Search

The structure of industry has changed dramatically in the last decade. The major forces of change are the global impact, changing competitive conditions calling for a sharper focus on customers, greater operational effectiveness and flexibility, and critical changes in customers and market structures.

The above comments from the Advertising Age shed some light on the problems attendant on pricing in today’s business world. Costs are important, and so too are the consumer and product variables present in a given market.

Of all the decisions made by management, pricing is undoubtedly the most visible because of its direct impact on a firm’s performance in the marketplace and overall level of profitablity. Whatever the nature of the business, success is measured by the extent revenues from sales exceed the costs of committed resources. Ideally, the price or prices set for a product or service will ensure the highest margin consistent with volume considerations, recognize customer evaluations of products/services, be responsive to competitive threats, and forestall competitive inroads.

The above passage from ICC shows that utility rates are a product of cost, with costs allocation a major determinant in arriving at a particular rate. However, even in such rate-setting procedure cost allocation is not done equally across the board, but rather is based on the type of electric user. Rates are reached by dividing customers into classes on the basis of related use.

The above passage from Henry Ford’s autobiography portrays his basic philosophy in regard to pricing. This was to cut prices below the point warranted by existing costs so as to provide an incentive to expand production and sales, which, in turn, forced costs down. He contends that manufacturing improvements, forced by the low price, came about faster than if the normal practice of cost cutting were attempted prior to price cutting. What actually happened was that price cuts did lead to better sales, which, in turn, acted to force costs down and bring about manufacturing improvements, resulting in yet lower costs and prices — a vivid demonstration of a self-fulfilling prophecy.

For most firms the potential rewards of doing business in international markets are overwhelming. The most compelling reasons for entering the global marketplace are the sheer size of the marketplace and the limitless opportunities present. One of these opportunities is the leveraging of R&D investment. The global marketplace provides opportunities to obtain a full return on investment that is not possible if technology serves only the home market. Expanding internationally also provides the opportunity to improve products and processes by drawing on the resources of many companies and organizations in different parts of the world. Finally, global expansion allows a firm to remain competitive.1