How Pricing Teams Develop Effective Pricing Strategies for New Products

Companies increasingly rely on pricing teams to master the complexity of pricing a new product. However, little is known about how firms should design such pricing teams. In this study, pricing teams are defined as two or more professionals within a firm who are formally or informally involved in the decision‐making process with regard to the pricing strategy for a new product. Drawing on the information‐processing view of organizational design, this study presents a framework of how pricing teams develop effective pricing strategies for such new products. Specifically, the authors provide evidence that rationality and intuition are two key pricing team information‐processing modes that drive the effectiveness of a new product's pricing strategy. The authors examine how pricing team characteristics—stability, experience, size, autonomy, and functional diversity—enable pricing teams to apply rationality and intuition when developing a new product's pricing strategy. Using data gathered from managers involved in pricing team decisions, the authors demonstrate that pricing teams can be designed to enable the application of pricing team rationality and intuition in this realm, thereby driving effectiveness of the pricing strategy. Product innovativeness moderates these relationships. Specifically, while pricing team rationality has an unambiguously positive effect on pricing strategy effectiveness, pricing team intuition is functional for high levels of product innovativeness and dysfunctional for low levels of product innovativeness. Consequently, managers should not inhibit intuitive decision‐making processes under all circumstances but allow intuition to complement rational decision‐making in the development of pricing strategies for really new products. Choosing the right pricing team design can facilitate the effective use of rationality and intuition.