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Evidence · Pricing

Pricing and customer value: what research shows on price and discounts

Sales respond strongly to price, far more than to advertising, and buyers judge prices against a reference point, reacting more to increases than to cuts. Price promotions lift sales in the short term but rarely leave a lasting gain. Pricing based on customer value is associated with better firm performance, but it is rarely used and the evidence comes mostly from manager surveys.

Definition

Pricing research asks what customers are willing to pay and what price changes do to sales and profit. Customer value is the net benefit a buyer expects from an offer compared with alternatives. Price elasticity is the percentage change in sales that follows a one percent change in price. A reference price is the internal standard, often formed from past prices, against which buyers judge the price they see. Value-based pricing sets prices from the value customers perceive rather than from cost or competitors' prices.

What the research finds

Price elasticity is large and lawlike

A meta-analysis of 1,851 price elasticities from 81 studies puts the average at about -2.62, much larger than typical advertising elasticities, and shows it varies with the product's life-cycle stage, the category and the estimation method. An earlier meta-analysis of 367 elasticities found price elasticity about eight times larger than advertising elasticity.[1][2]

Buyers judge prices against a reference point

Consumers use reference prices built largely from past prices and react more to prices above the reference than to prices below it. Zero is treated as a special price that seems to add benefit, not just remove cost. In business negotiations with 282 customers of a chemicals supplier, the seller's aspiration price and opening offer mattered much more for the settled price than its reservation price.[3][4][5]

Discounts lift sales now but rarely later

Across 25 established grocery brands, sales returned to pre-promotion levels after price promotions, because promotions were bought mainly by existing buyers of the brand. Time-series analysis finds permanent promotion effects virtually absent, and a meta-analysis of 51 studies finds no average effect on brand preference after the promotion ends, though specific promotions can raise or lower it.[6][7][8]

In business markets, value can be measured and differentiates

Managers at large industrial firms use several methods to assess customer value, with conjoint analysis most often judged successful. In key supplier relationships, relationship benefits such as service support and personal interaction differentiate suppliers more than product quality, delivery or cost.[9][10]

Value-based pricing is rare but linked to performance

In a survey of 1,812 pricing professionals, value-based pricing, but not competition-based pricing, was positively related to firm performance. A B2B survey found that value-based pricing improves market effectiveness, that the ability to quantify value strengthens its effect on profit, and that customer price sensitivity weakens it.[11][12]

Switching costs change how satisfaction turns into loyalty

A meta-analysis of 233 effects covering more than 133,000 customers finds relational switching costs most strongly tied to repurchase. Procedural and relational switching costs weaken the link between satisfaction and repurchase, while financial switching costs strengthen it.[13]

How strong is the evidence?

Price elasticity, reference price and promotion findings rest on meta-analyses and large scanner-data studies, mainly from consumer packaged goods, and are among the better established results in marketing. Their transfer to business markets is only partly tested, for example in one supplier's negotiation data. The evidence linking value-based pricing to performance comes from cross-sectional manager surveys, largely by one research group, and cannot show cause and effect. How long-term promotion effects look depends on the method: a separate meta-analysis of sales promotion studies reports positive links with brand loyalty and quality perceptions, so the no-lasting-effect finding is strongest for sales data rather than for attitudes measured in surveys.

References

  1. Tammo H. A. Bijmolt, Harald J. van Heerde, Rik G. M. Pieters (2005). New Empirical Generalizations on the Determinants of Price Elasticity. Journal of Marketing Research.
  2. Gerard J. Tellis (1988). The Price Elasticity of Selective Demand: A Meta-Analysis of Econometric Models of Sales. Journal of Marketing Research.
  3. Gurumurthy Kalyanaram, Russell S. Winer (1995). Empirical Generalizations from Reference Price Research. Marketing Science.
  4. Kristina Shampanier, Nina Mažar, Dan Ariely (2007). Zero as a Special Price: The True Value of Free Products. Marketing Science.
  5. Dirk C. Moosmayer, Bjoern Schuppar, Florian U. Siems (2012). Reference Prices as Determinants of Business‐to‐Business Price Negotiation Outcomes: An Empirical Perspective from the Chemical Industry. Journal of Supply Chain Management.
  6. A. S. C. Ehrenberg, Kathy Hammond, G. J. Goodhardt (1994). The After-Effects of Price-Related Consumer Promotions. Journal of Advertising Research.
  7. Koen Pauwels, Dominique M. Hanssens, S. Siddarth (2002). The Long-Term Effects of Price Promotions on Category Incidence, Brand Choice, and Purchase Quantity. Journal of Marketing Research.
  8. Devon DelVecchio, David H. Henard, Traci H. Freling (2006). The effect of sales promotion on post-promotion brand preference: A meta-analysis. Journal of Retailing.
  9. James C. Anderson, Dipak C. Jain, Pradeep K. Chintagunta (1992). Customer Value Assessment in Business Markets:. Journal of Business-to-Business Marketing.
  10. Wolfgang Ulaga, Andreas Eggert (2006). Value-Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status. Journal of Marketing.
  11. Stephan M. Liozu, Andreas Hinterhuber (2013). Pricing orientation, pricing capabilities, and firm performance. Management Decision.
  12. Oliver Roll, Jan Luca Geerties (2025). Unlocking value-based pricing: the moderating roles of pricing capabilities and contingency factors in B2B markets: an empirical approach. Journal of Revenue and Pricing Management.
  13. Markus Blut, Carly Frennea, Vikas Mittal, David L. Mothersbaugh (2015). How procedural, financial and relational switching costs affect customer satisfaction, repurchase intentions, and repurchase behavior: A meta-analysis. International Journal of Research in Marketing.

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Related topics

A synthesis of 13 studies, written by ScholarSignal. Last reviewed 2026-09-26.

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