Pricing Strategy Essay Example | Topics and Well Written Essays - 2250 words

Pricing Strategy - Essay ExampleAs economic cycles decline, however, management teams cannot drive volume improvements. Pricing improvements, however, are an important track to increasing profitability. The key to improving profitability through set lies in moving from a tactical to a strategic approach to pricing. Pricing dodge involves a good deal more than merely setting price points. In order to achieve profitable pricing, managers must consider both their price structure and their pricing process. Pricing structure is built around target customer segments and culminates in constructing the Product-Service-Price menu. The menu then becomes the basis for constructing and positioning offerings for the customer targets. Pricing processes focus on communicating value delivery to the target customers while minimizing negotiation driven price discounting in the selling process.1We begin with the most fundamental of economic constructs, price, because much of the analytic power of ec onomic theory stems from the abstract image of markets that generate prices.On the surface, price adjustment might seem want an odd place to get wind a process of social construction. Few economic precepts are more taken for granted than the notion that markets determine prices. Moreover, few economic concepts offer so little social content as price. Neoclassical price theory is a highly stylized theory of market behavior. It presumes that social content is nickel-and-dime to market outcomes. It offers no theory of how prices work in a firm simply a notion that they do work. In neoclassical economic theory, firms right away react tochanges in market conditions by adjusting prices. A wide variety of changes may take placechanges in costs, supply, or demand, competitive entry or actions, change in technology, and soon. Firms incorporate those changes and adjust prices upward or downward. Classical economicsassumes that because organizations are endowed with this ability to adjust prices, industries,markets and economies can proceed efficiently. Much of the existing literature in economicstakes this ability for granted, assuming this as a kind of innate organizational capability.To a student of organizations, this seems like an unrealistic belief, and indeed, someeconomists acknowledge this. In economics the literature on the costs of price adjustment arguesthat price adjustment can be a knotty and costly organizational problem. For example, Caplinand Leahy (1991) argue that price adjustment is a very difficult, costly and time-consumingprocess, Levy, et al. (1997) suggest that changing prices is a complex process, requiringdozens of steps and a non-trivial amount of resources, and Ball and Mankiw (1994, p.142)suspect that the most important costs of price adjustment are the time and attention call for ofmanagers to gather the relevant information and to make and implement decisions. Accordingto Blinder, et al. (1998, p. 21) these costs have become one of the main strands of NewKeynesian theorizing. Yet it the Great Compromiser a problem about which, Blinder, et al. (1998 4) argue,economists know next to nothing, even though a small mountain of