An Empirically-Validated Framework for Industrial Pricing

Peter M. Noble
Humbolt State University

Thomas S. Gruca
University of Iowa

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An Empirically-Validated Framework for Industrial Pricing

Peter M. Noble Humbolt State University 1 Harpst St. Arcata, CA 95521 (707) 826-3224 Thomas S. Gruca College of Business University of Iowa Iowa City, IA 52242-1000 319-335-0946 (phone) 319-335-1956 (fax) thomas-gruca~uiowa. edu

A previous version of this paper was presented at the 1995 INFORMS International Conference in Singapore. The authors would like to thank Gerry Tellis and Kent Monroe for their review of the survey used in this research.

An Empirically-Validated Framework for Industrial Pricing

Abstract We propose and test a parsimonious and comprehensive two-level framework for industrial goods pricing which allows for multiple pricing strategies for a single product. We identify a reduced set of cost, product and information conditions determining which strategy type (new product, competitive, product line, cost-based) is optimal. We frirther identify a set of unique determinants under which a given principal strategy within each type is optimal. For example, the competitive pricing strategy type (leader, parity or low cost supplier) should be used in the later stages of the product life cycle. Leader pricing should be used by firms with high market share whereas parity pricing should be used by firms with high costs. A firm should consider a low priced supplier strategy if it has relatively low costs. Similar relationships between pricing strategies and determinants are developed for a comprehensive set of 10 industrial pricing strategies. We validated the framework through a national survey of pricing managers in capital goods industries. Using censored regression models, we tested (and confirmed) the relationships between the determinants, pricing strategy types and individual pricing strategies. This framework provides an important tool to help managers make better pricing decisions. It is grounded in sound economic and marketing analyses and consistent with actual managerial practice. Furthermore,..this study answers the call of many authors to bridge the gap between the normative research on pricing and actual managerial behavior.

Introduction Pricing is one of the most important and complex of all marketing decisions. There is a wide range of product, company and competitive conditions determining which pricing strategy or strategies should be used in a given situation (Diamantopoulos 1991, 1994). For example, in the classic FIBR case, Deere & Company: Industrial Equipment Operations, the price for a new model of bulldozer has to be determined (Shapiro, 1977). This new model has an innovative transmission that may increase productivity significantly. Therefore, a skimming strategy should be more profitable than penetration pricing. However, since market leader Caterpillar offers comparable models, the pricing strategy has to reflect competitive prices as well. In addition, Deere will sell spare parts that represent a significant income stream over the life of the product. Maximizing the revenue stream from the entire product line (accessories, spare parts, etc.) is another important consideration in the pricing strategy. Finally, a high mark-up over unit manufacturing costs would be desired to quickly recover the high development and tooling costs for this model. Therefore, in this typical case study, there can be one, two or more types of pricing strategies (i.e., new product, competitive, product line and cost-based) involved in a single pricing decision. How does the marketing literature help a manager facing such a complex pricing situation? Unfortunately, most normative research on pricing concentrates on only one or two narrow aspects of the situation. For example, Schoell and Guiltinan (1995) outline the conditions that favor choosing skimming over penetration pricing for a new product. The notable exception is the comprehensive literature review by Tellis (1986). In his review, Tellis develops a unif~jing framework that highlights the similarities and differences among a wide range of pricing strategies. Two dimensions of shared economies

available to a firm and the consumer conditions necessary to exploit these economies determine which of nine pricing strategies (or their related counterparts) should be adopted by the firm. The Tellis framework represents a major contribution to the literature since it is the first comprehensive comparison and integration of pricing strategies which had, heretofore, been discussed in relative isolation. The focus of the Tellis paper on providing a classification system for as wide a range of pricing strategies as possible presents some challenges when trying to apply its results to practical pricing situations. For example, the two conditions identified by Tellis define the best single choice of pricing strategies for a firm. However, there are additional requirements associated with relative quality or costs that are necessary for the choice of strategy to be optimal (Tellis, 1986: Table 2). Unfortunately, the Tellis framework does not address the options for a firm not in an advantaged position in terms of costs or quality. By construction and in the interest of clarity of presentation, the Tellis framework assumes that only one strategy should be used in a given situation. However, empirical research on pricing objectives shows that multiple objectives are often used simultaneously (Shipley 1981, Jobber and Hooley 1987, Samiee 1987, Coe 1983; 1988; 1990; Diamantopoulos and Mathews; 1994). We expect (and find) that the same is true in pricing strategy decisions. Managers often use more than one pricing strategy in setting the price for a single product Finally, the Tellis framework has not been empirically validated (Lilien, Kotler and Moorthy, 1992). This is a critical step in the development of managerial prescriptions for pricing. Since all models are necessarily simplifications of reality, it is important to compare the normative results with actual practice in order to validate the assumptions underlying the normative models. In this paper, we have more modest goals in terms of integrating the existing pricing

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literature. However, by focusing on a smaller set of industrial pricing problems (capital goods), we are able to achieve closure through empirical validation of our proposed framework. Specifically, we propose and test a parsimonious and complete two-level (strategy type-principal strategy) framework for industrial goods pricing which allows for multiple pricing strategies for a single product. We identify a reduced set of cost, product and information conditions under which a given strategy type (new product, competitive, product line, cost-based) should be used. We then identify a set of unique conditions under which a principal strategy within each type should be used. For example, one type of pricing strategy encompasses the competitive pricing strategies. The principal strategies within this type are Leader pricing, Parity pricing and Low-Price supplier. A competitive pricing strategy should be employed in the latter stages of the product life cycle. With this type, Leader pricing should be used by firms with high market share whereas Parity pricing should be used by firms with high costs. A firm should use a Low-price Supplier strategy if it has relatively low costs. Similar relationships between pricing strategy types, principal strategies and determinants are developed for a comprehensive set of four strategy types and 10 principal pricing strategies.. We validated our framework through a national survey of pricing managers in capital goods industries. We asked them about characteristics of the product, their company and the product-market at the time of their last pricing decision. Using limited dependent variable regression models, we confirmed most of the expected relationships between the proposed determinants, pricing strategy types and principal pricing strategies. This framework provides an important tool to help managers make better pricing decisions. It is grounded in sound economic and marketing analyses and consistent with actual managerial practice. Furthermore, this study answers the call of many authors (Bonoma,

Crittenden and Dolan, 1988; Lilien, Kotler, and Moorthy 1992; Diamantopoulos, 1994) to bridge the gap between the normative research on pricing and actual managerial behavior. Related Research Most of the empirical research investigating how managers set prices has focused on identifying the objectives used by managers in pricing decisions (Diamantopoulos, 1991). The major studies (Kaplan, Dirlam, and Lanzillotti, 1958; Shipley, 1981; Jobber and Hooley, 1987; Samiee, 1987; Coe, 1983, 1988, and 1990; and Diamantopoulos and Mathews, 1994) have shown that profit maximization is used by many firms, but it is clearly not dominant across all firms (Diamantopoulos, 1994). These studies also show that most firms use multiple pricing objectives, the objectives change over time (Coe, 1983, 1988, 1990) and the choice of objective is related to the pricing environment of the firm (Diamantopoulos and Mathews, 1994). The study of pricing objectives can provide information on what the firm is trying to accomplish, but objectives do not tell us much about how the firm will accomplish those objectives. These studies do not address the issue of what pricing strategies will be used to accomplish the goals of the firm. For the purpose of this study, objectives are defined as the results a decision maker seeks to achieve (e.g., profit maximization). A pricing strategy is the means by which a pricing objective is to be achieved. A pricing strategy implies a specific price level or schedule related to costs, competition, or customers. Determinants are the internal and external conditions that determine managers choices of pricing strategies. A brief example may help distinguish these constructs. Consider a firm with a pricing objective of maximizing profitability for a new product. In one scenario, customers might be insensitive to price and the products in this market are highly differentiated. The firm can use a price skimming strategy to achieve their profit maximization objective (Nagle and Holden, 1995:

154-158). In a second scenario, the same company is faced with highly price sensitive customers. If the firm can reduce its unit costs by spreading its fixed costs over a high volume of output, the firm can use a penetration pricing strategy to achieve the profit maximization objective (Nagle and Holden, 1995: 159-160). The determinants in these examples were price sensitivity, product differentiation, and potential for economies of scale. Diamantopoulos (1991, 1994) refers to these determinants collectively as the pricing environment, describing them as the elements that constitute the setting within which price decision-making takes place. It is the goal of this study to develop a framework for industrial pricing decisions which simplifies the pricing environment for the manager by identifying those conditions which separate strategy types and principal strategies within type. Previous empirical studies that have investigated the use of pricing strategies have generally been limited in scope to researching small numbers of firms or to identifying strategies without regard to determinants (Abratt and Pitt, 1985; Morris and Pitt, 1993; Udell, 1972). Studies that have looked at both strategies and determinants across a large number of firms have generally not been statistically rigorous (see Diamantopoulos 1991 for review of these studies). The validation study presented in this paper remedies these short-comings. Our framework is discussed next.

A Framework for Industrial Pricing Strategy After an extensive review of the literature, we identified a set of industrial pricing strategies and determinants following the example set by Tellis (1986). However, our study focuses on the under-researched area of industrial (capital goods) pricing while the Tellis framework is more oriented towards consumer products. To accommodate these differences, we

have made some modifications to his original framework. First, we did not consider strategies predominantly used with consumer products (i.e., defensive pricing, random discounts), strategies for export markets (i.e., second market discounting) or pricing tactics (e.g., basing point pricing). Second, Cost-Plus pricing and Customer Value pricing were added due to their prominence in previous studies of industrial pricing (Morris and Calantone, 1990). The ten principal pricing strategies are described in Table 1. Table 1 about here Note that a related strategy is either part of the principal strategy (e.g., Markup Pricing is a form of Cost-Plus Pricing) or is similar to the principal strategy. That is, the related strategy is one which can be expected to occur under similar conditions and result in a similar price level (e.g., Opportunistic Pricing and Low-Price Supplier). Strategy Types and Principal Strategies We have divided these ten strategies into four strategy types based on the similarity of the situations for which they are appropriate. The four strategy types are: 1) new product strategies, 2) product line strategies, 3) competitive strategies, and 4) cost-based strategies. New product strategies share the common attribute of being strategies which are applied early in the life of the model in question. Included in the category of entry strategies are: 1) Skim Pricing, 2) Penetration Pricing, and 3) Experience Curve Pricing. Competitive strategies have as their main focus the price of the product relative to the price of one or more competitors.. Competitive pricing strategies include: 1) Leader Pricing, 2) Parity Pricing, and 3) Low-price Supplier. Product line strategies are strategies in which the price of one product is influenced by

other related products or services from the same company. These related products may be complements, substitutes, or ancillary items such as spare parts; they may be products sold simultaneously or in another time period. These strategies include: 1) Complementary Product Pricing, 2) Price Bundling, and 3) Customer Value Pricing. Cost-based strategies consider the internal costs of the firm including fixed and variable costs, contribution margins, and so on. The principal strategy included in this category is Cost-Plus Pricing. Several related strategies, such as Target-Return Pricing, are included as part of Cost-based pricing strategies. Strategy Determinants In every normative discussion of pricing strategy, a set of market, company and competitive conditions is specified under which a given strategy is optimal (profit-maximizing). Since these conditions determine when a given strategy should be used, we refer to them as determinants. The set of determinants we include in our study includes major elements of Tellis (1986) framework including product differentiation, economies of scale, capacity utilization, and switching costs. Other determinants are based on additional sources including pricing articles (Dean 1950), specialized pricing monographs (Oxenfeldt 1975, Nagle and Holden 1995) and general marketing management texts (Kotler, 1988; Guiltinan, Paul and Madden 1997). During our literature review, we found that some determinants are common to more than one strategy. For example, if brand demand is elastic, then Penetration pricing, Experience Curve pricing, Parity pricing, Low-Price Supplier pricing, Complementary product pricing and Bundling are all profit-maximizing options depending on the other market, company and competitor conditions. Therefore, high levels of brand elasticity does not separate these principal strategies

from each other. On the other hand, we also discovered that some determinants are unique to a given strategy type. For example, the presence of other products from the same firm (either substitutes or complements) is common to Bundling, Customer Value pricing and Complementary Product pricing. Yet this determinant is unique to the Product Line strategy type. Therefore, the presence ofrelated products from the same firm separates out this strategy type from the others. The set of unique determinants for each strategy type forms the first level of industrial pricing framework. Similarly, within the strategy types, there are determinants which separate one principal strategy from the others. In the Competitive Pricing strategies, high market share separates Leader pricing from the Parity and Low-Price Supplier strategies. Since these determinants are unique to a given principal strategy within a strategy type, they are also referred to as unique determinants. The unique determinants for each principal strategy allow us to identify a parsimonious set of conditions under which a given principal strategy is optimal. This organization of the strategy types, particular strategies and their determinants are presented in Table 2. Table 2 about here The unique determinants are indicated by underlined type. This table is an important contribution of our study since it simultaneously summarizes the previous normative research and identifies a testable framework for managerial pricing strategy. The determinants for strategy types are discussed in detail next. Determinants for Strategy Types The determinant for choosing a New Product pricing strategy is the age of the model being priced. Skim pricing, Penetration pricing and Experience curve pricing are all appropriate for new products.

One might expect that Competitive pricing strategies would be appropriate for the opposite condition, i.e. the pricing of older products. However, the common determinants for these strategies (Price Leader, Parity pricing and Low-price Supplier) are a late stage of the product life cycle and the ease of determining demand. Note that these two conditions refer to a mature market and not necessarily to the age of the model being priced. Returning to the Deere example above, the model being priced was new to the market yet it was entering the mature bulldozer marketplace. Therefore, both New Product strategies and Competitive pricing strategies should be incorporated into the final decision for this new model of bulldozer. Inherent in the definition ofProduct Line pricing strategies is the existence of other products, accessories or supplementary goods (e.g., spare parts) to guide the pricing of the product in question (Guiltinan, Paul and Madden, 1997). Diamantopoulos (1991) claims that Cost-Plus pricing is by far and away the most widely used pricing strategy. The Hall and Hitch (1939) survey of 39 business managers found the general pattern of price setting to be cost-based. The Brookings Institution Studies (Kaplan, Dirlam, and Lanzillotti, 1958) corroborated this finding. Thirty years later, Bonoma, Crittenden and Dolan (1988) found that managers continue to use cost as a primary pricing concern. Most authors caution managers against relying on cost-based methods for establishing prices (e.g. Nagle and Holden, 1995). The only situation in which Cost-Plus pricing is profitmaximizing is one in which average unit costs are likely to be constant over time and at any point on the demand curve (Lilien and Kotler 1983: 405-407). However, due to economies of scale and/or experience curve effects, neither of these conditions are likely to hold in a manufacturing industry (Lilien and Kotler, 1983: 407).

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The weakness of Cost-Plus Pricing is that it ignores consumer and competitive information. However, if the firm has little or no information about demand, then Cost-Plus pricing is the default strategy (Harrison and Wilkes, 1975). Determinants of Principal Strategies Three of the strategy types, New Product, Competitive and Product Line, contain more than one strategy. For each of these strategies, we have identified the determinants which are unique to that strategy and those which are common to other strategies within that strategy type. The unique and common determinants for these principal strategies are discussed next. New Product Pricing There are three options for pricing new products: Skimming, Penetration and Experience Curve pricing. Skimming is the practice of setting a high initial price which is often systematically discounted over time. The purpose of Skim pricing is to discriminate between those buyers who are insensitive to the initial high price because of special needs. As this segment becomes saturated, the price is lowered to broaden the appeal of the product (Dean, 1950). Skim pricing is recommended over Penetration or Experience curve pricing when there is a high degree of product differentiation in the market (Jam, 1993). Without this condition, there cannot be a better product which would command a higher price. In addition, there must be some buyers who are price insensitive, i.e. willing to pay more for a product which meets their special needs (Guiltinan, Paul and Madden, 1997; Schoell and Guiltinan, 1995). The new product usually represents a major improvement over previous versions in order to command a premium price (Mercer, 1992). Finally, firms with high factory utilization (Schoell and Guiltinan, 1995) or those who lack cost advantages due to scale or learning should consider skimming over the lowprice new product pricing strategies (Schoell and Guiltinan, 1995).

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Both Penetration and Experience curve pricing involve setting a low initial price for a new product. Penetration pricing is used to speed adoption of a new product or establish it as a de facto standard. It is suggested that firms with cost advantages due to scale use Penetration pricing (e.g., Tellis 1986). Experience curve pricing has a different focus and source of advantage than penetration pricing. The experience (or learning) curve effect shows that unit costs fall with cumulative volume due to increased familiarity with the assembly process and other factors (Boston Consulting Group 1972). However, there is a great deal of controversy about the extent of these effects (e.g., Amit 1986). Experience curve pricing seeks to exploit the experience/learning curve by setting prices low to build cumulative volume quickly and, thereby, drive down unit costs. The presence of these experience/learning curve effects are necessary for this pricing strategy to be a success (Tellis 1986; Jam 1993; Nagle and Holden, 1995). Whether this is a sound long-term strategy has been questioned on many fronts (e.g., Abernathy and Wayne 1974; Alberts, 1989; Ghemawat 1985; Kiechel 1981). The common conditions which favor these low-price new product strategies contrast to those for Skim pricing: low product differentiation (Schoell and Guiltinan, 1995), used for minor product revisions (Mercer, 1992), elastic demand (Guiltinan, Paul and Madden, 1997), and low capacity utilization (Schoell and Guiltinan, 1995). Competitive Pricing Price leaders initiate price changes and expect that others in the industry will follow suit. Price leaders tend to have higher prices than their competitors who use the leaders price to set their own price levels (Greer, 1984; Jam, 1993). Hence, this strategy is also known as Umbrella

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pricing. Price Leaders such as Caterpillar in heavy equipment tend to have the highest market share as well (Kotler, 1997). Parity pricing involves imitating the prevailing prices in the market, maintaining a constant relative price between competitors. In some respects, this strategy is born of weakness. If a firm had superior products, it should be able to command a premium price (Guiltinan, Paul and Madden, 1997). Or, if the firm had cost advantages, it could become a low-price supplier (Jam, 1993). If a firm has high costs, its only option in a mature market is to employ parity pricing (Jam, 1993, Guiltinan, Paul and Madden, 1997). Three conditions are common to both Leader pricing and Parity pricing: markets in which price changes are easy to detect (Nagle and Holden, 1995), inelastic total demand (Guiltinan, Paul and Madden, 1997), and high factory utilization (Schoell and Guiltinan, 1995). Low-price Suppliers could be exploiting a cost advantage (Nagle and Holden, 1995) or reflecting a weakness (i.e., low factory utilization: Kotler, 1997). In addition, a Low-price Supplier might be exploiting a lack of pricing knowledge in the market by under-cutting its rivals (Greer, 1984). If this under-cutting behavior were known, it might ignite a damaging price war. Finally, the Low-price Supplier strategy should be more successful in markets with high levels of overall elasticity (Guiltinan, Paul and Madden, 1997). Common to both the Low-price Supplier strategy and Price Leadership is low costs (Greer, 1984; Nagle and Holden, 1995) due to scale or experience curve effects (Jam, 1993). Low market share is a common determinant for Parity pricing and Low-price Supplier pricing (Nagle and Holden, 1995; Kotler, 1997). Product Line Pricing The economic and psychological aspects of price bundling have been explored in depth

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elsewhere (Guiltinan, 1987). Most of the suggested determinants for Bundling pricing are common to other pricing strategies. Therefore, such determinants cannot be used to identify the situation(s) where Bundling is optimal. The sole exception is the type of price-setting process. When each sale or contract is priced separately, as in the case of system selling of mainframe computers, then Bundling is a preferred option (Jam, 1993). For example, a major avionics firm uses bundling in most of its pricing. Its customers need systems for control, communications and navigation. To avoid a competitive pricing battle for each system, this firm quotes a bundled price for the entire package. Since this firm is one of the few which make all of these products, it usually wins the contract. In addition, this approach reduces the number of suppliers (and potential incompatibility problems) for the airframe manufacturer. Complementary Product pricing began with King Camp Gillettes strategy of selling razors cheaply and blades dearly. For many industrial products, there are a wide range of supplies, spare parts and accessories which make up a large portion of the profit stream from the customer. In the Deere case above, it was suggested that a bulldozer consumes 90% of its initial purchase price in spare parts over its lifetime. Under this strategy, the main product or platform is sold for a relatively low price while the ancillary or supplementary products carry a high margin (Guiltinan, Paul and Madden, 1997). For bulldozers, for example, the markup on spare parts can be as high as 200%, much higher than the margin on the main product (Kotler, 1997: 515). In addition, Tellis (1986) suggests that high customer switching costs may keep customers buying the captive, high-margin additional products. Customer Value pricing is becoming increasingly common in industrial markets. This

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strategy involves pricing one version of the product at very competitive levels, offering fewer features than are available for other versions. The most visible applications of this strategy recently have been in consumer markets. For example, when McDonalds lowered the price of its basic hamburger to 59 cents in 1990, its was employing Customer Value pricing to spur sales in a low growth market (Gibson, 1990; Rigdon, 1990). Manufacturers of consumer durables such as Pella Windows have introduced new lines of products with fewer features and lower pricing points than their traditional customized lines (Nagle and Holden, 1995: 165). Usually, these products are intended for a specific market segment. In the case of Hon furniture, it produced a new line of less expensive office furniture for home offices to be distributed through category killers such as Staples rather than their fullservice dealer network. In contrast to the case with consumer markets, Customer Value pricing in industrial markets is more likely to be successful if price changes are difficult to detect. Since the firm is providing most of the functionality of its main product for a lower price, it runs a large risk of cannibalizing its main, higher priced product (Dolan and Simon, 1995: 212-214). A Parsimonious Pricing Framework We used the information in Tables 1 and 2 to develop a parsimonious framework for industrial pricing. We summarize the relationships between strategy types, principal strategies and determinants in Figure 1. Figure 1 about here This framework contains three separate elements which must be tested. The first is the relationship between the pricing strategies and the relative price of the product. This serves as a cross-validation of our self-reported measures of pricing strategies. Second, we tested the

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relationships between each strategy type and its unique determinants. Third, we tested the relationship between each principal strategy and its unique determinants. In addition, we tested the relationships between the common determinants and each principal strategy within strategy type. At the end of this process, we have a reduced set of conditions for managers to consider when choosing pricing strategies for an industrial product. Validation Study Design To validate our framework, we conducted a national survey of marketing managers in capital goods industries in the late spring/early summer of 1994. Survey The survey document was a four page questionnaire mailed to practicing managers in May and June of 1994 (Figure 2). The survey underwent extensive pre-testing to assure readability and accurate understanding of the questions. This included pilot testing with written and verbal feedback from a convenience sample of executive MBA students as well as a review of the survey by two noted academic pricing scholars from other institutions. Figure 2 about here To avoid the criticisms leveled at many studies of pricing objectives by Diamantopoulos (1991: 136), we asked the managers to provide information on their most recent pricing decision of a single industrial capital good rather than indicating an overall pricing strategy for all products or circumstances. Measures ofPricing Strategies Previous research on pricing objectives shows that many managers use more than one objective in their pricing decisions (e.g., Diamantopoulos, 1991). To reflect the similar complexity of the pricing strategy decision, we allowed respondents to indicate their usage of up to three

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pricing strategies. The response to this question was ratio-scaled (importance weights summing to 100%) in order to assess the magnitude of the importance of a given strategy in the decIsIon. In the pre-testing for this study, we found that none of the managers used more than three alternatives. In our final results, we found that 48.5% used one strategy, 28.5% two and 22.5% used three strategies. We note that the average importance of the third strategy was 15% (versus 28% for the second strategy). Therefore, if there is any bias in not allowing for more than three strategies, it is not expected to be very large. In addition, we allowed the manager to specify a pricing strategy which was not part of the list often strategies provided. Of the 21 who did, a total of 17, upon review by two independent judges and the authors, were found to be special cases or related strategies of the original ten strategies. The remaining observations were dropped from the analysis Measures of Determinants We modeled the scales to measure the determinants after the questions used in the PIMS database (Buzzell and Gale, 1986). We pre-tested the wording and meaning of the scales in a pretest with experienced managers. The determinants and their measurement scales are presented in Table 3. Table 3 about here Sample We focused our survey on the pricing decisions of differentiated, durable capital goods in business-to-business markets. We restricted our sample to these industries since industrial components, supplies or raw materials are less likely to be highly differentiated which would restrict the pricing strategy options ofthe firms. Furthermore, since channels of distribution in industrial markets tend to be shorter than those in consumer markets, the manufacturer exerts

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more control over pricing to end-users. Fifteen such industries were identified using 4-digit SIC codes. The target industries and distribution of firm sizes are presented in Table 4. Table 4 about here Contact names and addresses for the 1534 firms were purchased from Dun and Bradstreet. Initially, surveys were to be addressed only to job titles including Director of Marketing, Sales Manager, Pricing Manager, and variations of these title. However, this targeting approach resulted in the exclusion oftoo many smaller companies. Therefore, the category of President, CEO, and variations of these titles was included as well since this was the only title available for the majority of the smaller companies. A total of 1021 firms was selected from this list (after deleting replicated records from the total of 1034). In a pre-test using a similar survey1, a sample of 200 mailings was sent out. The sample was stratified based on firm size. This pre-test showed that response rate increased monotonically with firm size. In order to best represent the pricing behavior in these industries, we drew a disproportionate stratified sample for the final study. There were five size categories of firms. The number of firms remaining after the pre-test in the largest four categories were relatively small (342, 130, 65 and 70 from the smallest to largest size group). The remaining 427 names were randomly selected from the 727 available in the smallest category. This approach is consistent with syndicated surveys such as the Neilsen Retail Index. Our intent is to understand marketing behavior in as large a proportion of the market as possible. Therefore, this sampling approach should capture the widest variation in pricing behavior in these industries since there are more strategic options for larger firms than smaller ones.

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Each firm was sent a survey package including a personalized, hand-signed cover letter with a pledge of confidentiality of individual responses, a four-page survey and a $1 incentive. The pretest also showed that the response rate for a $2 incentive (32%) was identical to that for a $1 incentive (31%). A total of 347 surveys were returned to the authors. Ofthese, 77 were returned blank (62), incomplete or were otherwise2 unusable (15). This yielded a gross response rate of 34% (347/1007 delivered). The total usable sample was 270 for a usable response rate of 27% which is a similar sample size3 and usable response rate4 to recent surveys of marketing managers. Respondent Profile The responding managers are highly experienced with pricing as the majority are involved in such decisions for more than 20 products. The majority of respondents also report 10+ years of experience in the industry and with their current company. In addition, these managers were highly involved in the pricing decision they describe. On a seven-point scale (7 = high, 1 the average self-reported involvement was 5.98. Median firm size was between $15 and $50 million in annual sales. These firms compete in highly concentrated markets with an average 3-firm concentration ratio about 70%. Validation Study Results There are three aspects of our pricing framework which require validation. The first is the relative price levels for the various principal pricing strategies. Second, we test the relationships between strategy types and their unique determinants. Finally, we examine the relationships between principal strategies and their unique (within-type) and common determinants. Relative Price Validation One of the limitations of previous studies of pricing objectives is the lack of an objective
=

low),

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measure to cross-validate the pricing objective indicated by the respondent. For example, a firm whose objective is to maximize profits may have a relatively low price or a relatively high price depending on its strategy (Penetration v. Skim pricing). Therefore, the price charged by the firm cannot be used to cross-validate the self-reported measure of pricing objective. For most pricing strategies, however, there is a one-to-one correspondence between the level of pricing in the marketplace and the pricing strategy. Strategies leading to relatively high prices include Leader pricing and Skim pricing. Relatively low prices should be expected from those firms employing the Penetration pricing, Experience Curve pricing, Complementary Product pricing, Customer Value pricing or Low-Price Supplier strategies. Market-equivalent prices should result from Parity pricing. For Bundling pricing, we do not have a prior expectation since the product is priced as part of a bundle. Similarly, the relationship between relative price level and Cost-plus pricing will be based on relative costs which are known and profitability levels which are not. We asked the respondents to indicate the relative price of their product in addition to their pricing strategies. The scale ranged from 1 the market. We compared the average response from managers indicating that they used a given strategy with the average response for the entire sample. We used a 1-tail t-test with the overall average as the population mean for all but the comparison for Parity pricing. Since the null hypothesis is that there is no difference between the price level for firms using this strategy and the overall relative price for all firms, we used a 2-tailed t-test. The results are in Table 5. Table 5 about here The two groups with an expected high relative price are indeed higher than the average for
=

5% or less than the market to 5

5% or more than

20

all respondents (Skim pricing, Leader pricing). Parity pricing had an average price level no different from the overall mean, as we expected (2-tailed test). Finally, three of the five pricing strategies with expected relatively low prices had average price levels that were significantly lower than the overall average. Based on these results, we conclude that the self-reported measures of pricing strategies are quite robust. Determinants of Strategy Types From the importance weights for the principal strategies, we determined if a respondent chose a strategy within each ofthe four strategy types. A value of one was assigned to a strategy type if a respondent assigned a positive weight to a principal strategy within that type (chosen). The value was zero otherwise (not chosen). The independent variable for New Product pricing was the time of introduction of the current model of the product being priced (Question 1.3.i on page 3 of the survey). The possible answers range from 0 (not yet available) to 5 (10 years or more). We expect this variable to be negatively associated with the probability of choosing this strategy type. For Competitive pricing, the first independent variable is the stage of the product life cycle (Question 1 .3.a on page 3). This variable ranged from 1 for products in their introductory stage to 4 for products in decline. We expect the product life cycle to be positively related to the probability of choosing of a Competitive pricing strategy. In addition, we expect that Competitive Pricing strategies will be used when demand is easy to determine (lain, 1993). To determine if the firm sells other supplementary or complementary products to the model being priced, we used Question 7 on page 1 of the survey. In our analysis, we constructed a dummy variable which had the value of 1 of the firm produced either substitute or complementary products and zero otherwise. We expect that this variable will be positively

21

related to the probability of choosing a Product Line pricing strategy. The sole determinant for Cost-based pricing is the ease of determining demand in the market. We expect that this variable will be positively related to probability of choosing the Costplus strategy since it is the only principal strategy in this type. Since we defined our dependent variable as a binary choice, we used a logit model to test the relationship between the choice of strategy type and their determinants5. The results are given in Table 6. Table 6 about here New Product strategies were chosen by 32% (87) of the respondents. The choice of this strategy type was negatively and significantly (p <0.00) related to the age of the product being priced. Therefore, as expected, these strategies are being used with new models. A total of 127 (47%) respondents chose a Competitive pricing strategy. This choice was positively and significantly (p <0.01) related to the stage of product life cycle. The relationship between this strategy type and ease of estimating demand was not different from zero. This strategy type was used when pricing products in mature markets. Product line strategies were used least often (76 or 28% of the respondents). As expected, these strategies were used when the firm also offered other substitutable products or complementary products (p <0.06). Consistent with previous research, Cost-based pricing was the most often chosen type. A majority of respondents (152/270
=

56%) reported using this type of strategy in their decision.

The choice of this strategy types was positively and significantly related to the difficulty in estimating demand (p <0.10). Based on these overall results, we find support for our first level of organization in our

22

framework. Determinants of Principal Strategies In order to test the determinants for principal pricing strategies, we used a tobit model for censored dependent variables (Tobin, 1958). Our measure of pricing strategies included information on the magnitude of the importance of the given principal strategy. The tobit model will take advantage of the magnitude information for testing the relationships between principal strategies and their determinants. We tested the restricted set of unique determinants as well as the full set of unique and common determinants. All ofthese results are presented in Table 7. Table 7 about here. The results for each principal strategy are presented next. Skim Pricing There are seven determinants which separate Skim pricing from the low priced new product strategies. They are high levels of product differentiation, a major product change, high costs, cost disadvantage due to scale, cost disadvantages due to learning, low market elasticity, low brand elasticity and high capacity utilization. About 14% of respondents (37/27) incorporated skim pricing into their overall strategy. The overall tobit model was significant at the p <0.04 level. The condition number for this set of independent variables was 18.89
50

there should be few problems with multicollinearity

among the independent variables (Kennedy, 1985: 153). The results in Table 7 show that Skim pricing is used by firms in markets with high levels of product differentiation (p < 0.01) and when firms have cost disadvantages due to scale (p < 0.08).

23

Penetration Pricing Nine percent of respondents (25/270) indicated that they used this strategy. The sole unique determinant for this strategy is a cost advantage due to scale. This determinant is significantly related to Penetration pricing for the restricted model (p <0.02). The full model fit the data well (p <0.00). The condition number was 19.02. The common determinants which are significant are a high level of market elasticity (p < 0.01) and a low level of brand elasticity (p <0.01). This may indicate that penetration pricing is being used in the early stages in the product. life cycle when there are few direct competitors and competition comes primarily from substitutes. Experience Curve Pricing Eleven percent of respondents (31/270) used Experience Curve pricing. The unique determinant for this strategy is a cost advantage due to learning curve effects. Neither the restricted nor the full model fit the data well. Since the coefficient for overall cost was not different from zero (p <0.99), we dropped this variable from the full model which is presented in Table 7 and discussed next. For the full set of conditions (less overall cost), the tobit model was significant (p <0.08). The condition number for this formulation was 19.0. Firms in this sample use Experience Curve pricing in markets with high levels of product differentiation (p <0.07), for products which are not major revisions (p
<

0.06) and when they have low capacity utilization (p < 0.05).

While the latter two results are consistent with previous research, the use of this strategy in markets with high levels of product differentiation is not. One possible explanation is that firms using this strategy are market followers who are cutting prices now in order to build volume and drive down costs in anticipation of the future commoditization of the market. This is one mode of

24

competition in the computer chip industry when clone chip producers introduce their products at much lower prices to shift the focus of competition from performance only to a price-performance condition. At that point, the clone manufacturers try to build an advantage over the innovating firm by lowering their costs via large volumes. Unfortunately, firms using this approach might also be leaving money on the table by cutting prices to build volume ifthe expected price-dominant phase of competition does not materialize. Leader Pricing Eleven percent of respondents (31/270) used Leader pricing. High market share is the sole unique determinant of Leader pricing. The overall model is significant (p <0.10). While the coefficient is positive as expected, it is not different from zero (p .6 <0. .12) based on the chi-square statistic In the full model (condition number = 16.86), we see that firms choose Leader pricing when price changes are easy to detect (p <0.10). This is an important informational condition for the success of Leader pricing. Parity Pricing Parity pricing was used by 30% (82/270) of respondents. This strategy is used by firms with high costs as expected (p < 0.00). The sources of these high costs are not necessarily a lack of scale or learning curve effects. In the full model (condition number = 15.71), we see that firms employing Parity pricing also have low market shares (p K 0.00) and high levels of capacity utilization (p <0.07). Contrary to expectations, parity pricing is used in markets with high levels of overall elasticity (p <0.01). This is an interesting result since it suggests that some determinants might be binding while others are not. The characteristics of the firm (high cost, low market share and high

25

utilization) do not allow it to exploit an otherwise favorable external condition (high market elasticity). An interesting direction for future pricing research would be to identify those conditions which constrain the choices faced by the firm and those which are merely favorable to a given strategy. Low-Price Supplier About 9% (24/270) of respondents followed the Low-Price Supplier strategy. Of the three conditions which favor this strategy (difficulty in detecting price changes, high market elasticity and low capacity utilization), only low factory capacity utilization is related to the use of this strategy (p <0.04). In the full model, we also see that firms following this strategy have low costs overall (p < 0.00) and this advantage is due to scale (p <0.07). A firm with low overall costs has the ability to price low and low factory capacity utilization provides the incentive. Price Bundling Thirteen percent of respondents (35/270) chose Bundling. The results show that this strategy is used by firms when they are pricing each sale or contract individually (p <0.01). As in the earlier avionics example, the product composition of many industrial purchases is unique from one order to the next. Bundling allows the supplier to address the unique needs of the customer and remain highly competitive. Complementary Product Pricing About 9% (24/270) of respondents incorporated Complementary Product pricing into their overall strategy. Of the three unique determinants, it is the high profitability of accompanying sales which influences the use of this strategy (p <0.02). Note also that the relative price is low. This is very

26

consistent with what we predict with razor-and-blade type products and durables which require the eventual purchase of captive spare parts in large quantities. Customer Value Pricing Customer Value pricing was used by 11% (29/270) of respondents. The Tobit results for this strategy suggest that firms choose this strategy for products which would appeal to a narrow segment (p <0.10). It is also used in markets where price changes are difficult to detect (p <0.02). The results imply that these firms may be using the Customer Value strategy to secretly cut prices for a specific segment without taking the risks associated with straight price reductions which might spark a costly price war. Summary of Results We summarize the results from our validation study in Table 8. Table 8 about here The results of our validation study are an important step in the evolution of research in pricing strategy. We have identified statistically significant relationships between strategy types and their unique determinants. We have identified significant relationships between principal strategies and their unique determinants. In every case, these relationships were in the expected direction. The combination of these results provides important guidelines for the selection of pricing strategies for differentiated industrial products. By focusing on the unique determinants, we can streamline the decision process without sacrificing the appropriateness of the outcome. Therefore, this validated framework unites the normative and managerial streams of pricing research for the first time. In addition to these results, we also have identified favorable conditions under which given principal strategies should be and are used in pricing industrial products. Since these conditions

27

are not unique to a given principal strategy, they should be viewed with some caution. The same conditions might be appropriate for another principal strategy but this relationship was not confirmed by our data. Limitations and Directions for Future Research While the results reported above are very exciting, they are not complete due to the sample in our verification study. We are limited in the types of products (industrial capital goods), customers (domestic U.S.) and companies (domestic U.S.) studied. For example, there is little variation in the sample in concentration and height of entry barriers. In addition, there was very little variation in self-evaluated product quality. The average rating was 5.79 out of 7 (std. dev.
=

1.08). This is not surprising given a managers bias towards

his/her own firms products. However, keep in mind that these are very highly concentrated markets from which firms with marginal quality may have already been eliminated. In addition to providing validation of our pricing framework, the empirical study of pricing managers provides some important insights into current pricing practices. One of the more interesting results is the varied importance of different pricing strategies. The distributions of the importance weights and median importance weight for each strategy is presented in Table 9. Table 9 about here Consider the distributions of the importance weights for two strategies, Price Skimming and Complementary Product Pricing. Note that the distribution for Price Skimming has a strong skew to the left while the distribution for Complementary Product Pricing is skewed to the right. Several of the other strategies follow similar patterns. We interpret this as an indication that some ofthe pricing strategies are primary strategies while others are secondary, or supporting, strategies. The distributions in Table 9 indicate that

28

Cost-Plus Pricing, Low-price Supplier Pricing, and Price Skimming strategies appear to be primary strategies. Complementary Product Pricing, Bundle Pricing, and Customer Value Pricing appear to be secondary strategies. (The median importance weights for each strategy are indicated in Table 9). Note that all three of the strategies classified as secondary are from the product line group of strategies (Complementary Product Pricing, Price Bundling, and Customer Value Pricing). This suggests that product line pricing strategies, when chosen, will rarely be paramount in importance. The pricing framework developed in this paper can be used to determine which pricing strategies should be considered when pricing a complex, high-value industrial product. However, it does not suggest how these strategies should be combined to determine the ultimate pricing schedule. At this stage it is only possible to comment on the relative importance of the strategies. For example, it is not known if the strategies are usually chosen simultaneously or sequentially. An interesting path for future research would be to explore how these strategies are integrated by managers into a final decision Another interesting result was the prevalence of Cost-Plus Pricing. A full 56% of the 270 managers mentioned Cost-Plus Pricing. When it was used, it was the dominant strategy (with an importance weight larger than any of the others mentioned) 71% of the time. This confirms the observations of Simon (1989) and others that, even after all of the research on market- and competitive-oriented pricing, cost-based methods remain prevalent. Cost-Plus Pricing is an inward oriented strategy, involving company and product considerations, while the other nine pricing strategies generally have an outward orientation, focusing on the customer and competition (Day and Nedungadi 1994). Over 35% ofthe managers responding used a combination of Cost-Plus Pricing and one of

29

the other nine market based strategies, implying that a significant number of managers are looking inward and looking outward to set their prices. This suggests that many managers have a Janusfaced approach to choosing a pricing strategy. Their gaze is fixed both inside and outside their companies at the same time (Monroe 1990). Whether this approach leads to better market (sales, share, customer retention) or financial results would be another fruitful avenue of research. Conclusion In their 1988 article, Bonoma, Crittenden and Dolan stated that managers find little ofthe pricing research in marketing to be of any practical help. The industrial pricing framework presented here can help mangers cut through some of the fog of the pricing literature without resorting to simplistic or misleading rules of thumb.

30

End Notes: 1. The Noble (1997) study of pricing objectives is identical except for the measures of pricing strategies. 2. For example, the respondent indicated multiple price levels which may indicate the response was for a product line rather than a single product. 3. During the five years preceding this study (1989-1994), twenty-two surveys of managers were published in the Journal of Marketing Research (JMR). The average sample for all of the surveys was 284. During the same period, the Journal of Marketing (JM) published 41 articles involving surveys of managers. The average sample for all of the surveys was 270.. 4. In the period 1989-1994, response rates were often unreported for studies in IMIR and JM. Managerial survey studies in the JM articles had average gross response rates of about 32% and usable response rates of 29%. In the JMR articles, the response rates were higher, with the gross response rate about 40% and the usable response rate of 37%. 5. If we restricted our respondents to a single choice of principal strategy, we could have used a multinomial choice model. Managers could choose strategies from up to three different strategy types. We decided to model this process as a set of binary choices since the determinants we identified are related to the choice of individual strategy types and not to the choice of combinations of strategy types. 6. We also tested the relationship between the choice of Leader pricing and market share using a logit model. The independent variable was 1 ifLeader pricing was given a weight greater than zero (3 1 observations), 0 ifthe firm gave a positive weight to either Parity or Low Price Supplier (96 = 127 31 observations), or missing if no Competitive pricing strategy was given a positive weight (143 = 270 127 cases). Thus, we tested the relationship between the choice of Leader pricing and market share given that a Competitive pricing strategy was chosen. This conditiohal logit model was significant at the 0.01. The coefficient for market share was positive and significant at the 0.01 level. In general, the results from the logit models were identical to those from the tobit models. For Skim, Experience Curve and Customer Value Pricing, the full logit models were not significant at the 0. 10 level. The results for Penetration pricing were identical for the restricted and full logit models. For the full Leader pricing model, the coefficient for Cost advantage due to learning was significant at the 0.10 level. For Parity pricing, the restricted model results were identical but market share and utilization were not significant in the full logit model. For LowPrice supplier, the restricted model was identical but the coefficient for Cost advantage due to learning was negative (p <0.06) in the full logit model, contrary to expectations. For Bundle and Complementary Product pricing, the results are the same using the logit model. Given the similarity of the results for these two different estimation methods, we conclude that the results reported in Table 7 are robust. These results are available from the authors.
-

31

References Abernathy, William J. and Kenneth Wayne (1974), The Limits of the Learning Curve, Harvard Business Review, 52 (Sept./Oct.), 109-119. Abratt, Russel and Leyland F. Pitt (1985), Pricing Practices in Two Industries, Industrial Marketing Management, 14, 301-306. Alberts, William W. (1989), The Experience Curve Doctrine Reconsidered, Journal of Marketing, 53 (July), 3 6-49. Amit, Raphael (1986), Cost Leadership Strategy and Experience Curves, Strategic Management Journal, 7, 28 1-292. Bonoma, Thomas V., Victoria L. Crittenden, and Robert J. Dolan (1988), Can We Have Rigor and Relevance in Pricing Research, in Devinney, Timothy M., ed., Issues in Pricing: Theorv and Research, Lexington, MA: Lexington Books, pp. 337-359. Boston Consulting Group( 1972), Perspectives on Experience, Boston, MA: Boston Consulting Group. Buzzell, R.D. and B.T. Gale 1986. The PIIMS Principles, New York, NY: The Free Press. Coe, Barbara J. (1983), Perceptions ofthe Role of Pricing in the 1980s Among Industrial Marketers, Proceedings of the Summer Educators Conference, Chicago, W: American Marketing Association, pp. 235-40.
_____________

(1988), Shifts in Industrial Pricing Objectives, Proceedings of the Summer Educators Conference, Chicago, IL: American Marketing Association, pp. 9-14. (1990), Strategy in Retreat: Pricing Drops Out, The Journal of Business and Industrial Marketing, Vol. 5 No. 1 (Winter/Spring), pp. 5-25.

_____________

Day, George S. and Prakash Nedungadi (1994), Managerial Representations of Competitive Advantage, Journal of Marketing, 58 (April), 31-44. Dean, J. (1950), Pricing Policies for New Products, Harvard Business Review, Vol. 28, pp. 45-55. Diamantopoulos, Adamantios (1994), The Pricing Decision: Key Issues and Directions for Future Research, in Baker, M. J.(ed.), Marketing Theorv and Practice. 3rd Edition, New York, NY: Macmillian Publishing Company.
____________

(1991), Pricing: Theory and Evidence A Literature Review, in Baker, M J., Perspectives on Marketing Management, Chichester, England: John Wiley & Sons Ltd.
-

32

and Brian P. Mathews (1994), The Specification of Pricing Objectives: Empirical Evidence form an Oligopoly Firm, Managerial and Decision Economics, Vol. 15, pp. 73-85.
____________

Dolan, Robert J. and H. Simon (1991), Power Pricing: How Managing Price Transforms the Bottom Line, New York: Simon and Schuster. Ghemawat, Pankaj (1985), Building Strategy on the Experience Curve, Harvard Business Review, March-April, 143. Gibson, Richard (1990), Discount Menu is Coming to McDonalds as Chain Tries to Win Back Customers,. The Wall Street Journal, Nov. 30, p. B 1. Greer, Douglas F. (1984), Industrial Organization and Public Policy. 2nd Edition, New York: MacMillan. Guiltinan, Joseph P. (1976), The Price Bundling of Services: A Normative Framework, Journal of Marketing, 51(2), 74-85. Gordon W. Paul and Thomas J. Madden (1997), Marketing Management Strategies and Programs. 6th Edition, New York: McGraw-Hill.
_____________

Hall, R., and C. Hitch (1939), Price Theory and Business Behavior, Oxford Economic Papers No.2. Harrison, R. and F.M. Wilkes (1975), Cost-plus Pricing: Constraints and Opportunities, working paper No. 22, University of Aston Management Centre. Jam, Subash C. (1993), Marketing Planning and Strategy, Cincinnati, OH: South-Western. Jobber, David, and Graham Hooley (1987), Pricing Behaviour in UK Manufacturing and Service Industries, Managerial and Decision Economics, Vol. 8, pp. 167-71. Kaplan, Abraham D., Joel B. Dirlam, and Robert F. Lanzillotti (1958), Pricing in Big Business: a Case Approach, Washington, D.C.: The Brookings Institution. Kennedy, Peter (1985), A Guide to Econometrics. 2nd edition, Cambridge, MA: MIT Press. Kiechel, III, Walter, (1981), The Decline of the Experience Curve, Fortune, October 5, 140. Kotler, Philip (1997), Marketing Management: Analysis Planning and Control. 9th Edition Englewood Cliffs, NJ: Prentice-Hall. Lilien, Gary L. and Philip Kotler (1983V Marketing Decision Making: A Model Building Approach, New York: Harper and Row.

33 , :

and K. Sridhar Moorthy (1992), Prentice Hall.

Ms~rk~tinQ

Models. Englewood Cliffs, NJ:

Mercer, David (1992), Marketing, Cambridge, MA: Blackwell Business. Monroe, Kent B. (1990), Pricing: Making Profitable Decisions, New York: McGraw-Hill. Morris, Michael H. and Leyland F. Pitt (1993), Do Strategy Frameworks Apply in the United States and Abroad? Industrial Marketing Management, 22, 215-221. and Roger J. Calantone (1990), Four Components of Effective Pricing, Industrial Marketing Management, 19, 321-329.
_____________

Nagle, Thomas and Holden (1995), The Strategy and Tactics of Pricing. 2nd Ed., Englewood Cliffs, NJ: Prentice Hall. Noble, P. M. (1997), The Pricing Process: The Choice of Pricing Objectives by Industrial Firms, 1997 AMA Summer Educators Conference Proceedings, Chicago, IL: AMA. Oxenfeldt, Alfred R. (1975), Pricing Strategies, New York, NY: AMACOM Rigdon, Joan E. (1990), Fast-Food Chains, in Hungrier Times, Concoct Menus to Lure Penny Pinchers, The Wall Street Journal, Nov. 7, p. B 1. Samlee, Saeed (1987), Pricing in Marketing Strategies of U.S. and Foreign-Based Companies, Journal of Business Research, Vol. 15, pp. 17-30. Schoell, William F. and Joseph P. Guiltinan (1995), Marketing: Contemporary Concepts and Practices. 6th, Boston, MA: Allyn and Bacon. Shapiro, B. (1977), Deere & Company: Industrial Equipment Operations, Case 577-112, Boston, MA: Harvard Business School. Shipley, David D. (1981), Pricing Objectives in British Manufacturing Industry, The Journal of Industrial Economics, Vol. 29, No. 4, pp. 429-443. Simon, Hermann (1989), Price Management, Amsterdam: Elsevier Science Publishers. Tellis, Gerard J. (1986) Beyond the Many Faces of Pricing, Journal of Marketing, Vol. 50 (October), pp. 146-160. Tobin, J. (1958), Estimation of Relationships for Limited Dependent Variables, Econometrica Vol. 26, 24-36. Udell, Jon G. (1972), Successful Marketing Strategies, Madison, WI: Mimir Publishers Inc.

34 ,

Table 1 Principal Strategy

Pricing Strategy Definitions

Description

Related Strategies Premium Pricing, Value-in-Use Pricing

New Product Pricing Strategies Price Skimming We set the initial price high and then systematically reduce it over time. Customers expect prices to eventually fall. Penetration Pricing Experience Curve Pricing We initially set the price low to accelerate product adoption.

We set the price low to build volume and reduce Learning Curve Pricing costs through accumulated experience.

Competitive Pricing Strategies Leader Pricing We initiate a price change and expect the other firms to follow. Parity Pricing Low-Price Supplier We match the price set by the overall market or the price leader. We always strive to have the low price in the market.

Umbrella Pricing, Cooperative Pricing, Signaling Neutral Pricing, Follower Pricing Parallel Pricing, Adaptive Pricing, Opportunistic Pricing

Product Line Pricing Strategies Complementaxy We price the core product low when Razor-and-Blade Pricing Product Pricing complementary items such as accessories, supplies, spare pans, services, etc. can be priced with a higher premium. Price Bundling We offer this product as part ofa bundle of several products, usually at a total price that
gives our customers an attractive savings over

System Pricing

the sum ofindividual prices. Customer Value We price one version ofour product at very Pricing competitive levels, offering fewer features than are available on other versions. Cost-Based Pricing Strategies Cost-Plus We establish the price ofthe product at a point Pricing that gives us a specified percentage profit margin over our costs. Economy Pricing

Contribution Pricing, Rate-of Return Pricing, Target Return Pricing, Contingency Pricing, Markup Pricing

35

Table 2:

Determinants of Pricing Strategies Penetration Pricing

New (1.10) Low (4,8,10)

New Product Pricing Strategies

Unique to Strategy Type: Within-type Determinants: Product age Product differentiation Significance of product change Costs Scale or experience curve effects Demand Factorvcapacity utilization

Skim Pricing
New (1.10) High (4.8.10) Maior (6.10)
Hi2h (4.10)

Experience Curve Pricing

New (10.11) Low (4.8.10) Minor (6.8.10) Low (4)

Minor (6,10)
Low (4) Advantaae: scale (3.4.8.10.11) Elastic (1.3,4.6.8) Low(l0.1l)

Disadvanta2e (10) Inelastic (4.8.10) Hi~h(3.l0)

Advanta~ie: experience (4.8.10.11

Elastic (1.3.4,6.8.9) Low(10.l1)

Competitive Pricing Strategies

Unique to Strategy Type: Product Life Cycle Ease of determining demand

Price Leadership
Mature (5) Easy (4)

Parity Pricing Mature (3.5)

Ea~ (4) Low (8) Hi2h (2.3.4)

Low-Price Supplier Mature (5)

Easy (4) Low (2,5) Low (8)

Within-type Determinants:

Market share Costs Scale or experience curve effects

Ease of detecting price changes Total demand Factory capacity utilization

High (4.5) Low (4) Advantage (2,4)

Easy (2) Inelastic (2,3) High (10)

Disadvantaae (3)
Easy (3,8) Inelastic (3) High (10) Low (8) Elastic (3)

Advantage (4)
Difficult (2) Elastic (3) Low (5) Low (8) Elastic (3)

Other Determinants:

Product differentiation Brand Demand

36

Product Line Pricing Strategies Unique to Strategy

Type:

Complementary Product Pricing

Bundling Pricing Yes (3

Customer Value Pricing Yes (3

Firm sells entire Yes (3 product line (other models, ancillary products. supplementan products) Profitability of
accompanying or supplementary sales Switching costs Per sale/contract pricing Market appeal Market growth rate Ease of detecting price changes

Common (withintype) Determinants:

Hi!h

(3.5

Hii~h (11 Yes (4

Narrow

Low
Difficult

Other Detenninants:

Brand demand

Elastic (3)

Elastic (3.7.8. 10)

Cost-Based Pricing Strategies Unique to Strategy

Type: Common (within-

Cost-Plus Pricing Diflicult (3)

Ease ofdetermining
demand none none

type) Determinants:
Other Determinants:

References: I. Dean (1950)

2.

7. Monroe (1990)
8. Nagle and Holden (1995)

Greer(1984)

3. Guiltinan, Paul and Madden 4. Jam (1993)

(1997)

9.

Oxenfeldt (1975) 10. Schoell and Guiltinan (1995)

11, Tellis (1986)

6. Mercer (1992)

37

) )

Table 3

Determinants of Pricing Strategies

Scale in Survey

Definition of Determinant

Market Conditions Sensitivity of customers to price differences between brands Sensitivity oftotal demand to changes in average price
Ease ofdetermining market demand Market growth Switching costs
=

insensitive, 7

sensitive

I I

= = = =

insensitive, 7 = sensitive easy, 7 = difficult low, 7 low, 7

=

high high

Competitive Conditions
Ease of detecting competitive price changes Concentration: Three firm concentration ratio Product differentiation
=

difficult, 7 = easy high

I =K5%, 7=> 80% I = low. 7

Product/Company Conditions Age ofproduct in years Cost (dis)advantage due to experience curve Cost (dis)advantage due to economies ofscale Capacity utilization (relative)
Costs (relative to competitors) Major Product Change: Significance of most current design change Market Coverage Market Share Per Sale/Contract Pricing Profitability of accompanying sales (e.g., other products) Profitability of supplementary sales (e.g.. spare parts. service)

not yet available, 2 6= lO+years

<

1 year,

I = (dis)advantage, 0 = otherwise
=

(dis)advantage, 0 = otherwise low, 7 high

=

I 1
1

= = =

advantage, 7

disadvantage

o
=

totally new product, = otherwise all segments, 7 = one segment

1 1 1 I

= = = =

low, 7 yes, 0 low, 7 low, 7

leader

no high
high

38

Table 4

Mailing List by SIC Code and Revenue Industry

Farm

4-digit SIC Code

3523

Number of Firms
138

353 1
3532

Construction
Mining

142
63

3537 3541 3542 3549 3554 3571 3663

3711

Industrial Trucks and Tractors Machine Tools, Cutting Machine Tools, Forming Metal Working Machines Paper Industry Machines Electronic Computers Radio and TV Communication Equipment
Tractor and Tractor Trucks

93 57 77 32 83 269
188 18

3721
3743

Aircraft
Railroad Equipment

41
64

3812
3823

Search and Navigation Equipment

Process Control Instruments

118
151 1534

Total

Company Size (Annual Revenue in millions) $5-$14 $15-$49

$50-$149 $150-$499

Number of Firms in Mailing List / Sample 836/427 393/342

149/130 75/65

Number of Firms Responding 93 77

36 24

$500+ unknown Total

81/70 1534/1034

39 270

39

Table 5

Cross-Validation of Pricing Strategy Using Relative Price Expected

Mean of Relative Std. Dev. Of Relative Price 1.51 1.40 1.20

Strategy
Skim Pricing Leader Pricing Parity Pricing

Number of Respondents 37 31 82 29 32

Relative Price

Price 4.11
3.97
3.35

t-statistic (p-value) * 2.22 (0.02) 1.63 (0.06) 1.59 (0.12)** -0.72 (0.24)

High
High Same

Customer Value
Pricing

Low Low Low

Low

3.37 3.68 3.21

1.42
1.49

Experience Curve
Pricing Complementary

-0.46 (0.33)
-1.37 (0.09) -2.49 (0.01)

24
25 24 270

1.25
1.77 1.25

Product Pricing
Penetration Pricing

2.68
2.00 3.56

Low Priced
Supplier Entire Sample
*

Low

-6.46 (0.00)

p-value calculated for 1-tail t-test except for ** which is the p-value for the 2-tailed t-test.

40

Table 6

Test of Uniaue Determinants of Strategy Types Estimate -0.31 0.32 12.24 p <0.00 87 0.51 -0.03 -1.21 11.39 p <0.00 127 Std. Error 0.09 0.33 Chi-square 11.56 0.95 Prob>Chi2 0.00 0.33

New Product Strategies ProductAge(-) Intercept Model Chi-square Model Fit Positive Responses Competitive Strategies ProductLifeCycle(+) Ease ofEstimating Demand (-) Intercept Model Chi-square Model Fit Positive Responses Product Line Strategies
Sell substitute and/or Complementary Products (+) Intercept Model Chi-square Model Fit Positive Responses Cost-Based Strategies Ease of Estimating Demand (+) Intercept Model Chi-square Model Fit Positive Responses

0.16 0.08 0.50

10.22 0.21 5.77

0.00 0.65 0.02

0.81 -1.64 3.90 p K 0.05 76 0.13 -0.20 2.89 p <0.09 152

0.43 0.41

3.42 15.72

0.06 0.00

0.07 0.29

2.85 0.45

0.09 0.50

41

Table 7: Test of Determinants of Individual Pricing Strategies Estimate (Prob > Chi2) Restricted Full Tobit Tobit
19.22 (0.01) 1.07 (0.96) 2.07 (0.82) 40.65 (0.08)

Skim Pricing Unique Determinants1 Product Differentiation (+) Major Product Change (+) Cost (+) Cost disadvantage: scale (+) Cost disadvantage: learning (+) Market Elasticity (-) Brand Elasticity (-) Capacity Utilization (+)
Intercept

-65.46 (0.14)
0.85 (0.90) -10.16 (0.15) 2.35 (0.70)

-185.61 (0.00)
p K 0.04 37

Model Fit
Sample

Penetration Pricing Unique Determinants

Cost advantage: scale (+)

55.88 (0.02)

43.49 (0.05)
8.65 (0.24) 12.76 (0.56)

Common Determinants Product Differentiation (-) Major Product Change (-) Cost (-)
Market Elasticity (+)

-14.61 (0.11) 19.23 (0.01)

-17.69 (0.01) -156.98 (0.00)

Brand Elasticity (+) Capacity Utilization (-) Intercept

Model Fit

-0.82 (0.89) 141.17 (0.03)

p <0.00 25

p <0.01
25

Sample Experience Curve Pricing Unique Determinants

Cost advantage: learning (+)

4.09 (0.84)

2.99 (0.87)

Common Determinants
Product Differentiation (-) Major Product Change (-) Market Elasticity (+)

Brand Elasticity (+) Capacity Utilization (-) Intercept Model Fit

Sample

13.18 -45.15 6.45 5.56 -125.91 (0.00) p <0.84

31

(0.07) (0.06) (0.33)

(0.35)

-11.80 (0.05)

-176.69 (0.00)
p<0.08 31

42

Price Leadership Unique Determinants

Market Share (+)

Restricted Tobit
7.93 (0.12)

Full Tobit
6.33 (0.20) 12.12 (0.20) 31.05 (0.13) 33.03 (0.11) 9.52 (0.10)

Common Determinants Cost (-)

Cost advantage: scale (+)

Cost advantage: learning (+) Ease: detecting price changes (+) Market Elasticity (-) Capacity Utilization (+)
Intercept -148.29(0.00)

-3.86 (0.50) -0.11 (0.98)

-321.63 (0.00) p <0.04 31

Model Fit
Sample

p <0.10
31

Parity Pricing Unique Determinants

Cost (+) 15.55 (0.00) 20.55 (0.13) 16.39 (0.38)

16.57 (0.00)
10.24 (0.44) 5.60 (0.76)

Cost disadvantage: scale (+) Cost disadvantage: learning (+) Common Determinants Market Share (-) Ease: detecting price changes (+) Market Elasticity (-) Capacity Utilization (+) Intercept Model Fit
Sample

-94.23 (0.00)

-9.15 (0.00) -0.18 (0.96) 9.12 (0.01) 6.07 (0.07) -113.06 (0.00)
p K 0.00 82

0.00

82

Low-Price Supplier Unique Determinants Ease: detecting price changes (-)

Market Elasticity (+)

Capacity Utilization (-) Common Determinants Market Share (-)

Cost (-)

1.54 (0.82) -5.93 (0.42) -15.52 (0.04)

-0.87 (0.89) -7.61 (0.31)

-12.63 (0.08)

-5.98 (0.32)
-42.57 (0.00)

Cost advantages due to scale (+) Cost advantage: learning (+) Intercept Model Fit Sample

51.26 (0.07) -38.25 (0.15) -82.93 (0.11) p <0.01

24 81.44 (0.18) p <0.00 24

43

Bundling Pricing Unique Determinants Per Sale/Contract Pricing (+) Intercept Model Fit Sample Complementary Product Pricing Unique Determinants Profitability of accompanying sales (+) Profitability ofsupplementary sales (+) Switching Costs (+) Intercept ModelFit Sample Customer Value Pricing Unique Determinants Ease: detecting price changes (-) Market Coverage (+) Market Growth (-) Intercept Model Fit Sample

Full Tobit

38.32 (0.02) -99.25 (0.00) p < 0.01 35

-0.23 (0.96) 15.17 (0.01) 2.01 (0.56) -160.09 (0.00)

p<O.Ol 24

-12.72 8.53 7.13 -112.42

(0.02) (0.10) (0.20) (0.00)

p <0.02 29

44

Table 8:
Strategy Type

Validated Pricing Strategy Framework

Principal Strategies related strategies Additional Favorable Conditions Relative Price

Determinants
.

Unique Determinants

New Product Pricing

New model

Skimming Premium Pricing Value-in-Use Pricing Penetration Pricing

High product differentiation in the market Cost disadvantage due to scale Cost advantage due to scale

High

Experience/Learning Curve Pricing

Competitive Pricing

Mature market

Leader Pricing Umbrella Pricing Cooperative Pricing Sianaling Parity Pricing Neutral pricing Follower pricing Low -price Supplier Parallel pricing Adaptive pricing Opportunistic pricing

High costs

Low factory

utilization

Elastic market demand Inelastic brand demand Not a major product change High product differentiation in the market Low capacity utilization Cost advantages due to learning Easy to detect price changes Low market share Elastic market demand High capacity utilization Low costs Cost advantages due to scale No cost advantage due to learning

Low

el-liali

Equal

Low

Product Line Pricing

Firm sells substitute or complement ary products

Bundling System Pricing Complementary Product Pricing Razor-and-blade pricing Customer Value Pricing Economy pricing

Per sale I contract

pricing Low

High profit on

supplementa~ sales

Hard to detect price

changes Narrow market appeal

Cost-Based Pricing

Difficult to

determine demand
5

Cost-plus pricing Contribution Pricing Target return pricing Markup pricing

* based on t-tests in Table

45

Table 9

Importance Weight Distribution by Pricing Strategy

Importance Weight Strategy
10% 20% 30% 400/0 50% 60% 70% 800/o 90% 100% Total

New Product Pricing Strate ies

SkimPricing Penetration Pricing ExperienceCurvePricing

2 2 4

6 5 5

5 5 5

0 0 0

3 3 3

1 0 1

2 3 3

1 1 1

0 0 0

16 5 9

36 25 31

Competitive Pricing Strate ies LeaderPricing f 5 ParityPricing Ill Low-PriceSupplier 3

4 4 4

1 1 1

7 7

[1 12

112

3 5 0

6 3 3

210 6f1 3 j 0

4 [31 22 81 7 f 24

Product Line Pricing Strategies . Complementary Product 7 9 3 1 Pricing BundlePricing 8 9 3 2 Customer Value Pricing 2 9 8 0

2 1 1

. . 0 1 0 0 .2 2 4 1 2 1 0 0

1 4 6

24 24 30

Cost-based Pricing Strategies Cost-Plus Pricing 10

10

14

13

12

14

57

150

Note: Median is indicated by underlined type.

46

Figure 1: Overview of Industrial Pricing Framework

High product differentiation Significant design change High relative costs Cost disadvantage due to scale or experience Inelastic demand Low factory utilization

Skim Pricing (high)

New model of product

High relative costs Cost disadvantage due to scale or experience

S 0

Difficult to detect

price changes Elastic total demand Low capacity

utilization

Company sells complementary or substitute products

High profitability of accompanying or supplementary sales High switching costs Per sale./contract pricing

Complementary Product Pricing (low)

Bundling Pricing

Narrow market appeal

Low market growth Difficult to detect

price changes

Customer Value Pricing (low)

Difficult to estimate demand

Cost-based Pricing Strategies

Cost-Plus
Pricing

Strategy Type Determinants

Strategy Types

Unique Principal Strategy Determinants

47

Principal Pricing Strategies (relative price)

Figure 2: Managerial Pricing Strategy Survey

GENERAL PRODUCF ENFORMATION

pale

decision you describe should be for a single durable good general back~ound information for your product. Answer for one oroduct only 1. This specific product

lam interested in the most recent pricing decision you were involved with in the last 12 months for the U.S. market. The 9 sold in business-to-business markets. Please provide some

is best described as:

_____________________________________________________

2.

The principal industry you consider the product to he part of (e.g., heavy truck, machine tool, etc.):

3.

Your approximate ~wi~ selling price is: under from $1,000 $ 1.000 to $2,999 from $3,000

to S9.999

from SIO.000
to $29,999

from S30.000
to $99,999

from $100,000 to S299,999

$300,000 or over

00 4.
weekly monthly

0
quarterly

0
semi-annually

0
annually

0
each saledcontmct Otlw

How often do you (or your company) set the pricing for this product?

o
5.

____________

What percent ofthe annual dollar sales of your division (or company, as appropriate) does this product represent?

~
I
6.

Division

I 1%

lessthan

atleas: 1% but under 5%

atleastS% but under 25%

atleast2.5% 50% but under 30% or over

When the current model was znti~oduced, how significant was the design change?
totally new product

major revision

minor revision

no change

0
7.

We offer other products to this market which, relative to this product. are (check all that apply):

o
8.

substitutes

complements

have no relationship tothis product 0

about equal 2%to5% above

no other products are available 0

Suchacompauisonis meaningless in my situation

How would you charecterize ~

morethan5% below

in relation toy~ THREE largest competitors? mored~an5% above

o
9.

2%to5% below

Approximately what percentage of the dollar sales for this product categoiy in the U.S. market is made by the THREE largest manufactiws? Ifthere are fewer than three manufacturers in total, mark 80% or more.

-lessihan
20%

atleast20%but atleast3S%hut a:leaszS0%but arie,ast65%bsn 80%or

under35% under50% under65% wider80% mom

Ii

10. How extensive is your coverege of the various market segments for this product? Mark an X at the point on the
scale that best describes the number ofmarket segments in which you are active:

all segments i!l~i~~I only one segment I I. How easy is it to determine the market demand for thr~ single product? Mark an X at the appropriate point.
very difWuli

STRATEGY USED IN YOUR PRICING DECISION

page

Consider which of the following best describes the pricing strategy that you used for the product you just described on the previous page. Remember that this is for the decision made in the past 12 months for a single product.

IEAIE~X A.
B. Price Skimming

DESCRIPTION

We set the initial price high and then systematically reduce it over time. Customers expect
prices to eventually fall.

Related Strategies: Premium Pricing, Value-in-Use Pricing Penetration Pricing We initially set the price low to accelerate product adoption.

C.
D.

Experience Curve We set the price low to build volume and reduce costs through accumulated experience. Pricing Related Strategies: Learning Curve Pricing
Complementary

Product Pricing Price Bundling Customer Value Pricing

Price Leader

We price the core product low when complementary items such as accessories, supplies,

spare parts, services, etc. can be priced with a higher margin.

Related Strategies: Razor-and-Blade Pricing

E. F.

We offer this product as part ofa bundle of several products, usually at a total price that gives our customers an attractive savings over the stun of the individual prices.

Related Strategies: System Pricing

We price one version of our product at very competitive levels, offering fewer features than are available on other versions. Related Strategies: Economy Pricing We initiate a price change and expect the other firms to follow.

G.

Related Strategies: Umbrella Pricing, Cooperative Pricing, Signaling

We match the price set by the overall market or by the price leader. Related Strategies: Neutral Pricing, Price Follower Pricing. We always strive to have the low price in the market. Related Strategies: Parallel Pricing, Adaptive Pricing,Opportunistic Pricing We establish the price of the product at a point that gives us a specified percentage profit margin over our costs. Related Strategies: Contribution Pricing, Rate-of-Return Pricing, Target-Return Pricing, Contingency Pricing, Markup Pricing

H. I. J.

Parity Pricing Low Price Supplier Cost-plus pricing

Questions:
I. Ifyou used a pricing strategy not listed above please
~ ~

2. Which pricing strategy ~

describes what you used for pricing this strategy:

product? Enter the appropriate letter from above:

3. Ifyou used more than one strategy in your decision, enter the letter ofeach strategy and its relative importance in
yourdecision b dividing l00~ among the various strategies used: strategy:

[J

_________

strategy:

III:

..........................%;

strategy:

~IJ
:

_________

SITUATION WHEN YOU MADE THE PRICING DECISION

page 3

I.
1.1

Circle the number on the scale which best describes the situation atthe tune the pricing decision ~

made.

YOUR MARKET
highgrowth 7 6 5 vetysensitive 7 verysenhitive 7 6 6 5 5 4 3 2 4 4 3 3 2 2 1 low or negative growth I veiy insensitive

a. Market growth rate: b. Sensitivity of market demand to changes in the average market price:

c. Sensitivity of customers to price differences between brands:

d. Customer switching costs (difficulty ofchanging brands): I .2 YOUR COMPETITION a. Product differentiation among competitors:

I very insensitive I very low

veryhigh 7 6 5 4

3 2

very high

6 5 4 3 2 I
6 5 4 3 2

verylow

b. Technical support differentiation among competitors (design capability, service and parts support. etc.i
c. Ease for new conipetitors to enter the market:

very high

I verylow very difficult very difficult

verycasy 7 6
verycasy

d. Ease ofdetecting competitive price changes: I.s YOUR PRODUCT

a. Product life cycle stage (circle one): b. Share ofmarket:

7 6 5 4 3 2

introduction

Growth

Matiaw

Decline
very low very low very low could easily increase

ma*et linda 765 viny high

765

4321
4321

c. Profitability of i~~lm~Ia~ sales (e.g., spare parts, services: d. Profitability of goc ~~ny.ujg sales (e.g., other products): e. Factory capacity utilization:
f. Perceived quality (relative to the average of your three

very high 765 operating at capsety

4321 4321 4 3 2 1

765

production
verylow

veryhigh 7 6 5

largest competitors) g. How would you describe your cost nosition relative to your competitors? strong cost advantage moderate cost advantage nobody has a cost advantage moderate cost disadvantage strong cost disadvantage

0
(plus for your advantage) or
OIhu
_________________________

h. What are the sources ofthis cost difference in item g? Enter a

economies of scale: experience or learning cwve: labor costs: nurerial costs:

(minus

for your disadvantage) in all boxes that apply to describe y~ positron relative to your competitors.

D
year

DD
0

D
atleast5but under 10 years l0yearsor more

i.

How many years ago was the current model of this product introduced (i.e., available for shipment)?
notyet lessthan I atleast I but

available

under 2 years

atleast2but under 5 years

0
2.

Are there any important factors missing from the above list which influence your choice of pricing suategy? If so, describe them and indicate their levels at that time:
____________________________

veryhigh765J

32 2

Iverylow I ~

__________________________________________

vgrv hugh 7 6 5 .1 3

YOUR BACKGROUND To understand more about the managers involved with this survey, please tell me something about yourself. 1. How many years have you spent in this industry lessthan I year atleast I but under 2 years atleast2 but under S years atleast5but under 10 years atleast lObut under 20 years at least 20 years

page 4

0
year
lessthan I

0
under2years
atleast I but

0
atleast2but

0
atleast5but

0
atleast lObur

0
atleast 20

2. How many years have you spent with this ~~gny?

underSyears

underl0years

under20years

years

3. What is your current title in this company?

4. In which deparunent are you currently employed? 5. In what other areas do you have professional experience (e.g., accounting, production, marketing, engineering.
human resources, etc.)? 6. What is the approximate size of your division (or company, as appropriate) in terms ofannual sales (in millions of dollars)?

~ ~~J0
Divisiofi

Ieasthan
55

from SSto
514

from SISto

from SSOto
5149

fuomSISO:o

S49

3499

from S500to 51.499

SI.500 orover

0
in terms of

7. ltyou responded for your division in question 6, please indicate the approximate size of your ~~tiy annual sales (in ~jjjj~ of dollars). leisthan 35
fromiSto

St4

fiunSlSto $49

fwmSS0to $149

fromSl5Oto $499

fmmS500to 31.499

31,500 orover

8. How many people were involved in this pricing decision?

D
I

Please indicate your level of involvement in the decision compared to the other people by placing an X at the appropnaze point on the following scale: major

1!

about equal

none

9. How many different products are you personally involvedwith for pricing decisions? onlythisone 2toS 6tolO

lIto2O

morethan20

ThANK YOU again for your help in completing this survey. Please fold it in three and return it in the enclosed envelope to:

Peter M. Noble

College of Business Administration The University of Iowa 108 Pappajohn Bus. Adm. Bldg., Suite S-250 Iowa City, IA S2242-l000

card.

Ifyou are interested inacopy ofthe results of the survey, available late summer. 1994, please enclose your business