Making effective pricing decisions

Pricing is one of the most complex decisions facing any company. Along with a lack of academic interest (especially among marketing academics) in the field of pricing, this complexity has contributed to the dominance of simplified, cost-based formulas when levying prices. This article offers an alternative approach based on the concept of contribution margin and the need to take into consideration only those costs that are related directly to a specific pricing decision, an approach that is especially useful when a company decides to change its prices. Moreover, an empirical study regarding the practical use of this approach is also presented.