Week 4

Pricing Decisions and Profitability Analysis

1
Managers have a general tendency to believe that price is
an important issue for customers. Research, however, has
shown that customers are frequently unaware of prices paid
and that price is one of the least important purchase criteria
for them.

Key Terms

Price-Takers - Firms that have little or no influence

over the prices of their products or services

Price-setters - firms that have some discretion over

setting the selling price of their products or services.
For price setting firms price is an important input into
the pricing decisions.

Before adopting a pricing strategy, certain factors need to be considered. Internal pricing factors include
production and other costs, and marketing strategies. External factors include market competition,
demand and supply relationships, customer behavior, and legal requirements.

The different pricing methods include:

cost-based pricing,
value-based pricing,
and competition-based pricing.
Pricing strategies for new products include
penetration pricing
and price skimming.

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