The extent of the use of accounting information for pricing decisions by Maltese enterprises

Abstract

Prices and Price-setting are the lifeblood of every enterprise. Defining and establishing a price is not an easy task for managers as one might think. Price can be simply defined as the total costs of production plus an allowance for profit. Some authors go beyond this definition by suggesting that price is the value that consumers are willing to pay for a product or service. Considering the fact that price is the only factor that generates revenue for enterprises, businesses must be aware of the negative consequences that could arise if prices are not set in the best possible manner. This study aimed at understanding how Maltese enterprises set prices and to what extent they use accounting information and other pricing methods. Questionnaires were sent by e-mail to a total of 59 enterprises operating in the manufacturing, wholesale, retail and service sector. One of the simplest methods for setting prices is the cost-based method where a mark-up percentage is added to costs. The results showed that this method is the most used method by local businesses. A considerable number of businesses try to analyse the value that consumers attach to their products or services. Other enterprises, believe that consumers associate high prices with high quality. On the other hand, few businesses use market-based approaches when setting their prices.