Market-Oriented Pricing: Strategies for Management

By Michael H. Morris; Gene Morris | Go to book overview
Figure 6.5 Pricing to Take Advantage of the Experience Curve Cummulative Volume

One lesson of the experience curve is that industry price tends to follow costs down. As the price drop occurs, it often becomes possible to find new applications for the product that were previously not economical. This leads to further proliferation. The integrated circuit, a product whose costs dropped about 28 percent with each doubling of volume, is a good case in point.


SUMMARY

Costs represent one of the key considerations in establishing and managing prices. However, the thrust of this chapter has been that costs receive far too much emphasis from price managers, and that market-related factors should be the priority. There is a need to move away from simplistic cost-plus or target- return formulas and their underlying full costing philosophy.

Instead, firms should adopt a contribution approach when examining costs for pricing decisions. Products and services should be held directly accountable only for those costs related to their production, sale, and distribution. The contribution margin can be used to determine the level of sales that must be reached to achieve a desired level of profitability and the extent to which

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Market-Oriented Pricing: Strategies for Management
Table of contents

Table of contents

  • Recent Titles from Quorum Books ii
  • Title Page iii
  • Contents vii
  • Illustrations xi
  • Foreword xv
  • Preface xvii
  • 1 - Introduction: Price as a Statement of Value 1
  • References 17
  • 2 - Developing Pricing Programs 19
  • References 37
  • 3 - Understanding and Using Elasticity 39
  • References 54
  • 4 - The Psychology of Pricing 55
  • References 69
  • 5 - Negotiating Prices with Customers 71
  • Summary 85
  • References 86
  • 6 - Examining Costs from a Market Perspective 87
  • Summary 104
  • 7 - Industry and Competitor Analysis 107
  • References 124
  • 8 - Pricing across the Product Line 125
  • Summary 141
  • References 142
  • 9 - Legal and Ethical Aspects of Pricing Decisions 143
  • References 161
  • 10 - Computers as an Aid in Pricing 163
  • References 189
  • Suggested Readings 191
  • Index 197
  • About the Authors 201
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