Pricing Decision Options Marketing Assignment Paper


Pricing Decision Options
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Pricing Decision Options
Managers are charged with the responsibility of making important decisions. Financial managers are faced with several price decision choices to enable the company increase its profit at the same time minimize losses (Hammond, Keeney & Raiffa, 2015). In most cases decision making occurs under uncertainty, meaning that the managers are not aware of the expected outcomes hence he attempts to develop the best strategy based on payoffs (Hammond, Keeney & Raiffa, 2015).
When managers make decisions under uncertainty, they need to incorporate some of the perceived risks to come up with the best strategy of maximizing profits. Pricing processes is an important decision that managers need to consider based on various factors like operational cost, and other expenses (Hammond, Keeney & Raiffa, 2015). Setting the prices for a product is the most crucial and difficult decision for managers.
Managers have different ways of assessing risk and uncertainties when making important of setting the price. Some managers are risk takers, others are pessimistic, and others try to averse risks. There are various pricing decision options that managers can when making decisions under uncertainty using different approaches; these include applying the maximax rule, the maximin rule, the minimax regret rule and the equal probability rule (Hammond, Keeney & Raiffa, 2015).
MaxiMax rule
The maximax rule is applicable when a manager wants to have the highest possible payoff. The term max is used because the manager needs to seek for alternatives that help him maximize profits. In such cases, the manager would be optimistic and look for the best pricing option without much consideration of the risks involved (Caldentey, Liu & Lobel, 2016). Only risk takers would go for the maximax rule. However, the maximax rule does not guarantee that the outcomes will be positive; it is a fact that the decision with the highest payoffs will generate the worst outcomes. This is a common occurrence in business since higher returns come with greater risk (Caldentey, Liu & Lobel, 2016). Even though maximax looks at the best of all the alternative before choosing the action with the highest value, it works on the assumption that they will get the most profit. Managers who use maximax rule see the bigger picture and ignore the probabilities (Caldentey, Liu & Lobel, 2016).