Articles, August 1978
KENT B. MONROE and ALBERT J. DELLA
The authors review the major pricing decisions that must be made by managers,
explain the current price decision models, and suggest the developments
necessary before pricing decisions can became more "scientific" in orientation.
They suggest v/a/s market researchers can contribute to the creative development
of new approaches to solving pricing problems.
Models for Pricing Decisions
Recently Oxenfeldt  suggested that pricing
practice is mainly intuitive and routine, and that the
pricing literature has produced few new insights or
approaches to the setting of prices. Two reasons for
this lack of creative development of new approaches
to solving pricing problems are: (1) for some time
the economists' theory of price has dominated despite
the lack of realism in the theoretical structure and
(2) until recent environmental changes, the seller's
problem was not price but rather demand stimulation.
Thus, there was little "payoff in studying how buyers
respond to prices and price changes, or how to
determine a set of optimal prices.
The purposes of this article are to review the major
pricing decisions that must be made by managers,
to determine what decision models are available, to
suggest developments necessary before pricing deci-
sions can move from the largely intuitive state to a
more scientific orientation. Moreover, where possible,
recent behavioral advances in price perception are
integrated into the discussion.
As with any "state of the art" report, certain
decisions are necessary to constrain the article to a
reasonable length. The focus of this article is on four
pricing decision areas: new product pricing decisions,
product-line pricing decisions, price change decisions,
and price structure decisions. Neither competitive
bidding models, game theoretic models, nor brand
switching models are covered because they have a
'Kent B. Monroe is Professor of Marketing. College of Business,
Virginia Polytechnic Institute and State University. Albert J. Delia
Bitta is Associate Professor of Marketing Management, College
of Business Administration, University of Rhode Island, Kingston.
relatively strong modeling tradition. Several interac-
tive marketing mix models have been developed that
do include price decisions [e.g. 4, 21, 36]. However,
these marketing mix models are not discussed, pri-
marily because space limitations preclude expanding
discussion to price and joint marketing variable in-
The specific models reviewed in each of the four
decision areas are Hsted in Table 1. Each decision
area is discussed separately. First, the decision area
itself is reviewed briefly to characterize its nature
and scope, as well as some of the interrelated decisions
that are involved. Next, the specific models relating
to the area are described and critically evaluated. The
article concludes with summary comments on the
nature of pricing models and marketing research.