11 - Multi-Stage AppToach to Pricin can iiianagement make...

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Multi-Stage AppToach to Pricin can iiianagement make sounder decisions in an. area where formulas often fall short and even the sharpest yndguient can he wide of the mark? By Alfred R. Oxenfeldt Of all the areas of executive decision, pricing is perhaps the most fnzzy. Whenever a price problem is discussed by a committee, divergent figures are likely to be recommended without a semblance of consensus. Although unanimity in marketing decisions is a custom more remark- able in its occurrence than in its absence, agree- ment in pricing decisions is even more rare. This article accordingly presents a long-run, jioliey-oriented ajiproacb to pricing \vhicli should reduce the range of prices considered in specilic situations and consequently improve the deci- sions whieh result. This opproaeh, whieh to the best oi^ my knowledge is new, calls for the priec decision to be made in six sueeessive steps, eaeh one narrowing the alternatives to be considered at the next step. Is this method just another mechanical pric- ing formnla? Hardly, for it is my conviction tbat the quest tor mechanical pricing methods is unduly optimistic, if not do^\'nright naive. jNevertheless, many businessmen consistently em- ploy almost mechanical formulas for pricing. They do this even though they seoff at the elaim that there are reliable fixed formulas for han- dling personnel problems or making advertising or capital outlay decisions. Certainly, experi- enee has not prodticed recipes that guarantee correct deeisions in any sphere of business. The best of them only apply iintler normal condi- tions, and it is most rare intiecd tliat conditions resembling normaley pre\ail. On tlie other hand, many disexissions of pric- ing present a long list of factors to be "talvcn into aecount," carefully weighed and balanced, and then subjected to a process ealled "iudgment." While a specific price is thus arri^eii at, this does not alter the faet that intelligent and experi- enced business executives using tbe method will arrive at widel\' different price deeisions — all based on the same information. Yet, even if mechanical pricing forinulas are the hope of the optimistic, it ^'i ould be excessive- ly jiessimistic to resign ourselves to a formless consideration of all the rele\ant factors and to a random exercise of judgment. Afany things are known about the sul)jeet that would be ex- tremely helpful to those responsible for making such decisions. Scqticntia] Stages In order to organize the xarious pieces of in- formation and considerations that bear on price S 125
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126 Harvard Business decisions, a multi-stage approach to pricing can be a very helpful tool. This method sorts the inajor elements in a pricing decision into six suc- cessive stages: 1. Selecting market targets.
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This note was uploaded on 11/10/2010 for the course MAR 4803 taught by Professor Allen,j during the Spring '08 term at University of Central Florida.

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11 - Multi-Stage AppToach to Pricin can iiianagement make...

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