Pricing Under Uncertainty

Abstract

This chapter specifically addresses situations in which marketing activities are dominated mainly by pricing decisions. Here, we will try to isolate the role of pricing in order to examine at length the impact of demand uncertainty and risk-taking attitude of the firm on this essential component of the firm’s marketing mix. It is well-known that marketing mix represents a central approach in understanding marketing phenomena and strategic decision-making for the firm under deterministic scenarios. Ideally, one would want to examine the interactions among these marketing variables under general conditions of demand uncertainty and in this respect, our present work seeks to partially respond to that challenge. However, as will be seen throughout the book, even for decision variables in isolation, it can often be difficult to assess the impact of uncertainty, especially when elements such as dynamics and multiple-products are involved. It would therefore be most helpful for us to proceed with models as simple as we can in order to gradually gain insight into these complex marketing phenomena. Thus, for example, while marketing scholars and practitioners would rightly regard price discount as part of the firm’s pricing decisions, we will consider this important tool within the context of the firm’s sales promotional activities, in a separate chapter below.