Chapter 5: Pricing Policy Study Guide

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Financial Accounting
Tarun Dewan

C13 Chapter 5 Pricing Policy Pricing policy: policy that determines how a company varies its prices Consumer purchase behavior is influenced by expectations that the seller has created. Ie. People dont buy a discounted product and wait for it to become even cheaper. Thus to get people to buy, companies are forced to lower the price later (which matches with what consumers expected). Companies can set a pricing policy that offer 30 day price protection so that consumers can receive a credit for the difference between the regular and the sale price within 30 days of purchase. This way more people will buy the discounted instead of waiting for it to go on sale, and the company will not have to discount the price further later. Behavior of sellers is driven by expectations inferred from past experience. Ie. Sales go up a lot during discount periods, and fall during weeks before discounting. Thus seller becomes more aggressive in the discounting and starts the discount a week earlier to take advantage of customers increasing price sensitivity. Sellers expectations -> sellers pricing behavior -> buyers expectations -> buyers purchasing behavior -> sellers expectations Conclusion: Instead of reacting to past consumer behavior (tactical pricing), sellers should act to influence future consumer behavior (strategic pricing). In b2b, buyers are ahead of sellers because buyers have goals and long-term strategies for decreasing costs, and buyers can pick different sellers. Buyers also have full time professionals to negotiate price and they have access to pricing strategies of different suppliers. Ideally, policies are transparent, consistent, and enable companies to address pricing challenges proactively. Policies for responding to price objectionsnegotiations
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