Note by James R. Martin, Ph.D., CMA
Professor
Emeritus, University of South Florida
Pricing Decisions Main Page |
Surveys Main Page
This article provides additional survey data related to how firms price their products. The Shim and Sudit survey included 141 usable responses to questions related to how firms determine their selling prices. Their survey response rate was 23.5%. The survey results indicated that 98 firms (69.5%) reported using full cost pricing, 17 firms (12.1%) used variable cost pricing, 25 firms (17.7%) used market-based pricing, and 1 firm (0.7%) used some other method.
This survey appears to show a trend toward using market prices since the 1983 survey by Govindarajan and Anthony did not indicate that market prices were used by any of their responding firms.
The Hughes and Gjerde 2003 survey was based on 130 companies and supports that trend showing that 81 companies (62%) set selling prices based on competitive market prices, 18 (14%) used competitive bidding, 22 (17%) used cost-plus, and 8 (6%) based their prices on contribution margin. See the Govindarajan and Anthony, and Hughes and Gjerde Summaries below.
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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.
Martin, J. R. 2022. A note on pricing strategies. (Note).
Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. (Summary).
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).
