The Future of Pricing

What’s the Price?

Setting prices is not easy. While pricing can determine the success of any company, most managers worry more about pricing their goods than about their actual pricing philosophies and policies. Companies choose prices that factor in their margins over the cost of production or they base their prices on what the competition charges. Pricing to accommodate a commission-based salesforce is a more complicated equation, in that managers must offer competitive prices and keep the sales staff happy.

Technology can make the complex job of setting prices more manageable. Airlines have been especially proficient in using computers to set prices amid heavy regulations. For instance, they developed computerized reservation systems that predated the Internet by years. Today airlines “practice the most sophisticated pricing ever conceived” as they continually update ticket prices based on consumer behavior, cancellations and bookings.

To derive the maximum benefit from your pricing policies, investigate the mathematics of “scientific pricing.” Companies use this calculation tactic to, for example, explore ways to increase a product’s profit potential. For...