Research Insight | How Cultural Values Influence International B2B Sales During Price Increases
In response to global crises, companies across industries and countries are increasing prices to safeguard their profitability. But although price increases reflect a plausible response to higher input costs, such increases can severely alter business relationships and risk future sales. This Journal of International Marketing study shows that the ways in which customer firms respond to a price hikes depends on the magnitude of the price increase as well as the cultural origin of the customer firm. If customers originate from a country whose culture emphasizes the development of communal norms (e.g., countries that are long-term oriented), their communal norms can buffer against the demand-hampering effects of (at least small) price increases. Therefore, under specific conditions, small price increases can even boost sales revenues with a business customer. In contrast, however, larger price increases uniformly harm sales revenues generated with a customer. In these instances, the firms’ buyers are forced to rely on exchange norms when evaluating the price increase and—in a quid pro quo manner—are likely to reduce business with the firm.
The study underscores the importance of recognizing the differences between B2C and B2B markets when analyzing the effects of price increases. Unlike in consumer markets, even small price increases can lead to reduced sales revenues in B2B contexts, as they negatively affect overall customer demand. In addition, understanding cultural values is crucial for B2B companies, customer account managers, and salespeople. Firms should tailor their pricing strategies to account for cultural variations.
For more Research Insights, click here.
What You Need to Know
- Companies facing cost increases for raw materials should be cautious when implementing price hikes, considering the potential negative consequences on customer demand.
- International sales managers should segment customers based on cultural value–based dimensions to tailor price increases effectively. For example, markets with high long-term orientation respond well to low price increases, while cultures with low power distance can be negatively impacted by even medium price increases.
- Sales managers need to ensure that salespeople operating in international markets are trained to navigate diverse cultural norms when implementing price increases so that they offer compensations that align with cultural values, mitigating the potential negative impacts of price increases on relationships.
Abstract
Although price increases are common in business-to-consumer and business-to-business (B2B) markets, research examining the consequences of price increases on financial performance outcomes in B2B contexts is scarce. This study takes a relationship perspective on price increases and examines how a portfolio price increase affects the financial performance of the customer relationship and whether and how this effect varies between international business customers from different cultures. Based on objective data from 966 international B2B customers of a chemical goods company, this study examines a large-scale field intervention. Results show that higher portfolio price increases, although rooted in an increase of upstream costs, bring more severe harm to B2B customers’ sales revenue than lower portfolio price increases. These consequences vary with customers’ cultures as B2B customers with culture-specific communal norms are more susceptible to the magnitude of portfolio price increases than customers without such norms. International B2B companies, therefore, need to refrain from implementing uniform price increases and should consider their business customers’ cultural origin when designing and implementing price increases.
Maximilian Friess and Roland Kassemeier, “Price Increases and Their Financial Consequences in International Business-to-Business Selling,” Journal of International Marketing. doi:10.1177/1069031X231214160.