CHAPTER 13
Pricing
ADAMANTIOS DIAMANTOPOULOS
For what is a man if he is not a thief who openly
charges as much as he can for the goods he
sells?
Mahatma GandhiIntroduction
Pricing is an issue about which academics and
practitioners have been at each others’ throats
for a very long time. While nobody knows
exactly when the ‘war’ was started – or by
whom for that matter – Dean’s (1947, p. 4)
description of company pricing policies as ‘the
last stronghold of medievalism in modern
management’ was probably one of the earliest
attacks in the literature about the way com-
panies think about and go about making
pricing decisions. Over the next 50 years or so,
several academics followed in Dean’s footsteps
by criticizing practitioner approaches to pricing
as lacking in rationality and professionalism,
failing to understand the proper role of costs,
and bypassing profit opportunities as a result
of applying routinized pricing formulae (e.g.
Backman, 1953; Staudt and Taylor, 1965; Nimer,
1971; Marshall, 1979; Nagle, 1987; Keil et al.,
1999). The following quote encapsulates the
essence of the criticism: ‘many managers do not
understand how to price, and are insecure
about the adequacy of their current pricing
methods. As a result, they rely on over-
simplistic rules of thumb and place an exag-
gerated emphasis on costs’ (Morris and Morris,
1990, pp. xvii–xviii).
For their part, practitioners have respond-
ed by largely ignoringwhat academia has to
say about pricing. While an enormous literature
on pricing has developed over the past half
century (for relevant reviews, see Diamanto-
poulos, 1991, 1995; Diamantopoulos and Math-
ews, 1995), there have been no radical changes
in the actual pricing practices of firms; indeed,
‘the pricing literature has produced few
insights or approaches that would stimulate
most businessmen to change their methods of
setting prices’ (Monroe, 1979, p. 93). For exam-
ple, a comparison of the adoption of cost-plus
pricing methods over a 50-year period con-
cludes that ‘in spite of the fact that the
intervening years have seen countless refer-
ences to the fact that cost-plus pricing pays
insufficient attention to environmental dynam-
ics, it remains the predominant price-setting
methodology’ (Seymour, 1989, p. 4). Practi-
tioners have also been quick to criticize aca-
demics as being unable to reallyunderstand
what pricing is all about. In the words of one
executive, ‘company pricing policy is an area
where the academic world has long since
retreated in despair of ascribing consistency of
principles or rationality of practice’ (Alfred,
1972, p. 1).