, financial Co-editor of the Journal of Retailing from 2001-2007.
retailing strategy, pricing, and sales management. He has Professor Levy has worked in retailing and related
published over 50 articles in leading marketing and logistics disciplines throughout his professional life. Prior to his
journals, including the Journal of Retailing, Journal of academic career, he worked for several retailers and a
Marketing, and Journal of Marketing Research. He currently housewares distributor in Colorado. He has performed
serves on the editorial review board of the Journal of Retailing, research projects with many retailers and retail technology
International Journal of Logistics Management, European firms, including Accenture, Federated Department Stores,
Business Review, and the Advisory Board for the Khimetrics, Mervyn’s, Neiman Marcus, ProfitLogic (Oracle),
International Retailing and Marketing Review. He is co-author and Zale Corporation.

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