ABSTRACT
Establishing the right price for a product or service is a major management function. It is a function that has an impact throughout the organization and is especially noticed when calculating the profitability rate, a major component of the return on investment equation. Management must understand that pricing is a complex and that it responds to many factors. For example, the marketplace in which a company operates will determine at what price and at what levels customers will respond. Part of the management function is to establish the most effective and profitable pricing strategy. This means being able to price the product and/or service in keeping with the objectives and/or life cycle of the product at different stages. Under the contribution pricing technique, the best price is the one that generates the highest profits, or contribution. The contribution percentage can be used in determining the break-even in units at a specific selling price.
