Most organizations are reluctant to set prices too low or too high because exceeding the boundaries on either side yields damaging consequences. If we accept that, to succeed in the long run, a firm should make decisions that result in positive economic profit (in this case “economic profit” is calculated as revenue minus all direct and indirect costs, plus the opportunity cost of capital employed), then this objective ought to be reflected in product pricing decisions. Regardless of what pricing strategy or objectives a firm may have, the price must fall somewhere between the minimum price the firm is able to sell at (i.e., the price floor), and the maximum price that the customer is willing to buy at (price ceiling).

This all seems logical and obvious. However, many companies struggle when held to the fire and asked to produce quantitative evidence to support their claimed understanding of appropriate price floors and ceilings for their products.

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