Selecting a pricing strategy : a statistical approach

Abstract

Pricing management, as part of the marketing strategy of an organisation, is a difficult and highly complex - but also critically important - management activity, as it affects the revenue and therefore the profits of an organisation. However, scholars such as Bruck (2010), Cram (2006:5), Eugster, Kakkar and Roegner (2000:133), Hinterhuber (2004:765) and Pratt (2007) believe that the pricing function in organisations has largely been neglected by managers and academics and that price is generally set by guesswork and not by scientific means. This article maintains that the pricing function in an organisation can be successfully managed through the implementation of a pricing plan. A critically important step in the pricing plan is to select a pricing strategy or combination of pricing strategies to set the price of a product or service. A number of nonparametric statistical tests are available to assist management in the selection of the most suitable pricing strategy, or combination of pricing strategies, when determining the price of a product or service. The aim of this article is to demonstrate the use of statistical methods in selecting a pricing strategy as part of a comprehensive pricing plan. The article contains an analysis of selected literature, while taking a descriptive and statistical approach to demonstrate the use of statistical methods in selecting a pricing strategy.