Research methodology and data

Research method used. The research focus of this study was to understand the decision-making processes of companies and investigate factors influencing them. Even though at first glance the research topic could suggest quantitative analysis, still, those processes are highly sophisticated and company-specific, therefore it requires an in-depth qualitative approach.

The case study approach has been preferred for desk research (studying in-depth the financial and managerial reports, price-lists, etc.) because of the complexity of the price-setting procedure. As the study shows, some companies have changed their pricing approach during the period, even though prices themselves stayed unchanged. Therefore, case-study gives a much better view-point on the subject of the study – the direct approach of managers with their understanding and meaning of the situation. The data was collected and analysed in early 2007.

The emphasis of interpretation has been carried throughout the study. This allows data to be initially coded in several ways (also during the interview process), then re-analysed and interpreted as further data are gathered. The further analysis of data is conducted in accordance with procedures of comparative case analysis. These procedures can be completed in three steps.

The first step is within-case analysis, conducted for each separate case to determine the direction of dependencies between studied variables. The second step is to compare results of individual cases in order to find cause-effect

dependencies between variables. The final step compares results with theore-tical debates to draw some conclusions or hypothesis.

Selection of companies. Companies have been selected based on the discussion in the literature review, where companies should operate in a competitive environment, should have different cost structures and represent different industries. The first task was to select companies in competitive environments.

Several approaches were used to analyse competitiveness of companies. In order to select industries, the concentration of the net sales was followed to avoid markets with domination of a single or a few companies. The approach proxies market competitiveness with market concentration, which is used in several studies (Fritzer, Reiss, 2007). In the following table there is presented the information of some industries’ concentration, where the biggest companies were grouped into three groups, by fours, and their dominance in the industry (by comparing their sales to total sale) was analysed.

Table 2.3.1. Concentration of net sales by economic activity in 2004 (mil. EUR) Industry First four Second four Third four Total sales

Manufacturing 313 229 174 5546

(% of total sales) 5,3 4,1 3,1 100,0

Construction 340 147 92 2124

(% of total sales) 16,0 6,9 4,3 100,0

Wholesale 618 459 371 11222

(% of total sales) 5,5 4,1 3,3 100,0

Hotels and

restaurants 51 19 15 319

(% of total sales) 15,8 5,9 4,7 100,0

Source: Statistical Yearbook of Estonia (2006)

It follows that these industries are competitive, without the dominance of a small number of companies. The dominance in industries still does not exclude the dominance in local markets companies operate in. It should be recalled that companies could have exclusive products, contracts, client groups, etc., which makes the estimation of competitiveness rather complicated. Therefore, the estimation of competitiveness was asked during the interviews of managers to ensure that companies would have competitive market conditions.

Another important selection criterion was to have companies with different cost structures, including companies with high financial gearing (except financial institutions) and with exchange rate exposure (companies trading outside the euro zone or quasi-euro zone). Presumably, different cost-structures appear for companies representing different industries. To avoid any exceptions, the cost structure was analysed also through the public financial reports. Last important criterion was that these companies should have stable management

(stable ownership structure, unchanged management personnel, no substantial changes in strategies, no big acquisitions or investments), at least for three years, and follow-up of monthly or quarterly financial results. As the focus of the current study was to analyse the implementation of the cost-plus pricing, the companies who are not able to gather financial information or interpret financial results should be excluded (Subrahmanyan, 2000; Palegeo, 2004).

Data collection. The research itself in the current study consisted of in-depth semi-structured interviews (Ragin, 1994) carried out with top managers of five companies in Estonia. The objective of these interviews was to allow executive managers to describe their views in relation to what, when and why they change prices. As price management can be very company specific, there was prepared a certain list of topics to be discussed rather than multiple choice questionnaires.

During these interviews several issues of management were discussed, as a short history and introduction of the company; generic competitiveness of the company; the price management procedures; price management methods; the influence of financial results to price management; different cost influences to pricing, etc.

Interviews have been built up to minimise possible biased answers that can be caused by the influence of the question itself, where managers of the company tend to adapt the mode of the recipient to their views (Carson et al, 1998). This seemed to be particularly so if respondents have had technology transfer or prior knowledge in an area of discussion. Therefore, first steps were designed to get the description of the business, everyday management issues, the description of procedures and managerial tasks. Only the final part of the interviews was designed to analyse more in-depth the cost-plus method implementation and real influence on pricing.

Another aspect is the usage of terminology¹⁸. It was deliberately avoided to use marketing and financial terminology, where instead the slang of the company was used during the interviews. Even though it needed additional work to clear out the exact meaning of the terminology, this still gave a more relaxed atmosphere for interviews. Interviews followed a relatively unstructured pattern using the “tell me about…” approach. This approach allows respondents to describe their views on what they do in their own words, and gives the recipient a wide overview of the company. It also gives a unique opportunity for identification and exploration of the key issues, as they are revealed because of the open-ended nature of the interview itself.

Interviews were organised to discuss the following topics:

1. business model and results: key figures of the company; dominance in the market; customer structure; financial performance; management structure and procedures of the company;

18 For further discussion see Grant et al, 2001

2. price setting procedures: what procedures have been used during the time discussed; persons involved in pricing; how regular/often pricing takes place; what determines pricing;

3. the influence of financial figures to pricing: the influence of profit/loss; the influence of the cost of raw material (exchange rate); the influence of other direct costs; the influence of interest rates