Summari by James R. Martin, Ph.D., CMA
Professor
Emeritus, University of South Florida
Pricing Decisions Main Page |
Surveys Main Page
The table below is from my summary of Shim and Lim's 2022 Cost Management article on pricing strategies. It compares the results of the Shim 2016 survey with Govidindarajan and Anthony's 1983 survey and Shim and Sudit's 1995 survey. These results indicate that full cost pricing is still the most popular pricing strategy, but market-based pricing has become a close second.
I added the results from Hughes and Gjerde's 2003 article in Management Accounting Quarterly in the following table. Their 2003 survey results were based on 130 manufacturing firms and show very different pricing strategies from the other three surveys. Market-based pricing was the dominant strategy at 62% and competitive bidding was 14% although it does not appear in the other three surveys. One explanation for the differences is that the other surveys included firms from many other industries. For example, manufacturing firms were only 24% of the firms surveyed in the Shim and Lim article, and 41.6% (10/24) of those firms used market-based pricing. The implications from the Hughes and Gjerde survey are that market-based pricing may be much more prevalent in manufacturing than in other industries, and that competitive bidding may also be more important than the other research indicates. Perhaps the increase in global competition over the past forty years is driving the increase in market-based pricing.
The following table includes a 2008 summary by Hinterhuber of published research on pricing strategies from 1983-2006. According to Hinterhuber, over this time period surveys on pricing strategies show that 37% of the firms used a cost-based strategy, 44% used a competition or market-based strategy, 17% used a value-based strategy, and 3% used something else. Most of this research is from marketing or strategy related journals and shows more emphasis on value-based pricing than indicated by the accounting literature. Hinterhuber's results also show that respondents to the various surveys indicated that there were many obstacles to value-based pricing. These included problems with value assessment, value communication, market segmentation, sales force management and top management support.
Accounting researchers have shown some interest in research on target costing over the past 30 years, but there has been very little interest in connecting it with value-based pricing. However, although more accurate costing has received a lot of attention from accounting researchers, the Hinterhuber results appear to indicate that accounting costing methods are becoming less important as a product pricing strategy.
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Related summaries:
Abel, R. 1978. The role of costs and cost accounting in price determination. Management Accounting (April): 29-32. (Summary).
Bertini, M. and O. Koenigsberg. 2021. The pitfalls of pricing algorithms. Harvard Business Review (September/October): 74-83. (Summary).
Govindarajan, V. and R. N. Anthony. 1983. How firms use cost data in price decisions. Management Accounting (July): 30-31, 34-36. (Summary).
Hinterhuber, A. 2008. Customer value-based pricing strategies: Why companies resist. Journal of Business Strategy 29(4): 41-50. (Summary).
Hinterhuber, A. and S. Liozu. 2012. Is it time to rethink your pricing strategy? MIT Sloan Management Review (Summer): 69-77. (Summary).
Hughes, S. B. and K. A. Paulson Gjerde. 2003. Do different cost systems make a difference? Management Accounting Quarterly (Fall): 22-30. (Summary).
Martin, J. R. Not dated. Chapter 11: Conventional Linear Cost-Volume-Profit Analysis. Management Accounting: Concepts, Techniques & Controversial Issues. Management And Accounting Web. Chapter11.
Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. (Summary).
Shim, E. and E. F. Sudit. 1995. How manufacturers price products. Management Accounting (February): 37-39. (Note).
Shim, E. D. and R. Lim. 2022. A survey of U.S. firms' pricing strategies and costing methods. Cost Management (May/June): 15-19. (Note).
Thurston, K. L. D. M. Keleman and J. B. MacAarthur. 2000. Providing strategic activity cost information: Cost for pricing at Blue Cross and Blue Shield of Florida. Management Accounting Quarterly (Spring): 4-13. (Summary).
