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A study of pricing strategies and their relation to marketing capabilities (Case study:Industrial Companies) Reza Shafei*Parviz Kafcheh* and FatehDarvand** *Assistant Professor of University of Kurdistan, Iran ** MBA Student. Islamic Azad University. Sanandaj branch Abstract The main purpose of this research is studying of pricing strategies and their relation to marketing capabilities. Literature review and researches on the topic confirms a lack of exhaustive research on relation between pricing strategies and marketing capabilities. Therefore, the value of this research is that, this is the first attempt to consider the subject empirically. For attaining the research goals, data were gathered from 108 industrial companiesin Iran through a questionnaire. Data analysis was performed using analysis of correlation coefficient and regression analysis then analysis of structural equations was performed. Results show that there is a significant relation between pricing strategies and marketing capabilities. It could be claimed that pricing strategies affect marketing capabilities. Key words: price, pricing strategy, marketing, marketing capabilities 1- Introduction When manufacturers encounter an uncertainty in future prices of their product, they react in different ways (Minaqawa, 1998). In economic debates and especially in micro-economics pricing is a primary activity(Christensen, 1997).The lack of an appropriate price to supply in market and absence of a suitable guide for price offering, has leaded many firms to saturate markets with goods or technologies don't fit market prices (Ravi et al, 2003).Also, in the past it has been usual that sellers and buyers bargained over price. So, sellers demanded a price higher than they expected and buyers would offer a price lower than their expectation. After bargaining and dealing, ultimately they would agree on a price both had accepted (kotler&Armstrong, 2008). Price is an indicator of customer and supplier perception of the product price (Che, 2009). Price is flexible element of marketing strategy, while pricing-decisions can be implemented relatively more quickly than other elements of marketing strategy (Avlonitis&Indounas, 2005).Adjusting prices can be called pricing strategy. The objective of pricing strategy is stability of optimal price along maximizing current profit and quantity of sale (Dolgui&Proth, 2010). Marketing capability helps a company to establish a strong relationship between customers and other members. Marketing literature states that companies use their capabilities to convert resources to output and return and are related to the function of company (Nath et al, 2010).The role of marketing as resource for competition advantage in marketing strategy context has been discussed (Akdeniz et al, 2010). Srivastava, Shervani&Fahi (1999) offered that Assets and capabilities have enabled the company to conduct organizational processes efficiently (Ramaswami et al, 2006).Hunt and Morgan (1995) Also stated that competition advantage in context of tangible and intangible resources leads to competition advantage for company and ultimately serves a greater value for company and customers (Hunt & Morgan, 1995).Organizations that emphasize on pivotal capabilities have more potentiality to reach superior position (Vorhies, 1998). Therefore a set of capabilities is needed as contexts for development of stable advantage in market and consequently for organizational benefits (Ramaswami et al, 2006). 2- Problem statement All companies and organizations determine a price for the service and goods they supply. This price may be stated in words such as fee, subscription, rental and … etc (Kotler &Armstrong, 2008). Among the components of marketing compound, price as a main factor, has considerable effect on company revenue (Dolgui&Proth, 2010). Although competition over price is one of main problems that companies may encounter, many companies cannot solve this problem in an excellent manner. As the quality of goods from different companies become more equal, the price factor changes to one of the most important factors for attracting and retaining customers and gain their loyalty and satisfactions. Nowadays, because of development of Internet, this issue is confirmed more strongly (Kotler &Armstrong, 2008). Pricing strategy should be coordinated with other strategies of company. Therefore managers should be aware of proper price determination. Because, very low prices (wasted profit margin) and very high prices (wasted sale margin) can have terrible effects on profit making (Jobber, 2004). Pricing strategies may include market segmentation, discount, profit management and considering price superficial (Dolgui and Proth, 2010).Many authors have emphasized on effects of pricing decisions on company profit-making and its long-term survival andhavesuggested that pricing is the only element of the marketingmix that produces revenues for the firm(Avlonitis&Indounas, 2005). In recent studies, marketing capabilities has been defined as application of knowledge, skills and organizational resources in order to produce surplus value for goods and services, meeting competition necessities and responding to market related needs (Day, 1994). In developing marketing capabilities importance of learning processes has been emphasized; particularly when personnel can solve marketing problems of company using knowledge and skills. For analyzing marketing capabilities of company, those particular marketing processes will be discussed that are compatible with competitive strategy (RezaieDolatAbady&KhefAlahi, 2006). Higher the marketing capabilities of a company more enabled to get information on competitors' actions and reactions. It will generate a special value for customers and creates obstacles for competitors' entrance and prevents their threats. This process develops a base to reach competitive profit (Verhies, Harker& Raw, 1999).Companies better equipped to respond to market needs and can anticipate variable conditions, expect to enjoy greater longterm profit and greater competition advantages. Main focus of capability which is not a new concept is on creating distinctive capabilities which appears in fundamental policies of company (Day, 1994). In this article we want to study the relation between pricing strategies and pricing capabilities and then respond to following questions: What sort of strategies, under-study companies use for pricing of their products? How are marketing capabilities of under-study companies? What sort of relation is there between selected strategy, pricing direction, and marketing capabilities for under-study companies? 3- Theoretical foundations and literature review Price in its broadest sense is the exchange value of goods and services which is stated in monetary unit. Price is the most important factor and motive for activity in market, due to which supply and demand is adjusted. Governments' interventions in this system and price control can take place for different purposes. Support for producers, consumers or both are one of the most important reasons for government intervention in the market system through price control. Price also is the quantity of money that is paid for goods and services. In a more comprehensive definition, price is the quantity of benefit that consumers pay for advantages of having or using a goods or service (kotler&Armstrong, 2008). Price of goods or service, in different markets, is determined based on price theory. But these determined prices in all markets, are not necessarily economically efficient. In other words, these prices don't secure maximum interests of society. Thus, determining optimal price or pricing problem in these markets arises.Price is determined in order to maximize profit, increase portion in market, leading quality, survival and increase market price (Kotler &Armstrong, 2008). Simply pricing means the determination of price for a goods or service)Kotler &Armstrong, 2008). Pricing is an activity that should be replicated and is a continuous and nonstop process. This continuity is a result of environmental changes and lack of stability in market conditions and necessitates the modification of price(Shipley & Jobber, 2001). 3-1- pricing strategies In this part of research, we discuss different methods and pricing strategies that have been derived from several resources. 3-1-1- pricing methods according toAvlonitis&Indounas)5002( Oxenfeldt (1983) defines pricing methods as theexplicit steps or procedures by which firms arrive at pricingdecisions. A comprehensive review of the literature of pricingof services identified twelve pricing methods falling into three large categories namely cost based, competition based anddemand based. These methods are(Avlonitis&Indounas, 5002) (Figure 1). 3-1-1-1- Cost-based methods Cost-plus method- a Profit margin is added on the service’s average costs. Target return pricing -the price is determined at the point that yields the firm’s target of return on investment. Break-even analysis - Theprice is determined at a point where total revenues are equals to total costs. Contribution analysis –a deviation from the breakeven analysis, where only the direct costs of a product or service are taken into consideration. Marginal pricing –the price is set below total and variable costs so as to cover only marginal costs(Avlonitis&Indounas,2005) 3-1-1-2-Competition-based methods Pricing similar to competitors or according to the market’s average prices. Pricing above competitors. Pricing below competitors. Price according to the dominant price in the market -the leader’s price that is adopted by the rest of the companiesin the market(Avlonitis&Indounas, 2005). 3-1-1-3- Demand-basedpricing Perceived-value pricing – the price is based on the customers’ perceptions of value. Value pricing –a fairly low price is set for a high quality service. Pricing according to the customers’ needs – the price is set so as to satisfy customers’ needs (Avlonitis&Indounas, 2005). Competition-based methods: Pricing similar to competitors Pricing above competitors Pricing below competitors Price according to the dominant price in the market Cost-based methods: Pricing methods Cost-plus method Target return pricing Break-even analysis Contribution analysis Marginal pricing Demand-based pricing: Perceived-value pricing Value pricing Pricing according to the customers’ needs Figure1.Thetypes ofpricing methods (Avlonitis&Indounas, 2005) 3-1-2- Common pricing strategies from Dolgui and Proth (2010) viewpoint Dolgui and Proth (2010) have divided their general strategies in two parts. The first part is High and low prices strategies. High price is accepted if it agrees with the value of the product perceived by the customers, otherwise such a strategy leads to commercial failure; a low price strategy may also lead to a commercial success, especially in the food retailing sector. The second part includes adjustable strategies and it encompasses five strategies. The first strategy is market segmentation (or price discrimination). This strategy is applicable to a type of item in the case of a monopoly market. The second strategy is discount strategy. A discount saleconsists in selling a given set of items at a reduced price for a limited period. The next one is price skimming. In this strategy,a relatively high price is set at first, and then lowered over time. The fourth strategy is penetration pricing. Penetration pricing consists of setting an initial price lower than the one of the market.The expectation is that this price is low enough to break down the purchasing habits of the customers. The last strategy is yield management (revenue management). The goal of yield management is to anticipate customers’ and competitors’ behavior in order to maximize revenue (Dolgui and Proth,2010). 3-1-3- pricing strategies in Esmailpur (2008) viewpoint Esmailpur (2008) demonstrates his strategies in eight strategies.The first strategy is Rate of Return. The goal of some companies is to reach a specified level of Rate of return. The second strategyis market stabilization. Some companies try to avoid irritating leading competitors and maintain their portion of market. The third is Competition - Led Pricing. In case of unproduced goods such as coffee and wheat whose prices are determined in the market, any deviances of these prices leads to decrease in sale and profit. The fourth pricing strategy is pricing to Reflect Product Differentiation. Companies price their product in a special order that customer distinct this product from other competitors' products. The fifth one is Market Skimming. Some companies introduce their products to the overseas markets at a high price then decrease price gradually. The next strategy is Market penetration. Some companies introduce their products to external markets at low prices in order to increase quantity of sale and develop their portion of market and overcome competitors. The seventh strategy is Early cash Recovery. When a company encounters failure or its products is in mature stage or is in comedown of product life-curve or because of change in government's policies, company's products have an uncertain future, the company decides to reach cash quickly through increasing sale. The last strategy is Prevent New Entry. Some companies offer their products at very low prices in order to show competitors that entering to this market has little profit for them alongside if they decide to enter they will find themselves in competition battle(Esmailpur, 2008). 3-1-4- Pricing methods from Kotler&Armstrong(2008) viewpoint Kotler&Armstrong(2008) have divided pricing methods into following methods. The first method is cost- plus pricing. In this method which is the most primitive pricing method, price is determined through adding a standard number to cost-price. The second method is breakeven analysis. The price is determined at a point where total revenues are equals to total costs. The third method is Perceived – value pricing. In this method not based on cost-price but based on customer judgment about product value, price is determined. The next pricing method is Price according to the dominant price in the market.In this method, stores determine their prices based on competitor companies. The last method is based on sealed offers. When companies offer sealed prices to fulfill projects, prices are determined through competition (Kotler &Armstrong, 2008). 3-2-Marketing Capabilities Due to this fact that all businesses develop capabilities which stems in competitive market, previous bonds and anticipated obligations, it is impossible to address all capabilities. However, some certain types of capabilities that are ready in every business to respond central processes are discussed (Day,1994). Some capabilities are identified more simply, because their activities are in the organization. Emergence and prevalence of capabilities that are applied successfully outside the organization and is exposed to some observations to study and discuss, companies should define themselves according to what they are able to do and what needs have to be meet. This approach is not even-tempered, because ability of business should use inner capabilities to benefit from outsider capabilities. Therefore, there should be compatibility between outsider capabilities and perception of these probabilities and decision-making about how to present the best of them (Day, 1994). Marketing capability is defined as an integrated process through that company using its tangible and intangible resources, perceives some particular needsof consumers and reaches a productdistinct from other competitors' and meets stock holders' rights with a superior brand name(Nath et al, 2010). 3-3- Marketing Capabilities Processes In recent studies, marketing capabilities has been defined as application of knowledge, skills and organizational resources in order to produce surplus value for goods and services, meeting competition necessities and responding to market related needs (Day, 1994). In developing marketing capabilities importance of learning processes has been emphasized; particularly when personnel can solve marketing problems of company using knowledge and skills. For analyzing marketing capabilities of company, those particular marketing processes will be discussed that are compatible with competitive strategy (RezaieDolatAbady&KhefAlahi, 2006). 3-3-1- marketing capabilities from Akdeniz et al. (2010) viewpoint Akdeniz et al. (2010) Identify eight types in marketing capabilities processeswe follow the identification process by taking the marketing capabilities described by Verhies and Morgan (2005) as our reference set. Using cross-sectional survey data, Verhies and Morgan (2005) address eight marketing capabilities positively and directly relating to firm performance. The marketing capabilities include product development, the process to develop and manage product and service offerings; pricing, the strategy to extract the optimal revenue from firm's sales; channel management, the course of action to establish and maintain the channels of distribution that effectively and efficiently deliver value to end-user customers; marketing communications, the ability to manage customer value perceptions; selling, the activity tofulfill customer orders; market information management, the practice to acquire and use market knowledge; marketing planning, the ability to create marketing strategies that optimize the match between the firm's resources and its marketplace; marketing implementation, the process to transform marketing strategy into realized resource deployments(Akdeniz et al., 2010). 3-3-2- marketing capabilities from Weerawardena (2003) viewpoint Weerawardena (2003) has described marketing capabilities processes in eight processes.Expanding on Atuahene-Gima’s (1993) conceptualization of marketing capability, this study identifies several processes which are used by firms in their efforts to reach target customers with value-added products and services. The first process is customer service, defined as deeds, processes and performances (Zeithaml&Bitner, 1996) which are largely intangible tasks that satisfy buyer or user needs. A growing number of researchers suggest that superior customer service leads to competitive advantage. The second process is concerned with the effectiveness of promotional activities in gaining market share and sales growth. Promotional activities cover advertising, sales promotions, publicity and personal selling which are widely used tools to communicate with target markets. Third is the quality of sales people, which reflects the extent of sales-generating skills possessed by firms’ employees. The next area is the strength of distribution networks. To have a capability in channel management, relationships with distributors must be formed and effectively managed (Vorhies and Harker, 2000). The fifth process is the extent of resources committed for advertising, which is operationalized as the advertising expenditure as a percentage of sales. Next is the firm’s marketing research, which is defined as the set of processes, needed to learn about customer needs particularly latent needs and to monitor competitor product and service offerings. The seventh is the ability to differentiate products (to boost the image of products by attributes other than prices such as superior quality, image or service) marketed by the firm. Product and service differentiation has been a key source of competitive advantage. The next area of importance is the speed of product introduction. Rapid development of new products and services is an integral component of innovation-based competition (Froehle etal., 2000). These eight processes are adopted in varying degrees by firms in their efforts to reach respective target markets (Weerawardena, 2003). 3-3-3- marketing capabilities from RezaieDolatAbady&KhefAlahi (2006) viewpoint Also RezaieDolatAbady&KhefAlahi(2006) has described marketing capabilities as follows. Atuahene-Gima (1993) in order to operationalize marketing capabilities, has defined several processes that each can be used by company to attract target customers and produce surplus value for goods and services. The first process is customer service,such can meet customer and consumer needs. Many researchers believe that service provision for customers can lead to competitive advantage significantly. The second process is concerned with the effectiveness of promotional activities in gaining market share and sales growth. These activities are used to make links with target markets. The third process is the strength of distribution networks that can communicate with distributors efficiently. The fourth process is making relation with customer. This process is used for realizing customer views and contribution. The fifth process is using marketing research to recognize apparent and latent needs of customers and to consider goods and services provided by other competitors. The last process is ability to differentiate products that is distinct in quality, price, service and etc...Each of these variables has a positive correlation with company functionality especially in innovation, entrepreneurship, making competitive advantage and increase market and sale portion (RezaieDolatAbady&KhefAlahi, 2006). 3-4- Previous researches Domestic researches or external ones that exactly measure the effect of pricing strategy on marketing capabilities have not been conducted. Now we mention several researches about pricing and marketing capabilities. Dolgui and Proth (2010) wrote an article named "Models and pricing strategies" and came to the results that several methods among recognized methods are based on trade-price and pricing models are auxiliary instruments for better understanding of dynamic price determination. Avlonitis&Indounas (2005), in a research dealt with pricing methods and objectives in service section. Findings show that pricing objectives are rather qualitative than quantitative and focused on customers. Besides, pricing methods and pricing objectives were in correlation. Myers (2004), in a study named "Implications of pricing strategy–venture strategy congruence:an application using optimal models in an international context"achieved the resultthat specific pricing strategies differ significantly in their ability to enhance venture performance. Utaka (2008), in a study named"Pricing strategy, quality signaling, and entry deterrence"achieved the result thatalthough limit pricing is more desirable than prestige pricing from a social welfareviewpoint, the incumbent can still choose prestige pricing. Nath et al.(2010) in their study titled "effect of pricing capabilities, conductive capabilities and different strategies on functionality" made a market-centered revision and concluded that a company in the market has greater trade-efficiency compare to a company that focus on conductive capabilities. Akdeniz et al. (2010) in their study titled "a comparative approach to merged marketing capabilities for seller efficiency via parametric and nonparametric analysis" concluded that importance of long-term relations is very significant for promotion of seller efficiency. Weerawardena (2003) in a study named "The role of marketing capabilities for competitive strategy based on innovation" achieved the result that marketing capabilities affects both innovation and retaining competitive advantage. Guenzi&Troilo (2006), in their study titled "Developing marketing capabilities for customer value creation through Marketing–Sales integration"concluded thatMarketing-Sales integration is a multi-faceted construct made up ofdifferent components that impact different marketing capabilities and highlight its antecedents and consequences. 3-5- Conceptual Model of Research This model is an integration of pricing strategies and marketing capabilities. Price determination strategies integrate Esmailpur (2008), Avlonitis&Indounas(2005), Dolgui and Proth (2010), Kotler&Armstrong (2008) strategies. Moreover for presenting a model of marketing capabilities we have used aspects of RezaieDolatAbady&KhefAlahi(2006) market capabilities which have taken from Atuahene-Gima (1993). Besides, we have divided pricing strategies into four aspects including cost-based, competition-based, demand-based and financial aspect (Figure 2). Competition-basedmethods: Cost-based methods: Cost-plus method Target return pricing Break-even analysis Contribution analysis Marginal pricing Demand-based pricing: Perceived-value pricing Value pricing Pricing according to the customers’ needs Yield management Pricing similar to competitors Pricing above competitors Pricing below competitors Price in the market Market stabilization Market penetration Prevent New Entry Based on sealed offers Pricing strategies Customer Relationship Management CustomerService Distribution network Marketin gcapabiliti es: Financial: Discount strategy Rate of Return Early cash Recovery Figure2. ConceptualResearch MarketingResearch Differentiated Effectiveness of Promotional oduct Now considering conceptual model of research, hypotheses of research are stated as follows. Major hypothesis: There is a relationship between selected type of pricing strategy and Marketing capabilities in under-study companies. Minor hypotheses are: - There is a relationship between pricing strategies and customer relationship management in under-study companies. - There is a relationship between pricing strategies and differentiate productsunder-study companies. - There is a relationship between pricing strategies and customers service in under-study companies. - There is a relationship between pricing strategies and effectiveness of promotion activities in under-study companies. - There is a relationship between pricing strategies and marketing research in under-study companies. - There is a relationship between pricing strategies and distribution network in under-study companies. 4-Research Methodology This research aims at studying relationship between elements of marketing capabilities and pricing. In such sort of studies, aim is to detect how much the two variables are associated. For this purpose, considering measurement scales of variables proper index are selected. This research respect to its objectives is an applied research and regarding its method can be categorized as descriptive survey research and considering the relationship between variables is a correlation type and at last respect to temporal aspect it is across-sectional research. In this research Kolmogorov-Smirnov test is used to test the normality of data distribution. Test results showed that data were normal then Pearson correlation coefficient and regression analysis are used to analyze data. 5- Population and Sample size Statistical population of the research is all pharmaceutical companiesin Iran. There were 150 companies in the population and for determining sample size Morgan table is used and considering the type of activity stratified random sampling method is used. 108 companies accepted to participate in the research. In this research questionnaire is used to aggregate data. For pricing strategies and methods dichotomous scale (1 for yes and 0 for no) is used and indicates which companies have used considered methods. For marketing capabilities Athahen-Gimma (1993) questionnaire which is used by RezaieDolatAbady&KhefAlahi (2006), with Likert scale is used. Supervisor and consultant professor's contributions and experts' views have helped to increase validity of measurement instrument in order to a questionnaire be designed that cover all 6 hypotheses of research. 6- Data Analysis Data analysis is crucial for accepting or rejecting hypotheses of research. Nowadays in most of researches that rely on data aggregation about research topic, data analysis is one of the most important sections of the research. Raw data are analyzed using statistical techniques and after processing are presented to concerned users in form of information. Frequency distribution for each of pricing methods is presented in Table 1. This table shows that cost-added method is the most prevalent method among companies. Simplicity of using this method can be the reason for its prevalent use. Pricing methodsadopted Total Percent Total Percent Cost-plus method 80 74% Perceived-value pricing 61 56.5% Pricing according to the customers’ needs Target return pricing 52 48% 78 72.2% Break-even analysis 34 31.5% Market stabilization 64 59.3% Contribution analysis 34 31.5% Market penetration 60 55.6% Marginal pricing 57 52.8% Rate of Return 65 60.2% Pricing similar to competitors 67 62% Early cash Recovery 27 25% Pricing above competitors 38 35.2% Prevent New Entry 37 34.3% Pricing below competitors 44 40.7% Based on sealed offers 16 14.8% Price according to the dominant price 76 70.4% Yield management 61 65.5% in the market Value pricing 39 36.1% Discount strategy 75 69.4% Note: The sum of percentages is larger than 100, since respondents could give multiple responses, as they use more than one method Table1. Pricing methodsadopted 6-1- Correlation Coefficient and Regression Analysis for Research Hypotheses Pearson correlation coefficient and multivariate regression analysis are used to verify research hypotheses. Table 2 is correlation coefficient matrix between pricing strategies and marketing capabilities. In a 0.99 percent confidence level there is a relationship between selected pricing strategy and marketing capabilities and their correlation coefficient is presented in following table. Consequently, the relationship between selected pricing strategy and marketing capabilities is accepted. Costbased Marketing capabilities Pearson Correlation 0.456 Type ofpricing strategyin selected Competition based Demand based 0.400 0.384 Financial 0.424 0.000 0.000 0.000 0.000 Sig. (2-tailed) Table2. Correlation coefficient matrix between pricing strategies and marketing capabilities Also, it can be observed in Table 3 that there is a significant relationship between pricing strategies and marketing capabilities aspects, i.e. at a 99 percent confidence level there is significant relationships between pricing strategies and customer relationship management, between pricing strategies and differentiate products, between pricing strategies and effectiveness of promotion activities and between pricing strategies and distribution network and at a 95 percent confidence level there is significant relationships between pricing strategies and customersservice, between pricing strategies and marketing researches. Correlation coefficients for these relationships are presented in following table which shows correlation coefficient for customer relationship management is 0.433, for differentiate productsis 0.391, for customersservice is 0.267, for effectiveness of promotion activities is 0.411, for marketing researches is 0.271 and at last correlation coefficient for distribution network is 0.452. In total we can conclude that relationship between selected pricing strategy and marketing capabilities aspects is accepted. Variablesof marketingcapabilities Customer Effectiveness Differentiated CustomerS MarketRes Distribution Relationship of product ervice earch Networks Management Promotional Pearson 0.433 0.360 0.267 0.411 0.271 0.452 Correlation 0.000 0.000 0.005 0.000 0.004 0.000 Sig. (2-tailed) Table3.Correlation coefficient matrix between pricing strategies and variables marketing capabilities Pricing strategies Table 4 pertains to regression model. It is observed that correlation between Independent and dependent variables equals to 0.614, coefficient of determination is 0.377 and this value shows that 38 percent of marketing capabilities variance is due to selected pricing strategy. For this value neglects degree of freedom we use adjusted coefficient of determination which in this test equals to 35 percent. Regarding that Durbin-Watson statistic is greater than standard value of 1.5 we can conclude independence of residuals. Considering mentioned indicators, model is enough efficient. Correlation coefficient 0.614 Coefficient Adjustedcoefficient Errorstandard ofdetermination ofdetermination deviation 0.377 0.353 0.34061 Table4.Regressionmodelthe mainvariables Watson's Location 2.009 In Table 5 significance of Regression is calculated by F test. It is about effect of pricing strategy on marketing capabilities. Regarding the following table calculated significance level for this statistic is 0.000 and this means regression significance at 99 percent confidence. Therefore, estimated linear regression model is acceptable. Model Regression Remaining Total 7.237 11.949 Degrees offreedom 4 103 19.187 107 Totalsquares The meansum of squares 1.809 0.116 Fstatistic Sig. 15.596 0.000 Dependent variable: marketing capabilities Table5.Regressionanalysis ofpricing strategiesonmarketingcapabilities In table 6, linear regression coefficients for aspects of pricing strategies on marketing capabilities have been shown. In this table all aspects are significant then for judgment about effect size of each pricing strategy on marketing capabilities we look at standardized coefficients column in the model. It can be seen that competition-based with a standardized coefficient of 0.245 has the greatest effect, and consequently is in the first priority. Then costbased with the coefficient of 0.218 is in the second priority, financial with the coefficient of 0.211 in the third priority. It is observed that demand-based with the coefficient of 0.186 is at the last priority and compare to three other variables has the least effect on marketing capabilities. Non-standard coefficient Standardizedcoefficient T B Std. Error Beta 0.627 0.233 0.245 2.648 Competition-based 0.443 0.203 0.186 2.178 Demand-based 0.412 0.178 0.218 2.410 Cost-based 0.461 0.192 0.211 2.397 Financial Dependent variable: marketing capabilities Table6.Linearregressioncoefficientsbetweenpricing strategiesandmarketingcapabilities Model Sig. 0.008 0.032 0.108 0.018 In table 7, linear regression coefficients for pricing strategies on aspects of marketing capabilities are presented. In this table all aspects are significant then for judgment about effect size of each marketing capabilities aspect on pricing strategies we look at standardized coefficients column in the model. It can be seen that distribution network with a standardized coefficient of 0.452 has the greatest effect, and consequently is in the first priority. Then customer relationship management with the coefficient of 0.433 is in the second priority, effectiveness of promotion activities with the coefficient of 0.411 in the third priority, differentiate productswith the coefficient of 0.360 is in the fourth priority, marketing researches with the coefficient of 0.271 is in the fifth priority. It is observed thatCustomers service with the coefficient of 0.267 is at the last priority and compare to five other variables has the least effect on pricing strategies. Index B Beta (standardized coefficient) T Sig. Variable Customer Relationship 0.000 1.461 0.433 4.953 Management (CRM) 0.000 Differentiate Products 1.058 0.360 3.968 0.005 Customerservice 0.874 0.267 2.856 0.000 Effectiveness of promotion 1.079 0.411 4.646 0.004 MarketingResearch 0.722 2.271 2.904 0.000 Distribution Networks 1.655 0.452 5.218 Table7. LinearregressioncoefficientsbetweenPricing strategiesandDimensions ofmarketingcapabilities 6-2- Structural Equations Model Structural Equations Model is a comprehensive Statistical approach for testing hypotheses about relationships between observed variables and latent variables.Via this approach we can test acceptability of theoretical models in a particular population with correlation analysis data non-empirically. In Structural Equations Model, in one hand, the rate of correspondence between research data and conceptual model is examined and in the other hand, significance of relationships in this fitted model is tested. Indices include x5, goodness of fit index (GFI) and adjusted goodness χ2 of fit index (AGFI).A model is good fitted that its ⁄𝑑𝑓is lower than 3 and closer the GFI and AGFI to one, better fitted the model. Table 10 illustrates the range of index and goodness of fit. Acceptablefit Goodfit Fitnessindex P-value RMSEA GFI AGFI Table10. Range of index and goodness of fit 7-3- Confirmatory Factor Analysis In this section, results of confirmatory factor analysis in Structural Equations Model are presented for each research variable separately. It should be mentioned in order to reduce number of variables and considering them as a latent variable resulted factor loading should be greater than 0.3. In examination of each model, the essential question is whether this measuring model is a proper one? To answer this question, x5 (chi-square) and other indices for goodness of fit should be examined. So a model is good fitted that have following optimal conditions. Less Chi-square test is better; because this test shows difference between data and the model. Less RMSEA test is better; because this value shows the average of squared errors of the model. In brief, in confirmatory factor analysis a model in which experimental data are calculated or describe based on several parameters, is built. This model is based on previous information about data structure, a structure that has been resulted from previous studies (same exploratory factor analysis) in the form of a theory, hypothesis or knowledge. 6-3-1- Measurement model of pricing strategies aspects in standard estimation mode Figure3 shows the measurement model of pricing strategiesaspects in standard estimation mode. Looking at the LISREL output, calculated chi-square is 171.08. Because this index is low, there is little difference between conceptual model and research observed data. Moreover, value of RMSEA is 0.020 which indicates the goodness of fit. Allowed value of RMSEA is 0.08; it can be seen that this value is lower than allowed value and this shows goodness of fit again. Less this value, better fit the model has. Index of fitness of model, is indices of GFI and AGFI which are a measure of relative value of variances and co-variances and are justified by the model in common. Closer this value to one, better the data fitted. These indices do not depend on sample size. These values in this research are 0.93 and 0.91 and are proper and effective. Figure3- Measurement model of pricing strategies aspects in standard estimation mode Factor CHISQUARE DF P-VALUE RMSEA GFI Pricing Strategy 171.08 164 0.00462 0.020 0.93 Table11. Measurement of pricing strategies aspects in standard estimation mode AGFI 0.91 6-3-2- Measurement model of marketing capabilities aspects in standard estimation mode Figure4 shows the measurement model of marketing capabilities aspects in standard estimation mode. Looking at the LISREL output, calculated chi-square is 687.79. Because this index is low, there is little difference between conceptual model and research observed data. Moreover, value of RMSEA is 0.046 which indicates the goodness of fit. Allowed value of RMSEA is 0.08; it can be seen that this value is lower than allowed value and this shows goodness of fit again. Less this value, better fit the model has. Index of fitness of model, is indices of GFI and AGFI which are a measure of relative value of variances and co-variances and are justified by the model in common. Closer this value to one, better the data fitted. These indices do not depend on sample size. These values in this research are 0.93 and 0.91 and are proper and effective. Figure4- Measurement model of marketing capabilities aspects in standard estimation mode Factor CHI-SQUARE DF P-VALUE RMSEA GFI Marketingcapabilities 678.79 480 0.00010 0.640 0.93 Table12.Measurement of marketing capabilities aspects in standard estimation mode AGFI 0.91 6-3-3-Measurement model of pricing strategies and marketing capabilities in standard estimation mode Figure5 shows the measurement model of pricing strategies and marketing capabilities in standard estimation mode. Looking at the LISREL output, calculated chi-square is 56.53. Because this index is low, there is little difference between conceptual model and research observed data. Moreover, value of RMSEA is 0.0079 which indicates the goodness of fit. Allowed value of RMSEA is 0.08. It can be seen that this value is lower than allowed value and this shows goodness of fit again. Less this value, better fit the model has. Index of fitness of model, is indices of GFI and AGFI which are a measure of relative value of variances and co-variances and are justified by the model in common. Closer this value to one, better the data fitted. These indices do not depend on sample size. These values in this research are 0.92 and 0.90 and are proper and effective. Figure5-Measurement model of pricing strategies and marketing capabilities in standard estimation mode CHI-SQUARE DF P-VALUE RMSEA GFI AGFI 56.53 34 0.00896 0.0079 0.92 0.90 Table13-Measurement of pricing strategies and marketing capabilities in standard estimation mode 7- Conclusion Preceding and present studies show that pricing is an important aspect of market and is a crucial element for company's success or failure and many companies because of neglecting pricing importance have failed. Pricing as a competitive advantage and a success factor in organizations has been examined from several aspects. Marketing researchers introduce pricing as a behavior, culture, information stream, decision-making and strategic planning and believe that customer satisfaction, customer loyalty, attraction of new customers, a desired level of growth in market portion and organizational functionality can be achieved through proper price determination. Evidences show that pricing leads to positive functionality for organizations. Furthermore, marketing capability helps a company to establish a strong relationship between customers and other members. Marketing literature states that companies use their capabilities to convert resources to output and return and are related to the function of company. Therefore, marketing capability is defined as an integrated process through that company using its tangible and intangible resources, perceives some particular needs of consumers and reaches a product distinct from other competitors' and meets stock holders' rights with a superior brand name. The main hypothesis of this research is that pricing strategies play an important role in improvement of marketing capabilities and through using price determination, individual and collaborative efforts to create superior value for customers can be coordinated better than competitors and the desired functionality can be achieved. According to data analysis, results show that pricing strategies has a significant effect on marketing capabilities aspects, i.e. there is significant relationship between pricing strategies and marketing capabilities aspects (customer relationship management, differentiate products, customersservice, effectiveness of promotion activities, marketing researches and distribution network). Standard coefficients for causal relationship between pricing strategies and marketing capabilities aspects are as follows.For customer relationship management is 0.433, for differentiate productsis 0.391, for customersservice is 0.267, for effectiveness of promotion activities is 0.411, for marketing researches is 0.271 and at last correlation coefficient for distribution network is 0.452. This shows that pricing strategies has a positive effect on marketing capabilities aspects and confirms the research hypotheses stated as effect of pricing strategies on marketing capabilities aspects. At last we conclude to accept the relationship between pricing strategies and marketing capabilities aspects. Limitations and future research: In spite of efforts to do the research perfectly, this research has some limitations. So, based on research findings, companies can improve their marketing capabilities considering following items. - - Elimination of weakness related to marketing research in field of marketing capabilities through knowing more about customer needs and desires. Recognition of weak and strong points of company and of competitors too, optimization of marketing and sale activities. Eliminating weaknesses in distribution network in the field of marketing capabilities through improvement of sale conditions for sale agents, development different dimensions of sale (Telephone, Internet,), development of distribution channels and promotion of their desirability, building strong distribution network via quick and reliable transportation, doing orders in agreed time. Elimination of weaknesses related to effectiveness of promotion activities in the field of marketing capabilities via improving public relations, active sale agency,distinguish for company. Emphasize on customer relationship management through regular verification of customer satisfaction, increasing advantages of customers and reducing their costs, recognition of resent and future needs of customers and commitment to customers, service providing for customers through individual notice to customers, being the personnel friendly with customers. For future researches it is recommended that limitations of research in sampling of statistical assumptions and more applicable models in context of pricing strategies should be considered. Prior to doing any research about pricing strategies for getting better results it is a good idea to illuminate pricing concept in company environments. Usually in these researches data is aggregated in a period of time if aggregated data are time series, betters results will be achieved. Although present research has confirmed the relationship of marketing capabilities as dependent variable with pricing strategies, however, it is recommended that attention be paid to it. Research model has been tested on manufacturing and service companies; it can be tested in other types of companies, too. In future researches independent variables such as market-orientation culture, competitive strategies, market intelligence can be investigated. Also, other approaches to pricing strategies or marketing capabilities can be used and applied. 8-References AlexandreDolgui, Jean-Marie Proth(2010). Pricing strategies and models, journal homepage: www.elsevier.com/locate/arcontrol, Annual Reviews in Control 34, 101–110. AtsuoUtaka (2008). Pricing strategy, quality signaling, and entry deterrence, International Journal of Industrial Organization 26, 878–888. Atuahene-Gima K. 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