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Article
Publication date: 1 February 2005

Chris Guilding, Colin Drury and Mike Tayles

This paper has two specific objectives: to appraise the relative importance of cost‐plus pricing and to develop and test hypotheses concerned with contingent factors that might…

11196

Abstract

Purpose

This paper has two specific objectives: to appraise the relative importance of cost‐plus pricing and to develop and test hypotheses concerned with contingent factors that might affect the degree of importance attached to cost‐plus pricing.

Design/methodology/approach

Data were collected via a mailed survey of UK and Australian companies. Tests were applied and non‐response bias was not a threat to the validity of the findings.

Findings

A relatively high degree of importance attached to cost‐plus pricing is noted, although there appears to be a substantial number of companies that use cost‐plus pricing for a relatively small sub‐set of products and services. Companies confronted by high competition intensity attach relatively high degrees of importance to cost‐plus pricing and manufacturing companies attach a relatively low degree of importance to cost‐plus pricing.

Originality/value

The paper makes a contribution, given that only two empirical studies with a specific focus on cost‐plus pricing were revealed in a literature search covering the last two decades. Additionally, little has been done to investigate the contingent factors affecting the application of cost‐plus pricing. The significant role played by competition intensity in connection with accounting system design is observed to be one of the more enduring relationships uncovered by management accounting research. But a somewhat perplexing aspect of this study concerns the failure to find a statistically significant positive relationship between company size and cost‐plus pricing.

Details

Managerial Auditing Journal, vol. 20 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 3 April 2018

Reinaldo Guerreiro and Juliana Ventura Amaral

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the marketing…

3529

Abstract

Purpose

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the marketing normative view and companies’ practice needs further clarification. In this way, the paper aims to investigate whether marketing researchers’ claim that the use of cost-based price approach prevails over the use of value-based price approach is pertinent.

Design/methodology/approach

The paper is guided by the following research question: “Does price-setting based on cost plus margin go against the value-based price approach?” The answer to this question is grounded in reflections on results of previous research studies and in a case study conducted in an industrial company. Because of the qualitative focus of the present study, hypotheses are not established, but rather the following proposition: certain companies use the mechanics of cost plus margin in the sale price-setting process, but it does not necessarily mean that these companies set prices based on cost.

Findings

The arguments, propositions and the case study findings provide the logical sequence and the support required to conclude that price-setting based on cost plus margin does not always conflict with the value-based price approach. As a result, it may be claimed that the general proposition established is theoretically valid, i.e. using a price formula that contains the elements cost and margin does not necessarily mean that the company sets prices based on cost.

Originality/value

The key contribution of this paper is demonstrating that in certain business environments, such as, B2B, using the price formation mechanics based on cost plus margin is the way found by companies to enable the approach adopted. The approach may be cost-based or value-based price. This is the first study that explicitly reveals how B2B companies may set prices based on value while simultaneously preserving the simplicity of cost plus margin formulas. Researchers have significant misconceptions about these formulas: in previous studies, they classified all price-making companies as those adopting the cost-based price approach simply because they used formulas containing the element cost.

Details

Journal of Business & Industrial Marketing, vol. 33 no. 3
Type: Research Article
ISSN: 0885-8624

Keywords

Article
Publication date: 1 May 1980

Gordon R. Foxall

Introduction Contemporary marketing thought stresses that pricing decisions ought to be made within the context of the firm's entire marketing mix. Price is but one facet of a…

Abstract

Introduction Contemporary marketing thought stresses that pricing decisions ought to be made within the context of the firm's entire marketing mix. Price is but one facet of a company's appeal to consumers and needs to be fully integrated with the physical product, its package, advertising, promotion, distribution and so on, in such a way as to enable it to complement, support and enhance every other component of the marketing mix. This means, among other things, that prices should be determined by reference to the market, set at levels which consumers are able, willing or can be persuaded to pay. In addition, the price he pays for a product should reinforce the consumer's judgement of its image and quality. Just as, according to the marketing concept, it is the buyer rather than the manager who defines the product and, thereby, the firm's business, so the meaning and level of the price at which the product changes hands should be decided ultimately by the attitudes and behaviour of consumers.

Details

Management Decision, vol. 18 no. 5
Type: Research Article
ISSN: 0025-1747

Article
Publication date: 1 March 1990

Albert Galway

An examination of the philosophy and methodologyof transfer pricing is provided. The concept oftransfer pricing is that, within a manufacturingcompany, one department, on…

1923

Abstract

An examination of the philosophy and methodology of transfer pricing is provided. The concept of transfer pricing is that, within a manufacturing company, one department, on transferring its output to another department, should regard this transfer as a sale and that there should be a definite policy on setting the selling price. The most usual methods of transfer pricing – cost, cost plus, market price and dual pricing, are evaluated and worked examples of transfer pricing implications in practice, included.

Details

Management Decision, vol. 28 no. 3
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 February 1998

David Carson, Audrey Gilmore, Darryl Cummins, Aodheen O’Donnell and Ken Grant

Some consideration of the specific SME (small/medium sized enterprises) literature outlining perspectives on pricing practice in SMEs is given in this paper. Outlines some…

4155

Abstract

Some consideration of the specific SME (small/medium sized enterprises) literature outlining perspectives on pricing practice in SMEs is given in this paper. Outlines some empirical findings gathered from in‐depth interviews with 40 SME owner‐managers in Northern Ireland. The findings provide corroboration of previous studies and expand the understanding of the price perspective for SMEs. Some conclusions are drawn as a result of this study. This paper examines the real implications of pricing in SMEs and shows how pricing fits with marketing in SMEs.

Details

Journal of Product & Brand Management, vol. 7 no. 1
Type: Research Article
ISSN: 1061-0421

Keywords

Article
Publication date: 1 February 1990

Hugh M. Cannon and Fred W. Morgan

Discusses pricing decision making, one of the oldest marketingtopics, including several pricing methods. Presents a strategic pricingframework, developed from pricing literature…

3457

Abstract

Discusses pricing decision making, one of the oldest marketing topics, including several pricing methods. Presents a strategic pricing framework, developed from pricing literature. Presents rules for evaluating strategic pricing alternatives. Offers a model for marketers to explain and improve pricing decision‐making.

Details

Journal of Services Marketing, vol. 4 no. 2
Type: Research Article
ISSN: 0887-6045

Keywords

Article
Publication date: 1 February 1985

Lynette L. Knowles and Ike Mathur

Two companion articles have considered transfer pricing objectives and factors influencing the designing of these systems. This article, the last in the series, treats the topic…

Abstract

Two companion articles have considered transfer pricing objectives and factors influencing the designing of these systems. This article, the last in the series, treats the topic of designing transfer pricing systems. Since many multinational firms have subsidiaries in the U.S., it is worthwhile to consider the U.S. Internal Revenue Service regulations regarding transfer pricing. Transfer pricing systems can be designed under a variety of alternative market scenarios. These topics are discussed in the first two sections of the article. The designing of profit‐oriented and cost‐oriented transfer pricing systems are considered in the next two sections. A mention of methods for selecting transfer pricing systems concludes the article.

Details

Managerial Finance, vol. 11 no. 2
Type: Research Article
ISSN: 0307-4358

Book part
Publication date: 19 November 2012

Chuck Davenport, John Norkus and Michael Simonetto

When linked to human behavior and executed effectively, value-based pricing represents the most effective lever that a company has at its disposal to maximize profitability. The…

Abstract

When linked to human behavior and executed effectively, value-based pricing represents the most effective lever that a company has at its disposal to maximize profitability. The ability to integrate sophisticated analytics and market research in order to sell a customer the right product (and value) at the right price will drive profitability far more effectively and sustainably than other business initiatives (Marn & Rosiello, 1992, p. 84). This chapter addresses the use of analytics to determine where value resides and how to turn that analysis into an effective platform for pricing decisions. Organization-wide involvement in pricing is essential. A company must provide those persons responsible for pricing – including finance and sales persons – with information regarding the levers they can pull in the product transaction execution. Statistical business analytical software enables companies to apply microeconometrics (analytical and statistical capabilities) for the pricing and selling of products. The pricing waterfall helps companies understand where they can increase profits by using the pocket price and pocket margin to gain insights into which customer relationships can be more profitable than others. By examining the transaction structure, behavioral segmentation, and price optimization (three dimensions of the Analytics Triad), a company can conceive the full value proposition for groups of customers. An effective process and technology infrastructure that enables granular data development and analysis will help enable accurate and timely pricing decisions.

Details

Visionary Pricing: Reflections and Advances in Honor of Dan Nimer
Type: Book
ISBN: 978-1-78052-996-7

Article
Publication date: 17 July 2013

Mark Cecchini, Robert Leitch and Caroline Strobel

Transfer pricing stands at the heart of a MNE management control system. We review the theories of TCE and RBV and develop antecedents and consequences of transfer prices based on…

Abstract

Transfer pricing stands at the heart of a MNE management control system. We review the theories of TCE and RBV and develop antecedents and consequences of transfer prices based on these theories. We propose viewing transfer pricing decisions through a TCE and RBV value chain framework. We review a sample of transfer pricing literature based on this theoretical perspective and show how it fits within our framework. Our framework suggests that setting transfer pricing policy is indeed a complex problem that includes many factors and has many consequences, some of which may be at odds with each other. We give some suggestions for future research based on this framework.

Details

Journal of Accounting Literature, vol. 31 no. 1
Type: Research Article
ISSN: 0737-4607

Keywords

Book part
Publication date: 8 June 2007

Mohamed E. Bayou and Alan Reinstein

The few management accounting pricing methods in the management accounting literature are ineffective in helping small firms use their idle capacity during lingering economic…

Abstract

The few management accounting pricing methods in the management accounting literature are ineffective in helping small firms use their idle capacity during lingering economic recessions, and some of these methods may even worsen this problem.

Extending the traditional break-even-cost-volume-profit model, we derive a more effective pricing method, the break-even-full-capacity-utilization (BEFCU) model, to handle this problem. Seeking full capacity utilization, the BEFCU model has two characteristics: (a) highlighting the importance of the exigent fixed cost category for utilizing idle capacity and (b) using a functional cost structure that focuses on a hierarchy of value drivers in the firm's value creation process. Accordingly, under the BEFCU model, management has an instrumental pricing continuum extending from the minimum acceptable BEFCU sale price to the regular sale price.

To demonstrate its practicality, the authors apply the BEFCU model to an actual job shop. This model integrates certain strategies based on built-in flexibility in commitments with suppliers and customers and maintaining a mode of conservatism in accounting for plant assets. The model can also help small tooling companies currently seeking entrance into China; it may take a while for these companies to gain a foothold in this new market because copyrights and other legalities are rarely enforced (Bunkley, 2004).

Details

Advances in Management Accounting
Type: Book
ISBN: 978-0-7623-1387-7

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