ACCOUNTING

Strategic Management Accounting

Strategic Management Accounting

Pricing Decisions

Price determination has long been a primary concern of Manac plc economists. At the micro-economic level Manac plc analysis has centered on the use of price to achieve profit maximization under various market structures. In most economic formulations price is considered the only variable affecting demand. In contrast to this classical approach, this chapter will treat price as one of several demand determinants. First, price policies in business practice will be outlined and then univariate models which consider price as that only demand determinant will be discussed.

The univariate approach will then be generalized to include non-price demand determinants such as advertising and other merchandising efforts « After this discussion of price as an element in the marketing mix and some comments on price interactions in multiproduct firms, competitive pricing situations wilt De discussed. Then questions in the empirical measurement of demand relationships will be considered, Finally, heuristic models of price determination will be explored

Price Goals and Policies

Before turning to a consideration of pricing models and measurements, a brief sketch of some common pricing goals and policies seems useful as a prelude to the more formal management science approaches. This discussion is not intended to be exhaustive, aren't rather seeks to remind the reader of the varied nature of pricing goals and policies in practice.

Factors Affecting Pricing Decision

For the remainder of this tutorial we look at factors that affect how marketers set price. The final price for a product may be influenced by many factors which can be categorized into two main groups:

* Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic.

For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product's price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time.

* External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

Importance of Price

When Manac plc marketers talk about what they do as part of their responsibilities for marketing products, the tasks associated with setting price are often not at the top of the list. Marketers are much more likely to discuss their activities related to ...