Strategic pricing decision using the analytic hierarchy process

Among all the elements of the marketing mix, price is the only element that brings revenues to a firm. Pricing-related research is broadly carried out in two different disciplines, namely economics and marketing. The research in economics domain is primarily theoretical. The research in marketing is multi-disciplinary and uses principles of game theory, behavioral decision theory, psychology, and social dimensions to address various pricing-related managerial decision problems. Scholars have proposed multiple theories explaining the pricing-related decision-making processes of firms. However, most of the work is descriptive in nature and does not give adequate directions to operationalize the decisions related to pricing strategy. This paper is normative in nature and provides useful insides to practitioners on how pricing strategy decisions can be made. This paper proposes a decision hierarchy that can be used to operationalize decisions related to the pricing strategy of a firm. Since the inherent components of the problem structure closely resemble the axiomatic requirements of the Analytic Hierarchy Process (AHP) which is a popular multi-criteria decision-making method, this paper also demonstrates how the AHP method can be used to solve a strategic pricing decision problem.