The Pricing Strategy Audit

This detailed self-assessment audit can be used:

- to measure and improve the effectiveness of your present pricing strategy

- or to create a sound pricing strategy where none exists.

First, use the audit to understand the 5 factors to consider when setting prices - and how to balance them. Then get clear answers to questions like these:

- Does your pricing strategy support broader corporate objectives?

- Have you fully understood the influence of price on your customers?

- Do you use price correctly as an indicator of product/service quality?

- Do you use reference prices and differential prices effectively?

- How well do you use breakeven and profit analysis?

- Do you use appropriate pricing strategies at different stages in the product/service life cycle?

- How do you use promotions and discounting?

- Have you considered the legal issues? The audit doubles as a complete introduction to the whole question of how to set prices and calculate the consequences of your pricing decisions.

The audit's 7 steps are:

Step 1: Assess the Consistency Between Corporate and Pricing Objectives

Step 2: Assess the Relevant Economics for the Pricing Strategy

Step 3: Determine How Your Buyers Perceive Prices

Step 4: Determine the Relevant Costs for the Pricing Strategy

Step 5: Determine the Characteristics of each Specific Price Decision

Step 6: Integrate Specific Price Decisions into an Overall Pricing Strategy

Step 7: Assess the Administrative Structure for Managing the Pricing Function.

Kent Monroe is a professor at the University of Illinois.