Part 4: Pricing Process
Amount of Movement
Capsule: No traditional movement in price is sacrosanct. Price should move in the increment that suits the Company's objectives
The Company's pricing process determines the amount by which the price should increase or decline. The Company must determine the increment of the price change that is most effective in reaching its objectives. As is the case with the frequency of price movements, the market may impose the amount of a price change on the Company. The Company would prefer that price declines come in small, discrete, increments, while price increases come in large amounts. In practice, the opposite often holds. In a declining price environment, price changes may come in large amounts. In a rising market, price increases seem to come in smaller increments.
Some industries move prices in increments traditional to the industry. These traditional increments are rarely sacrosanct. A Company may violate these pricing traditions to its advantage. In particular, a Company in a falling price environment may reduce its price by less than the industry's traditional amount in order to slow the pace of its average price decline.
Amount of Movement Questions
The Company may have an opportunity to reduce its costs with customers through some non-price benefits. The next section examines that issue.
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