STABLE PRICES IN B2B RELATIONSHIPS: HOW RESELLERS REACT TO LONGER-TERM PRICING POLICY FROM DISTRIBUTORS?

Abstract

This dissertation examines whether and when longer-term pricing policies in B2B relationships can result in higher profits for selling firms (distributors) who set prices for the products they sell to buying firms (resellers). Further, this dissertation aims to identify buying firm-specific characteristics that might affect the attractiveness of longer-term pricing policies and seeks to find the conditions under which longer-term pricing policies can be made even more effective and profitable to both buying and selling firms. Drawing upon the “cost of price adjustment” (COPA) literature (Levy et al., 1997), this dissertation argues that firms incur huge costs just to adjust their prices which could affect their net margins. It is then argued that longer-term pricing policies offer resellers more value/utility/benefits through reduced costs which are ultimately reflected in the distributors’ profitability. However, since resellers differ by various characteristics (size, the extent of competition they are facing, etc.), not all resellers may find the longer-term policy equally attractive. This dissertation identifies some of these reseller-specific characteristics due to which some resellers might find the longer-term pricing policies more attractive than others do and provide suggestions that are more relevant to the selling firms. Utilizing a quasi-experiment from a sample that consists of all purchases from 2015 through 2017 by 8,987 business customers of the inside sales force of a global U.S.-based price-setting industrial distributor, this research shows that longer-term pricing policies are more profitable than short-term policies due to the reduced cost of price adjustments. Second, this research identifies certain reseller characteristics that might influence how resellers incur/perceive the costs of price adjustments and consequently affect the profitability of the distributor. Finally, this research identifies and recommends the distributors the ways to make the longer-term pricing policy more effective and profitable