Question

1. Your company wants to create a strategic pricing team to plan the release of their next model of basketball shoes. Allocate decision rights to the team members and describe what they are and are not allowed to do.

2. Why is pricing considered a “negative-sum” game?

Answer 1

1. Allocating decision rights to the team members to maximize an organization’s performance is the most difficult task. Allocating decision rights for strategic pricing of the new model of basketball shoes should involve two costs- the cost of delegating the authority to the team members who have an in-depth knowledge about the product however their motivations does not align with the goals of the company. Another cost is the proper transfer of relevant information from the source to the person authorized to make the decision. In this process, the first cost need to be considerably reduced.

Do’s are:

a. Regular review of the use of the decision authority for pricing- to avoid any misuse.

b. Decision rights should be assigned unambiguously- management should properly assign the rights to the person who really has the knowledge to take decisions.

Don’ts are:

a. Too much of centralized authority and democracy needs to be avoided- to provide freedom to the team members to take decisions.

b. Outcome should not be confused with the process- bad decisions results in bad outcomes however it is not related to the process and the activities of the business.

2. In a game, some win and some lose the game but finally the total financial value of the security results in zero. Thus, this is called a zero-sum game or negative-sum game. It is called so because the costs such as the transaction fees and other valueless economic activities add to the total loss. Pricing is considered as a negative-sum game because it forces the marketers to adopt new approaches and marketing practices to set prices for the products that yields profit. This intense competition devalues the economy and the market.