Kostis Indounas Department of Marketing and Communication, Athens University of Economics and Business, Athens, Greece Abstract Purpose The purpose of this paper is to investigate the relationship between pricing and ethics in two industrial service contexts. In particular the pricing practices that lead to non-ethical pricing behavior along with the factors that could reduce such a behavior are examined. Moreover, the extent is addressed to which companies that do perceive that pricing decisions entail ethical considerations are differentiated from those companies that do not hold such a perception in terms of the pricing objectives that they pursue in order to set their prices. Design/methodology/approach In order to achieve the studys research objectives, data were collected from 177 companies, operating in the transportation and information technology industries through a mail survey. Moreover, 20 in-depth personal interviews were conducted in the initial phase of the research. Findings The main pricing practices that were perceived as being non-ethical by respondents are related to determination of prices that lead to excessive prots, take advantage of a customers needs and are below cost. Regarding the factors that could reduce such a behavior, the study concluded that a corporate culture that facilitates a customer orientation towards pricing decisions, the markets own mechanisms and the agreements between companies are more effective than governmental intervention. Furthermore, companies that do perceive that pricing decisions are related to ethical considerations tend to follow a more balanced approach when setting prices by pursuing both customer- and competition-oriented pricing objectives, without, however, overlooking nancial objectives. Research limitations/implications The practical implications of the ndings refer to the fact that managers might have a lot to gain by avoiding pricing practices that raise ethical considerations and endeavoring to understand the potential ethical implications of these practices. The signicance of these ndings notwithstanding, the context of the study is the most important caveat since it limits the ability to generalize the results in other sectors and countries. Originality/value The contribution of the paper lies in the fact that it presents the rst attempt to empirically examine the relationship between pricing and ethics in an industrial service context. Keywords Ethics, Pricing, Industrial services Paper type Research paper An executive summary for managers and executive readers can be found at the end of this article. Introduction According to Brassington and Pettitt (2003, p. 391): Price not only directly generates revenues that allow organizations to create and retain customers at a prot, but can also be used as a communicator, as a bargaining tool and as a competitive weapon. Similarly, Shipley and Jobber (2001, p. 301) have suggested: Price management is a critical element in marketing and competitive strategy and a key determinant of performance. Price is the measure by which industrial and commercial customers judge the value of an offering, and it strongly impacts brand selection among competing alternatives. Furthermore, pricing is the most exible element of the marketing mix in that pricing decisions can be implemented relatively quickly (e.g. price changes) and at a low cost (Lowengart and Mizrahi, 2000). This signicance of pricing notwithstanding, efforts to examine industrial pricing from an empirical perspective are still lacking: Statements about the importance of price and pricing decisions for contemporary rms are accompanied by calls for additional research into how industrial pricing decisions are made by rms (Tzokas et al., 2000a, p. 192). The lack of empirical research in the eld of industrial pricing is even more evident in the case of industrial services. Thus, while pricing of industrial physical products has received some empirical attention among marketing academics (e.g. Abratt and Pitt, 1985; Baltas and Freeman, 2001; Thach and Axian, 1991; Smith et al., 1999; Tzokas et al., 2000a, b), less emphasis has been given on how industrial services in particular are priced. As Hoffman et al. (2002, p. 1015) have argued: Today, price remains one of the least researched and mastered areas of marketing . . . Marketers have only recently begun to focus on effective pricing . . . Although the need for effective pricing is frequently voiced at conference sessions focusing on services marketing strategy, an overview of specic topics of potential interest has yet to be developed. The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm Journal of Business & Industrial Marketing 23/3 (2008) 161169 q Emerald Group Publishing Limited [ISSN 0885-8624] [DOI 10.1108/08858620810858427] Received: 26 February 2006 Revised: 28 June 2006 Accepted: 30 October 2006 161 However, the distinctive characteristics of services (i.e. intangibility, heterogeneity, perishability, inseparability, the critical role of employees in customer contact, the need for a more extended marketing mix) necessitate a closer look at how they are priced, if an adequate body of empirical based theory is to be developed (Docters et al., 2004). The present paper tries to contribute to this neglected eld by examining the pricing behaviour of industrial service rms. Moreover, an effort will be made to examine the ethical consequences of this behaviour. According to Crane and Matten (2004, p. 12): Business ethics is currently a very important business topic and the debates and dilemmas surrounding business ethics have tended to attract an enormous amount of attention from various quarters . . . Consumers and pressure groups appear to be increasingly demanding that rms should seek out more ethical and ecologically sounder ways of doing business. This emerging interest on ethical issues is also reected by the empirical studies, which have been conducted by a number of different academics and have focused on the ethicalness of specic marketing practices such as gift giving (Fisher, 2005), direct mail (Neese et al., 2005) and retailing (Nicholls and Cullen, 2004). However, there seems to be a lack of relevant studies regarding the ethical aspects of pricing decisions, despite recent calls regarding the need to address in more detail the relationship between pricing and ethics (Cox, 2001). Thus, issues such as the pricing practices that lead to non-ethical behaviour and the potential factors that could reduce or even eliminate such a behaviour remain under- researched and have been examined from a normative perspective within the existing literature on pricing. The current research aims to shed some light on these issues. Moreover, it investigates the differences between those companies that believe that pricing decisions entail ethical considerations and those companies that do not perceive such considerations by focusing on the pricing objectives that they set in order to set their prices. To the best of our knowledge, there has been no previous attempt to empirically examine this issue. Thus, the objectives of the current study are the following: . To investigate the pricing practices that lead to non-ethical behavior and the factors that could reduce such a behavior. . To examine the differences between those industrial service companies that do perceive that pricing decisions entail ethical considerations and those ones that do not hold such a perception in terms of the pricing objectives that they formulate in order to levy their prices. Figure 1 presents graphically the research constructs and their relationships. The rst part of the paper describes the relevant literature on the ethical aspects of pricing decisions and the pricing objectives pursued. The second part focuses on the methodology used, while the last part analyzes the research ndings along with the managerial implications, the limitations and the directions for future research. Literature review Ethical aspects of pricing behavior A review of the literature on the ethical aspects of pricing behavior reveals the lack of any typology of pricing practices that might be characterized as non-ethical. Thus, different authors tend to refer to different such practices. For instance, Cox (2001) examined the extent to which differentiated pricing may raise ethical considerations concluding, charging customers different prices for the same product is not automatically going to create a situation of price unfairness (p. 272). Kimes and Wirtz (2002) have also examined the perceived fairness of differentiated pricing in the case of restaurants suggesting that with the exception of table- location pricing, other forms of the policy in question are not regarded as unfair by customers. Furthermore, Kimes and Wirtz (2002), regarding the perceived fairness of the pricing policy of yield management pointed out that the adoption of this policy is not generally associated with any ethical constraints. Moreover, Spinello (1998) endeavored to shed some light on the relationship between pricing and ethics in the case of the pharmaceutical industry, suggesting that the social character of pharmaceutical products necessitates a careful attention on how prices are determined, since practices such as prices that lead to excessive prots may raise ethical issues. Apart from the aforementioned practices, Nagle and Holden (1995) have argued that pricing below cost and price collusions among existing competitors might also be regarded as non-ethical. Based on the above arguments, the following list presents those pricing practices that might lead to non-ethical behavior: . differentiated pricing; . prices that lead to excessive prots; . pricing below cost; and . price collusions among existing competitors Regarding the reasons that lead to non-ethical pricing behavior, Nagle and Holden (1995) have stated that a companys culture and philosophy, which place an over- emphasis on excessive prots is perhaps the main reason for such a behavior. Thus, reducing this behavior seems to be facilitated by both the corporate culture and the imposition of specic laws, which aim at avoiding pricing practices that might be characterized as non-ethical. Moreover, some kind of gentlemens agreements between competitors or even the effort to develop a customer orientation when setting prices could also contribute to this direction. Based on these suggestions, the following list presents those factors that could reduce a non-ethical pricing behavior: . the corporate culture and philosophy; . the imposition of specic laws; . gentlemens agreements between existing competitors; and . a customer orientation towards pricing decisions. Pricing objectives Pricing objectives provide directions for action when setting prices. Empirical research has indicated that the objective functions of companies are multifaceted in that the former are based on a combination of different pricing objectives (Tzokas et al., 2000a). Moreover, these objectives are exible and change over time due to environmental or organizational conditions (Shipley and Jobber, 2001). According to Myers et al. (2002), pricing objectives may be either supportive or conictual. Thus, there are objectives that are compatible with each other (e.g. market share increase and sales increase) and objectives that are in contrast with each other (e.g. sales maximizations vs prot maximization). The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 162 In terms of their nature, pricing objectives can be either quantitative or qualitative ones. The former can be measured more directly and are related to prots, market share, sales or other nancial indices such as liquidity or ROA. They are expressed in money terms or through the form of a ratio (e.g. return on assets). The latter are hardly operational and describe the relationship of the company with its customers (e.g. determination of fair prices for them), competition (e.g. price stability in the market), distributors (e.g. determination of prices that appeal to their needs) or even the market itself (e.g. market development). Although these two categories of pricing objectives might seem to be mutually exclusive, previous authors have suggested that there is a hierarchy of pricing objectives in that achieving qualitative objectives (e.g. customers needs satisfaction) may further lead to the achievement of quantitative ones (e.g. achievement of satisfactory prots). Avlonitis and Indounas (2005) studied the pricing objectives of 170 service companies (both business-to- business and business-to-consumer). Table I presents in descending order of importance each one of the 28 pricing objectives in total that the companies in their sample were pursuing in order to set their prices. What can be seen from this table is that these companies are mainly interested in qualitative objectives and especially the ones related to customers. Research methodology Denition of the population and sampling frames The population of the study wad dened as all the transportation (offering cargo services by air, sea or road) and information technology (offering software solutions) companies operating in Greece. The importance of the rst sector is reected on its contribution to the countrys gross domestic product (around 8 percent) given the high imports characterizing the Greek economy, while the second sector is one of the fastest growing ones over the last years. Based on ICAPs directory (Gallups subsidiary), which was used as the sampling frame of the research, the total population of the study was consisted of 615 transportation companies (70 per cent in the total population) and 264 information technology companies (30 per cent in the total population). Research instrument and pilot testing The research instrument was a structured questionnaire that was tested extensively prior to the full-scale survey in order to increase its validity (Malhotra and Birks, 2003). First, it was tested among ten marketing academics, with a request to check the wording and sequence of questions. Second, it was tested among twenty managers that participated in the initial qualitative phase of the study (based on in-depth interviews). Figure 1 Research constructs and their relationships Table I Pricing objectives pursued by service companies Mean Maintenance of the existing customers 4.31 Attraction of new customers 4.28 Customers needs satisfaction 4.18 Cost coverage 4.08 Creation of a prestige image for the company 4.07 Long-term survival 4.06 Service quality leadership 4.03 Achievement of satisfactory sales 3.85 Achievement of satisfactory prots 3.84 Sales maximization 3.78 Market development 3.64 Achievement of a satisfactory market share 3.53 Determination of fair prices for customers 3.50 Prot maximization 3.49 Sales stability in the market 3.39 Achievement of social goals 3.34 Price differentiation 3.24 Price stability in the market 3.24 Liquidity achievement and maintenance 3.19 Market share leadership 3.15 Price similarity with competitors 3.15 Coverage of the existing capacity 3.04 Price wars avoidance 2.96 ROI 2.93 Market share increase 2.84 ROA 2.67 Distributors needs satisfaction 2.61 Discouragement of new competitors entering into the market 2.56 Notes: Minimum: 1; Maximum: 5 Source: Avlonitis and Indounas (2005) The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 163 In both cases, minor alterations were suggested (concerning mainly the layout and the wording of questions) and implemented. Sampling A request sample of 600 companies was set and the selection process was based on a stratied random sample (Aaker et al., 2004). The population was stratied by company type and a proportionate sample size per stratum was determined (420 transportation and 180 information technology companies in total), while through the use of a table of random digits a random sample of companies from each stratum was selected. Data collection and response rate Data were collected through a mail survey. The nal version of the questionnaire along with a cover page, explaining the objectives of the research and soliciting co-operation and a returned envelope were sent to the 600 companies. In deciding to whom to send the letter, the experience gained from the in-depths interviews was used. During these interviews it emerged that, concerning smaller companies, the determination of prices was very much a top management decision, while with reference to larger companies the marketing, sales (where a marketing manager did not exist) or nancial manager had the main responsibility for setting prices. Consequently, in the smaller companies the questionnaire was sent to the managing director or an equivalent, while in the larger companies it was forwarded to the marketing, sales or nancial director. After a two-wave mailing, 177 usable questionnaires were returned (129 from transportation and 48 from information technology companies in particular), representing a response rate of 29.5 percent, which is similar with other studies in the eld of pricing (e.g. Hornby and MacLeod, 1996; Tzokas et al., 2000a, b). In order to evaluate possible sources of non- response bias, a comparison of early and late respondents regarding the studys main variables was undertaken. This comparison found no statistical differences suggesting that non-response bias was unlikely to be a problem. Measures Pricing practices that lead to non-ethical pricing behavior Respondents were provided with a list of ve pricing practices and were asked to indicate through a ve-point scale (1 not at all, 5 to a great extent) the extent to which each one of these practices is associated with non-ethical behavior. Four of these pricing practices are presented above. The remaining one emerged from the qualitative research that was conducted through 20 in-depth personal interviews in the initial phase of the research, namely, the determination of prices that take advantage of a customers urgent need. Factors that could reduce a non-ethical pricing behavior Respondents were asked to indicate through a ve-point scale (1 not at all, 5 to a great extent) the extent to which each one of the factors could reduce a non-ethical pricing behavior. Pricing objectives Based on the operationalization put forward by Avlonitis and Indounas (2005), respondents were asked to indicate through a ve-point scale (1 not important at all, 5 very important) the importance that they attach to each one of the 28 pricing objectives when setting prices. Data analysis and research results Ethical aspects of pricing behavior The majority of the companies (61.6 per cent or 109 in total) indicated that pricing decisions do entail ethical considerations, suggesting the importance of an ethical behavior when levying prices. Table II presents the pricing practices that were indicated by the companies in our sample to lead to non-ethical behavior. The chase of excessive prots when setting prices was cited as the single most important practice (3.64). Respondents also believe that ethical considerations could also arise when taking advantage of a customers need (3.42) and levying prices below cost (3.12). On the other hand, determining prices in collaboration with competitors through the form of collusions (2.93) and differentiating prices across different customers (2.67) are not considered to be non- ethical pricing practices. Some interesting results also emerged regarding the factors that could reduce a non-ethical behavior. More specically, from the mean values presented in Table III, it is interesting to note that this reduction is more an issue of a companys own culture and philosophy and the markets mechanisms rather than an issue of governmental intervention. Thus, a re- orientation of the current pricing practices seems to be regarded as an adequate factor to eliminate any traits of non- ethical behavior without the need of any specic laws. Moreover, as it should be expected, the adoption of a customer orientation when setting prices and the gentlemens agreements between competing companies could also contribute to this direction. Pricing objectives From the mean values that are presented in Table IV it is interesting to note that most of the seven pricing objectives that score above 4 reect the implementation of a customer relationship management approach. For instance, Table II Pricing practices that lead to non-ethical pricing behaviour: mean and standard deviation Mean SD Prices that lead to excessive prots 3.64 1.40 Imposition of prices that take advantage of a customers urgent need 3.42 1.42 Pricing below cost 3.12 1.61 Price collusions among existing competitors 2.93 1.63 Differentiated pricing 2.67 1.66 Notes: Minimum: 1; Maximum: 5 Table III Factors that could reduce non-ethical pricing behaviour: mean and standard deviation Mean SD The corporate culture and philosophy 4.12 1.24 Gentlemens agreements between existing competitors 3.61 1.39 A customer orientation towards pricing decisions 3.14 1.42 The imposition of specic laws 3.03 1.63 Notes: Minimum: 1; Maximum: 5 The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 164 maintenance of the existing customers (4.31), attraction of new customers (4.21), customers needs satisfaction (4.19), service quality leadership (4.23) and creation of a prestige image for the company (4.17) reect the priority of the companies in our sample to manage their clientele basis. Certainly this is not to say that nancial priorities and prot- related objectives are disregarded: cautiousness to cover costs (4.22) and long-term survival (4.03) are still quite importance, while other objectives, such as satisfactory protability and sales (3.92), are still quite top on the agenda. The explanation of the above ndings might be attributed to the fact that relationship marketing strategies aimed at safeguarding long-term nancial performance through customer satisfaction and retention is now long acknowledged to serve the rms prosperity without jeopardizing its protability and/or market share and sales (Yilmaz et al., 2005). Thus, it appears from Table IV that the respondents have a clear hierarchy of pricing objectives, which is most probably related to an effort to sustain and protect their clientele base and future protability through relationship marketing efforts. The high correlations identied among the majority of the 28 pricing objectives led to the conclusion to identify patterns of objectives used by rms. Thus, a factor analysis was conducted (principal component analysis, varimax rotation), which revealed seven underlying factors (Table V) on the basis of loadings . 0.3 and eigenvalues . 1. Those objectives with factor loadings ,0.3 were excluded from the analysis. The rst factor, nancial objectives, comprises objectives that aim to enhance a rms nancial indices such as return on assets and return on sales. The second factor, competition related objectives, emphasizes the need to give a close eye to the market in general and competitors actions in particular. The third factor, service quality related objectives, underlines the importance in rendering high quality services that will be differentiated from the competing ones, while the fourth factor, customer related objectives reects the efforts to sustain and expand the existing clientele basis in order to ensure the companys long-term presence in the market. The remaining three objectives (i.e. market share related, cost related and achievement of satisfactory prots and sales) emphasize the need to control costs and achieve a satisfactory nancial performance when levying prices. These objectives are similar with the ones identied in the study by Avlonitis and Indounas (2005), namely, stability in the market, competition-related objectives, customer-related objectives, service quality related objectives, nancial objectives, market share and capacity related objectives, achievement of satisfactory prots and sales and maximization of prots and sales. Moreover, they present a combination of both quantitative and qualitative objectives that have been suggested to enter the objective functions of any rm (Shipley and Jobber, 2001). The reliability of this seven-factor model was tested by splitting the sample randomly into halves and conducting again a factor analysis in each half. Both the eight-factor solution and the loadings remained unchanged suggesting that the results reported here are not due to chance. Ethical behavior and pricing objectives Table VI presents the variance and the standard deviation of each pricing objective for those companies, which believe that pricing behavior has ethical consequences and those companies that do not share this belief. In order to examine the differences between these two groups of companies regarding the pricing objectives that they pursue, a t-test analysis was conducted, which is presented in Table VII. What can be seen from this table is that the service quality related objectives along with the achievement of satisfactory prots and sales are important for both types of companies (no statistical differences were found), indicating the signicance of offering high quality services in the market and achieving satisfactory prots and sales in order to ensure the viability in the market. However, the former companies seem to follow a more balanced approach when setting prices by placing their emphasis on both company and market related objectives. In particular, their higher mean values in those pricing objectives that statistical differences were found (i.e. nancial objectives, competition related objectives and customer related objectives) reect that they are pursuing objectives which are oriented towards their competitors and customers, as it should be expected, without, however, disregarding the nancial implications of their pricing strategy by paying attention to achieving satisfactory nancial results. Table IV Pricing objectives of industrial service rms Mean SD Maintenance of the existing customers 4.31 1.18 Attraction of new customers 4.21 1.20 Service quality leadership 4.23 1.16 Cost coverage 4.22 1.05 Customers needs satisfaction 4.19 1.21 Creation of a prestige image for the company 4.17 0.99 Long-term survival 4.03 1.36 Achievement of satisfactory sales 3.92 1.12 Achievement of satisfactory prots 3.92 1.00 Sales maximization 3.87 1.21 Market development 3.69 1.48 Achievement of a satisfactory market share 3.52 1.46 Determination of fair prices for customers 3.49 1.38 Sales stability in the market 3.45 1.44 Prot maximization 3.42 1.28 Liquidity achievement and maintenance 3.35 1.64 Market share leadership 3.29 1.48 Price differentiation 3.23 1.53 Price stability in the market 3.23 1.50 Achievement of social goals 3.22 1.56 Price wars avoidance 3.18 1.44 Price similarity with competitors 3.16 1.38 Coverage of the existing capacity 3.09 1.59 Market share increase 2.81 1.65 Discouragement of new competitors entering into the market 2.68 1.46 ROI 2.60 1.65 Distributors needs satisfaction 2.44 1.43 ROA 2.42 1.57 Notes: Minimum: 1; Maximum: 5 The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 165 Conclusions The fundamental objectives of this research were to examine the pricing practices that are considered to lead to non-ethical behavior along with the factors that could reduce such a behavior. Moreover, the differences between those companies that perceive that pricing decisions entail ethical considerations and those companies that do not accept such a notion were investigated by focusing on the pricing objectives that they pursue in order to set their prices. Table V Factor analysis of pricing objectives Factors Variables Loadings F1: Financial objectives ROA 0.858 (14.853% of variance) Coverage of the existing capacity 0.803 (Eigenvalue: 3.57) ROI 0.772 (Cronbachs alpha: 0.831) Distributors needs satisfaction 0.568 Liquidity achievement and maintenance 0.532 F2: Competition-related objectives Price stability in the market 0.783 (13.402% of variance) Market development 0.778 (Eigenvalue: 3.22) Sales stability in the market 0.687 (Cronbachs alpha: 0.799) Price wars avoidance 0.622 Price similarity with competitors 0.467 F3: Service quality-related objectives Creation of a prestige image for the company 0.875 (9.922% of variance) Service quality leadership 0.676 (Eigenvalue: 2.38) Customers needs satisfaction 0.566 (Cronbachs alpha: 0.717) Price differentiation 0.508 F4: Customer-related objectives Maintenance of the existing customers 0.813 (9.862% of variance) Achievement of social goals 0.713 (Eigenvalue: 2.37) Long-term survival 0.692 (Cronbachs alpha: 0.719) Attraction of new customers 0.416 F5: Market share-related objectives Market share increase 0.749 (8.301% of variance) Achievement of a satisfactory market share 0.685 (Eigenvalue: 1.99) Market share leadership 0.540 (Cronbachs alpha: 0.678) F6: Achievement of satisfactory prots and sales Achievement of satisfactory prots 0.771 (8.195% of variance) Achievement of satisfactory sales 0.615 (Eigenvalue: 1.97) (Cronbachs alpha: 0.724) F7: Cost-related objectives Cost coverage 0.799 (5.752% of variance) (Eigenvalue: 1.38) Notes: KMO test 0:732, Bartlett test of sphericity: 905.617, Sig: 0:000 Table VI Variance and standard deviation for each rating for the two groups of companies Companies which perceive that pricing decisions entail ethical considerations (n 5109) Companies which do not perceive that pricing decisions entail ethical considerations (n 568) Variance SD Variance SD Financial objectives 0.94 0.939 1.05 1.026 Competition-related objectives 0.96 0.979 1.00 0.997 Service quality-related objectives 0.99 0.994 1.01 1.006 Customer-related objectives 0.95 0.975 1.03 1.015 Market share-related objectives 0.99 0.994 1.20 1.010 Cost coverage 1.06 1.028 1.49 1.219 Achievement of satisfactory prots and sales 0.75 1.028 0.97 0.982 Notes: Min: 1; Max: 5 The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 166 Analyzing data from 177 industrial service companies operating in the transportation and information technology sectors, the study concluded that the majority of the companies in our sample do believe that pricing is associated with ethical considerations. More specically, the pricing practices that were reported to lead to non-ethical behavior refer to the determination of prices that lead to excessive prots or take advantage of a customers needs. Pricing below cost is also perceived to be a non-ethical pricing practice. On the other hand, price collusions among existing competitors in the market and differentiation of prices across different customers are not considered to be related to any ethical constraints. Some interesting results also emerged with reference to the factors that could reduce a non-ethical behavior. The companies in the sample seem to believe that such a reduction is more an organizational and environmental issue than a governmental issue. Thus, a corporate culture that facilitates a customer orientation towards pricing decisions along with the markets own mechanisms or even the agreements between companies are regarded as more effective ways to eliminate any aspects of non-ethical behavior than the intervention of government through the imposition of specic laws. Finally, companies that do believe that pricing behavior has ethical consequences tend to follow a more systematic approach when setting prices by focusing their effort on both internally and externally oriented issues. More specically, they are interested in pursuing customer and competition related objectives, without, however, disregarding the nancial implications of their pricing decisions. Managerial implications The above ndings indicate that the suggestions made by a number of academics regarding the necessity of pricing decisions to be guided among else by ethical considerations is embedded in the pricing behavior of the companies in the sample. Certainly, adopting such an approach is in line with the increased role of ethics in todays business world. As Palmer and Hartley (2002, p. 148) have pointed out, commercial organizations need to take into account societys values because if they dont, they may end up isolated from the values of the customers they seek to attract . . . they should act in a socially acceptable manner. Thus, apart from endeavoring to satisfy customer needs and build long-term relationships with them, managers responsible for setting prices within their rms might have a lot to gain by avoiding pricing practices that raise ethical considerations. The present study shed some light on these practices such as the determination of prices that lead to excessive prots or take advantage of customers needs. After all, the companies in the sample that do accept the notion that pricing decisions entail ethical considerations were found to follow a more balanced and systematic approach by placing their emphasis on both environmental and organizational related pricing objectives. Such an emphasis is in line with the suggestions made by authors such as Shipley and Jobber (2001) regarding the need for taking into account both rm and market related inputs when levying prices, if effective pricing decisions are to be made. Within this context, managers are advised to re-examine their current pricing strategies by taking into account the ethical consequences of these strategies. Moreover, the importance that is attached to the corporate culture and the markets mechanisms as the main factors that could reduce a non-ethical behavior indicates that companies do not have to wait for governmental initiatives in order to adopt an ethical orientation when setting prices. Managers may rst invest on changing their current mentality towards the issue of ethics and also collaborate with their competitors in order to establish a market climate that will avoid practices that might be characterized as non-ethical. Thus, any governmental or legal aid might be only required in situations where company and market initiatives will not be effective. Limitations and future research Despite the useful guidelines that the current research has offered regarding the relationship between pricing and ethics, there are also some caveats associated with it. The operationalization of all variables related to ethical pricing behavior needs further research. Given the lack of a worldwide-accepted typology of non-ethical pricing practices, future research would be useful in establishing an empirically based construct, coined, non-ethical pricing behavior. Furthermore, the present study examined managers perceptions on whether they feel that pricing entails ethical aspects. This fact notwithstanding, an objective measure of whether a company could be characterized as ethical when making pricing decisions would also be useful. Moreover, further research could address in more detail the potential effect of a number of contextual variables. For Table VII Ethical behaviour and pricing objectives Companies which perceive that pricing decisions entail ethical considerations (n 5109) Companies which do not perceive that pricing decisions entail ethical considerations (n 568) t-value Sig. Financial objectives 3.02 2.58 1.669 0.079 Competition-related objectives 3.48 2.99 2.950 0.004 Service quality-related objectives 3.82 3.81 0.027 0.979 Customer-related objectives 4.19 3.82 2.547 0.012 Market share-related objectives 3.20 3.06 0.859 0.392 Cost coverage 4.26 4.16 0.637 0.525 Achievement of satisfactory prots and sales 3.88 3.99 20.652 0.509 The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 167 instance, how does market structure affect the relationship between pricing and ethics? Does the type of service (e.g. consumer vs industrial) have an effect? Does the type of relationship with customers or a strategic perspective regarding pricing lead to a different perception on what constitute non-ethical pricing practices? Does the top managements attitude have an impact on such a perception? A quest for a more detail examination of these issues may not be futile, since it would enrich the existing theory on this topic. Also, it should be noted that due to the sample size (177) and the fact that the absolute differences, as identied in the present study, among those companies that perceive that pricing decisions entail ethical considerations and those companies that do not hold such a perception in terms of their pricing objectives are not large, one could argue that the stated signicance (Table VI) does not imply much of an effect. Consequently, replicating the study in a larger sample could provide a solution to this problem. Additionally, despite the importance of the sectors investigated in the current study, the research results may not be easily applicable to other industrial service sectors. Thus, sample representative ness may be an issue of concern. 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(2000a), Industrial export pricing practices in the UK, Industrial Marketing Management, Vol. 29, pp. 191-204. Tzokas, N., Hart, S., Argouslidis, P. and Saren, M. (2000b), Strategic pricing in export markets: empirical evidence from the UK, International Business Review, Vol. 9, pp. 95-117. Yilmaz, C., Alpkan, L. and Ergun, E. (2005), Cultural determinants of customer and learning oriented value systems and their joint effects on rm performance, Journal of Business Research, Vol. 58, pp. 1340-52. About the author Kostis Indounas received his PhD in Marketing from the Athens University of Economics and Business, Athens. He is currently a Lecturer in Marketing at the same university. His works have appeared in international conferences and academic journals such as European Journal of Marketing, Journal of Services Marketing, Journal of Marketing Management and Journal of Product & Brand Management among others. His teaching and research interests are in the areas of pricing, services marketing, marketing for non-prot organizations and new product development. Kostis Indounas can be contacted at: indounas@aueb.gr The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 168 Executive summary and implications for managers and executives This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benet of the material present. From Oscar Wildes denition of a cynic as a man who knows the price of everything and the value of nothing to the seventeenth century French writer La Rochefoucaulds view that the height of ability consists in knowing the price of things, price was, is and no doubt forever will be an important consideration in many aspects of human interaction. Underlining the wisdom of the notion that the price we pay for something in monetary terms cannot always be kept separate from the price extracted in terms of human accountability and responsibility, other sages have told us that the price of dishonesty is self-destruction and every man has his price. So, too, in business where charging a price for goods and services is much more than deciding what sum will attract and retain customers, while allowing the organization to pay its costs and make a prot. For instance, when is a prot considered a fair one rather than one which rips off the organizations customers, and who denes fair? In 2007 some UK supermarkets and dairy rms were convicted of collusion in illegally xing the price of milk, cheese and butter, with consumers estimated to have lost 270 million. A justied governmental response to businesses acting unethically? Well, maybe. But, as some of the supermarkets insisted, their actions allowed them to give a fair price to farmers who were facing particularly difcult conditions at that time and who might otherwise have gone out of business. Whatever the rights and wrongs of that particular episode, it is clear that customers dont like powerful organizations with immense buying power acting unethically and neither, of course, do competitors. But do companies consider they must act ethically in deciding prices, or is staying in business with healthy bottom-line results the only consideration? Looking at two industrial services industries in Greece transportation (offering cargo services by air, sea or road) and IT software solutions Kostis Indounas investigated pricing practices that lead to non-ethical behavior and the factors that could reduce such behavior, and examined differences between the companies which perceived that pricing decisions entail ethical considerations and those that do not hold such a belief in terms of the pricing objectives they formulate in order to levy their prices. The majority of companies believed that pricing is associated with ethical considerations. More specically, the pricing practices that were reported to lead to non-ethical behavior referred to the determination of prices that lead to excessive prots or take advantage of a customers needs. Pricing below cost was also perceived to be a non-ethical pricing practice. On the other hand, price collusions among existing competitors in the market and differentiation of prices across different customers were not considered to be related to any ethical constraints. Companies seemed to believe that action to reduce non- ethical behavior is more an organizational and environmental issue than a governmental issue. Consequently corporate culture that facilitates a customer orientation towards pricing decisions along with the markets own mechanisms or even the agreements between companies are regarded as more effective ways to eliminate any aspects of non-ethical behavior than the intervention of government through the imposition of specic laws. Companies that do believe that pricing behavior has ethical consequences tend to follow a more systematic approach when setting prices by focusing their efforts on both internally and externally oriented issues. More specically, they are interested in pursuing customer and competition related objectives, without, however, disregarding the nancial implications of their pricing decisions. Kostis Indounas says: The ndings indicate that the suggestions made by a number of academics regarding the necessity of pricing decisions to be guided among else by ethical considerations are embedded in the pricing behavior of the companies in the sample. Certainly, adopting such an approach is in line with the increased role of ethics in todays business world. After all, if businesses do not pay heed to the values society places on issues, and do not reect socially-acceptable values, they could become isolated from the very market they need to attract. Consequently, apart from endeavoring to satisfy customer needs and build long-term relationships with them, managers responsible for setting prices might have a lot to gain by avoiding pricing practices that raise ethical considerations such as those which are seen as leading to excessive prots or taking advantage of customers needs. The companies in the sample that do accept the notion that pricing decisions entail ethical considerations placed their emphasis on both environmental and organizational related pricing objectives. Within this context, managers are advised to re-examine their current pricing strategies by taking into account the ethical consequences of their strategies. (A precis of the article The relationship between pricing and ethics in two industrial service industries. Supplied by Marketing Consultants for Emerald.) The relationship between pricing and ethics Kostis Indounas Journal of Business & Industrial Marketing Volume 23 Number 3 2008 161169 169 To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints