Retailer-reseller embeddedness and price-setting in the informal economy

Abstract

This study aims to investigate how and why retailers and resellers in sample firms of the informal economy set prices and the performance implications for the firm’s pricing efforts. The author generated their insights through an inductive qualitative study of four organizations operating within the informal economy in the Nigerian retailing sector. The study found that some organizations within the informal economy set prices in different ways i.e. negotiated pricing and fixed pricing. The contracting criteria between the retailers and resellers determine the pricing strategy. Contractual terms based on relational ties between both facilitate negotiated price-setting, while contractual terms based on non-relational ties promote fixed pricing. The type of price-setting arrangement of the sampled retailer relates to the organization’s performance within its industry. Particularly, the study found that retailers that adopted negotiated pricing performed above the industry average for their product category. In contrast, the retailers that adopted fixed pricing performed below the industry average for their product category. As far as the author knows, this is the first study to investigate pricing methods within the informal economy. This is also the first known study to investigate price-setting arrangements between retailers and resellers within the informal economy. Another unique contribution of this paper is that it is the first study that focuses on pricing interactions among business-to-business firms within the informal economy. The study contributes to the work on relational embeddedness, relational contracting and informal economies.