Pricing decisions

Micro-economics contribute to demand-oriented management with economic research on market and pricing mechanisms (Varian 1994). Relations of demand and supply from the micro-perspective of buyers and sellers as market participants are investigated. Specifically, market-constellations, price-quantity functions and pricing mechanisms are related to sales quantity and price decision making. 

Price decisions on how to set posted prices, individual-offer prices and reserve prices in auctions how to price across categories how to price over time how to markdown (discount) over the product lifetime... 

Focus on supply cost minimization with supply volume decisions based on given demand Focus on turnover maximization with sales volume and price decisions based on given supply... 

Demand management concepts focus on sales volume and price decisions to maximize turnover based on a given and/or unlimited supply... 

Chakravarty AK (2005) Global plant capacity and product allocation with pricing decisions. European Journal of Operational Research 165 (1) 157-181... 

Govindarajan, V, Anthony, R., 1983. How firms use cost data in pricing decisions. Management Accounting, July, 30-37. Jensen, M.C., Murphy, K.J., 1988. Compensation and incentives practice vs theory. Journal of Finance 43, 593-616. 

Lucas, M.R., 2003. Pricing decisions and the neoclassical theory of the firm. Management Accounting Research 14, 201-217. Martin, S., 1993. Advanced Industrial Economics. Blackwell. 

Nabil, A-N., Baliga, S., Besanko, D., 2004. The Sunk Cost Bias in Managerial Pricing decisions. Mimeo. 

Allocation of all direct and indirect costs (highlighting environmental, safety and health costs) to a product or product line for the purposes of inventory valuation, profitability analysis and pricing decisions... 

The net returns to both the NIH scientists and the commercial firm rise and fall directly with the ultimate price of the product to consumers (individual patients and their private and public health insurers). The PHS policy governing exclusive licenses, including those granted under CRADAs, requires that prices of commercial products be commensurate with the extent of public investment in the product, and the health and safety needs of the public (486). The policy further states that licensees may be required to provide reasonable evidence to support their pricing decisions, To date, this policy has been implemented only in one case—the antiviral ddl, manufactured under an exclusive license by Bristol-Myers Squibb. 

Health consumers and activists have publicly questioned pharmaceutical pricing decisions for other products that have been developed at least... 

Dorward N. 1987. The Price Decision Economic Theory and Business Practice. Harper Row,... 

Now consider the automobile maker who has to set the price of new cars. This decision maker needs to consider how the price will compare (1) to prices for similar cars by other car makers (2) with other models in the seller s line of cars and (3) with used car prices. The car maker also must consider whether the car dealers wUl be able to make a sufficient profit from seUing the car to be motivated to promote the car in the local markets. Finally, if the number of new cars sold at the price set is insufficient to reach the profitability goals of the maker, price reductions in the form of cash rebates or special financing arrangements for buyers might have to be used. Besides these pricing decisions, the car maker must decide on the discount in the price to give to fleet buyers like car rental companies. Within one year, these new rental cars wfll be sold at special sales to dealers and to individuals hke the buyer above. 

The problem that this variety of terms creates is that we often fail to recognize that the setting of a rent, interest rate, premium, fee, admission charge, or toll is a pricing decision exactly like that for the price of a product purchased in a store. Moreover, most organizations that must set these fees, rates, and so on must also make similar pricing decisions to that made by the car maker discussed above. 

One of the most important cornerstones of price determination is demand. In particular, the volume of a product that buyers are willing to buy at a specific price is that product s demand. In this section we will review some important analytical concepts for practical pricing decisions. 

As shown in Table 1, there are many kinds of pricing decisions that a firm must make. There is the decision on the specific price to set for each product and service marketed. But this spedflc price depends on the type of customer to whom the product is sold. For example, if different customers purchase in varying quantities, should the seller offer volume discounts ... 

As a product moves into the maturity and saturation stages, it is necessary to review past pricing decisions and determine the desirability of a price change. Replacement sales now constitute the major demand, and manufacturers may also incur regional competition from local brands. Market conditions do not appear to warrant a price increase, hence the pricing decision usually is to reduce price or stand pat. 

During the declining phase of a product s life, direct costs are very important to the pricing decision. Normally, competition has driven the price down close to direct costs. Only those sellers who were... 

Perhaps the most difficult aspect of the pricing decision is to develop the procedures and policies for administering prices. Up to this point, the issue has been on the setting of base or list prices. However, the fist price is rarely the actual price paid by the buyer. The decisions to discount from list price for volume purchases or early payment, to extend credit, or to charge for transportation effectively change the price actually paid. In this section, we consider the problems of administering prices. 

An important issue relative to pricing is the effect that pricing decisions and their implementation have on dealer or distributor cooperation and motivation as well as on sedespeople s mor2de and effort. While it is difficidt to control prices legally through the distribution channel, nevertheless, it is possible to elicit cooperation and provide motivation to adhere to company-determined pricing policies. Also, because price directly affects revenues of the trade and commissions of salespeople, it can be used to foster desired behaviors by channel members and salespeople. 

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