Question: Understanding Pricing Decisions Form teams of three to six students. Each team should contact and meet with a manager responsible for pricing in a company in your area. This might be a product manager or brand manager for a large company or a vice president of marketing or sales for a smaller company. Explore with the manager how his or her company sets prices. Among the questions you might ask are the following:
? How do costs influence your prices? Do you set prices by adding a markup to costs? If so, what measure of costs do you use? How do you determine the appropriate markup?
? How do you adjust prices to meet market competition? How do you measure the effects of price on sales level?
? Do you use target costing? That is, do you find out what a product will sell for and then try to design the product and production process to make a desired profit on the product?
? What is your goal in setting prices? Do you try to maximize revenue, market penetration, contribution margin, gross margin, or some combination of these, or do you have other goals when setting prices? After each team has conducted its interview, it would be desirable, if time permits, to get together as a class and share your findings. How many different pricing policies did the groups fi nd? Can you explain why policies differ across companies? Are there characteristics of different industries or different management philosophies that explain the different pricing policies?