Pricing Decisions and

Cost Management

Prof. Sarbesh Mishra

Finance Area.

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 ABOUT MYSELF

■ Name : Sarbesh Mishra

■ Qualifications : 1. B.Com.(Hons)
2. Post-graduate Commerce.
3. M.Phil (Commerce)
4. Ph.D. (Commerce) submitted.
■ Experience : Joined in University of Delhi as
Lecturer in Commerce in 2001 and
continued till 2005 and then joined
Army Institute as Senior Faculty,
Finance Area prior to current
appointment at NICMAR..

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 Popular Beliefs

“ It is unwise to pay too much, but it’s

worse to pay too little. When you pay too
little, you sometimes lose everything
because the thing you bought was
incapable of doing the thing you bought it
to do.

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 Contd….

“ The common law of business

balance prohibits paying a little and
getting a lot – it can’t be done.”

John Ruskin (1819-1900)

British Poet, Scientist and Philosopher

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 Contd….

“Price has no meaning except in terms

of the quality of the product.”
Dr. W. Edwards Deming (1900-1993)
A Quality Outcome is significantly
more likely when a project is executed
using Quality-Based Principles.

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 Introduction

■ Pricing decisions are management decisions

about what to charge for the products and
services that companies deliver.
■ To maximize operating income, companies
produce and sell units as long as the revenue
from an additional unit exceeds the cost of
producing it.

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 Learning Objectives

1 Discuss the three major influences on pricing

decisions
2 Distinguish between short-run and long-run
pricing decisions
3 Price products using the target-costing
approach
4 Apply the concepts of cost incurrence and
locked-in costs
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 Contd….

Discuss the three major

influences on pricing decisions

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 Major Influences on
Pricing Decisions
1 Customers
2 Competitors
3 Costs
■ The price of a product or service is the
outcome of the interaction between the
demand for the product or service and its
supply.

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 Major Influences on
Pricing Decisions
1 Customers influence prices through their
effect on demand.
■ Companies must always examine pricing
decisions through the eyes of their customers.
■ Too high a price may cause customers to
reject a company’s product.

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 Major Influences on
Pricing Decisions
2 Competitors influence prices through their
actions.
■ Alternative or substitute products of a
competitor may affect demand and force a
business to lower its prices.
■ Fluctuations in the exchange rates of different
countries’ currencies also affect pricing
decisions.
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 Major Influences on
Pricing Decisions
3 Costs influence prices because they affect
supply.
■ The lower the cost relative to the price, the
greater the quantity of product the company
is willing to supply.

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 Contd….

Distinguish between
short-run and long-run
pricing decisions

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 Time Horizon of
Pricing Decisions
■ Most pricing decisions are either short run
or long run.
■ Short-run decisions typically have a time
horizon of less than a year.
– Pricing a one-time-only special order
– Adjusting product mix and output volume

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 Time Horizon of
Pricing Decisions
■ Long-run decisions involve a time horizon
of a year or longer.
– Pricing a product in a major market where
price setting has considerable leeway (Amount
of freedom in the way you want to )

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 Value Engineering

■ Value engineering is a systematic evaluation

of all aspects of the value-chain business
function, with the objective of reducing costs
while satisfying customers needs.

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 Price Discrimination Laws

■ Predatory pricing occur when:

1 the predator company charges a price that is
below an appropriate measure of its costs, and
2 the predator company has a reasonable
prospect of recovering in the future the money
it lost by pricing below cost.

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 Price Discrimination

■ Collusive pricing occurs when companies

in an industry conspire in their pricing and
output decisions to achieve a price above the
competitive price.

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Thank You

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