Demand methods of price management: An empirical research

Abstract

One factor which companies often take as a reference point for their pricing decisions is demand. This, however, is often done only partially, with priority being given to quantitative factors rather than qualitative factors. In this context, the aim of this study was to supply companies with a tool to facilitate and enhance price management in areas related to demand. In order to achieve this objective, the following procedure was implemented. Firstly, an extensive review of existing literature was carried out. This has made it possible to identify a set of factors which can influence consumer behaviour with respect to prices, and which should therefore be taken into account when making pricing decisions. The factors identified were then grouped into several categories (variables related to price, variables related to the product, variables related to the characteristics and the behaviour of the consumer, and variables related to the context of the purchase), in order to offer an overall, linked view. An empirical study was then carried out, interviewing price managers in a selection of companies from Andalusia (Spain). The objective was to gather data on their methods of price management, and to evaluate the practical usefulness of the sets of factors identified. The results of the study have made it possible to draw some interesting conclusions on price management. One of these is the importance which companies attach to pricing decisions. These decisions were taken in all cases by higher management teams. However, on analysing the factors which intervene in pricing decisions, it has been observed that their number is limited. In general, cost is still the major factor, while demandrelated aspects, in particular qualitative aspects, play a secondary role. On investigating the reasons for the priority given to quantitative rather than qualitative data, interviewees basically gave two answers. On the one hand, quantitative information (costs and sales) is easier to obtain, use and interpret than qualitative information (motivation, perception and attitude). On the other hand, most companies, and in particular the smaller ones, have no budget available for qualitative market studies. There may be a third reason for this behaviour, which was not explicitly mentioned at first by interviewees. This is the lack of knowledge regarding qualitative demand factors: their nature, their meaning, their usefulness and the way in which they can be incorporated into pricing decisions. This study is a first step towards solving this deficiency, since it proposes a chart which contains numerous restrictions in an integrated, organised fashion. Logically, it would be impractical to take them all into account simultaneously. This is where the work of each company begins, using market studies to establish priorities between the different factors.