The Strategy and Tactics of Pricing, 5th Edition

Chapter 9Costs

How Should They Affect Pricing Decisions?

In most companies, there is ongoing conflict between managers in charge of covering costs (finance and accounting) and managers in charge of satisfying customers (marketing and sales). Accounting texts warn against prices that fail to cover full costs, while marketing texts argue that customer willingness-to-pay must be the sole driver of prices. The conflict between these views wastes company resources and leads to pricing decisions that are imperfect compromises. Profitable pricing involves an integration of costs and customer value. To achieve that integration, however, requires letting go of misleading ideas and forming a common vision of what drives profitability.¹ In this chapter ...