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The Twelve Management Principles

The Twelve Management Principles

6. Pricing Is Management

Pricing is top management's responsibility — to find that one point where customers are happy and the company is most profitable.

There are myriad ways to set pricing: selling large volumes at low prices with smaller profit margins or setting higher prices with fewer sales to achieve larger profit margins and anything in between. Therefore, you can say that pricing reflects the thinking of management.

It is difficult, however, to forecast how much volume you can sell or how much profit you can gain by setting a certain price. If the price is too high, it won't sell; if the price is too low, even high sales won't earn profit. Either way, setting the wrong price could result in major loss of revenue.

Prices must be set after accurately determining the market value of the product, then finding the one point at which "units sold" multiplied by "profit margin" creates the highest total profit. I consider this one point to be the maximum price at which customers will still be happy to purchase the product.

It is not the sales manager — let alone a salesperson — who should find this one point. Rather, it should be the job of top management. This should be the universal principle for price setting.

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