On the leading edge of shifting paradigms


tdc Home

Web Site Design

tdc's FarmGate

FarmGate Books

General Store

Book Store

Sunday Dinner

Contact tdc


Pricing and Governance

tdc is providing the following information as part of our promotional activities.

If governance consultation assistance is required please e-mail tdc

Quote of the Day

"If you know your competitor and know yourself, you need not fear the result of a hundred contests.

If you know yourself but not the opposition, for every victory gained you will also suffer a defeat.

If you know neither the competitor nor yourself, you will succumb in every competition."

Paraphrased from Sun Tzu on the Art of War

The policies by which an organization decides how their goods and services are priced is confusing at best.

Often prices are set with total disregard for generating the needed income to satisfy the organization's objectives and mission.

The trap that some organizations get themselves into is that pricing is established only to recover costs. This in the short term might be satisfactory but in the long term is disastrous.

Many internal and external factors influence the organization's pricing policies. Internally this might mean the satisfaction of the general mission and objectives of the organization and externally satisfying a purchaser before all else.

One of the most difficult decisions any governance body faces is the determination of a general pricing policy. Although some organizations say that pricing is an administrative function, it is cautioned that the revenue stream policy effects the long term vision and objectives and therefore pricing review should always be an agenda item at the Board of Directors level.

There are three generally accepted pricing approaches:

Cost Plus-Based

This includes all the costs associated with producing the item(s) plus some reasonable profit determined by a reasonable return on investment that can be obtained in other capital markets.


Meaning that the service or goods are priced so that the buyer is able to pay the perceived value


Meaning that the service or goods are priced so that market share is not given to your competitors and in some cases designed so that market share is gained.

Because of the dynamism of the marketplace pricing is delicate balancing act that requires constant refinement.

In the final analysis, it is the buyer who ultimately decides the price based upon their perceived value of the goods or services for sale.

Governments and some non profit institutional organizations holding monopolistic market positions often are not faced with buyer based and competition based pricing pressures. They often price (tax) according to a cost policy in order to just recover a portion of their costs. This type of deficit financing is dangerous because pricing is done only with the self interest of cost recovery and is clearly a conflict of interest upon the part of the administration.

Businesses on the other hand operating in a free enterprise system have no other choice but to offer pricing policies based upon a fair return on investment, satisfying the perceptions of value of a customer and pricing incentives that will stimulate market growth. Not an easy thing to do.

Here are a few questions that policy makers should ask when presented with pricing recommendations.

  • Are the prices presented able to generate the needed revenue to recover all manufacturing and associated overhead costs during the expected product life of the goods and services sold ?
  • Is the expected return on investment (net profit after taxes) equal or greater than what can be obtained with less risk elsewhere?
  • What is the nature of contingency cost factors incorporated into the pricing of products?
  • What will be the impact of increasing or decreasing the price on market share ?
  • What will be the impact of pricing above or below the competition?
  • What are the results of market studies done on consumer acceptance for the pricing suggested?
  • What are the marketing risks and what can be done to reduce them?
  • If this is a new product introduction that is priced low to obtain market share, when and how will the price be adjusted to reflect a fair return on investment

Here is a link to a Web Site that details Net Profit Margin

For Inquiries e-Mail tdc

Unless otherwise credited, all images and text are Copyright 2009,
tdc Marketing and Management Consultation, Brockville, Ontario Canada. All rights reserved.