Hello everyone!

By "product pricing" I mean a process that yields prices assigned to products: someone (usually at S&M department) is supposed to take a look at the market of the given product (or on the ceiling at his/her office) and come up with the right price for the product.

The common sense suggests that price of a product is an extremely important ingredient of the customer's satisfaction. (In fact, I would dare to say that it is one of the most critical ingredients, because more often than not a product price is exactly what distinguishes a "fair deal" from a "robbery" - in the customer's eyes, that is.) Therefore, product pricing appears to be a very important business process (albeit, it is probably not very easy to be measured properly).

I have not seen (yet) a single sample/template of QMS documentation that would address product pricing (as a process or otherwise). Of course, so far I have not seen that many samlples/templates to begin with... nevertheless, I'm really, really curious:
Do you think that product price should be in scope of QMS for an organization that does not give away its product for free?

Do you think that product pricing is a valid process? If not, then what's the recommended way to handle prices in QMS?
Interestingly enough, ISO 9000:2005 somewat "suggests" to leave the prices and pricing out of QMS scope:
Definition of "quality characteristic" (3.5.2. NOTE 2) explicitly states that price is not an inherent characteristic of a product (but an assigned one).

Definition of "quality" (3.1.1) does not cover non-inherent characteristics and thus effectively excludes customer's price expectation from the set of requirements that can be used to define quality.
At the same time, definition of "customer satisfaction" (3.1.4) leaves an interesting "gap" between quality and customer satisfaction (using the fuzzy phrase "customer's perception of [quality]" instead of just "quality"). And I suspect that "unfair price" is exactly one of the main reasons why a customer might end up being extremely unsatisfied even by a product that has highest possible quality for this customer.

I think I do understand at least two reasons why prices and pricing are being left out of the standard: (1) some organizations give their products away, so why cover an area that is not applicable to everyone; (2) certification of a product pricing would require audit of product pricing, and something tells me that product pricing is way too sensitive an area for any commercial organization to expose to any outsiders.

(BTW, I've got an impression that, whenever a QMS seeks certfication, everything included into the QMS is automatically a subject to external audit. Is this impression correct?)

Anyway, I think I am digressing too far already. :o

But, just to make sure my question is clear: it is not "whether product pricing has to be in QMS scope to make QMS certifiable" but "whether product pricing should be in QMS scope to make QMS more effective"?

Bonus question:
If you think that pricing should be in QMS, and want to certify the QMS, but do not want to expose pricing to any audits, what are you supposed to do? Create a separate QMS for pricing?

Thank you,
Yarik.

(...) "whether product pricing should be in QMS scope to make QMS more effective"?

Perhaps it's worth noting that the problem being identified here does not apply to medical devices. Both the FDA's QSR and ISO 13485/MDD are focused on compliance with medical device regulatory requirements, not on customer satisfaction.

More generally, my perspective would be that the problem is formulated in a way that tends to preclude the most organization-sensible response, which is that an objectively based quality management system is not going to be able to make a productive contribution to the effectiveness of the subjective and creative parts of the selling process, just as it would be unlikely to benefit the effectiveness of artistic judgment and creativity.

An organization's highest goal in "customer satisfaction" must be regarded as its own continued business success, so that it remains available to its customers. Thus QMS applicability must be limited to those realms of business activity where it makes a positive contribution. Per quality principles, that's almost everything a business does, because almost everything benefits from objective measurement and procedurization...but subjective activities are excluded.

The best way to address this "problem", if it needs addressing, would be to make its scope-exclusion more explicit.

I suppose it is possible it COULD be, but should it? In some cases, where a lot of prices have to be figured for a relatively small scope of grades/product types, I can see where having a defined, auditable process might make sense, but in most cases I'd think that there would end up being so many diversions from the requirements that the defined process would be of little use.

From a practical standpoint, before I suggest this to our Director of Marketing I would go ahead and get a running start. In the other direction.

Fo me, a big factor in how I think about the question is the definition of "QMS." Also, I get the feeling that the question is one of compliance and conformity asessment.

My organization has a process for pricing with checks, balances, and required approvals and records. Within that process, there are also controls for price changes and the approval process for making exceptions.

Is our process part of the "QMS?" Not from an ISO 9001 conformity assessment standpoint but the process is part of our business management system.

Yarik: Thank you for the great question and related thoughts.

In my opinion, "quality" is subjective.

Perhaps it's worth noting that the problem being identified here does not apply to medical devices. Both the FDA's QSR and ISO 13485/MDD are focused on compliance with medical device regulatory requirements, not on customer satisfaction.


Do FDA's QSR and ISO 13485/MDD regulate product pricing somehow? (I apologize for my ignorance, but I have no idea what is behind these refereces.)

I think I do understand at least two reasons why prices and pricing are being left out of the standard: (1) some organizations give their products away, so why cover an area that is not applicable to everyone; (2) certification of a product pricing would require audit of product pricing, and something tells me that product pricing is way too sensitive an area for any commercial organization to expose to any outsiders.This thought provoking question helps to drive my point that ISO 9001 does not equal a business management system. The processes covered under the scope of ISO 9001 are a subset of the total QMS (think ISO 9004:2009), which in it's turn is a subset of the Business Management System.

The standard (ISO 9001) does not cover pricing per se. ISO 9004:2009 DIS barely mentions it. But, from a business perspective, determination of price points is a critical aspect.

Do FDA's QSR and ISO 13485/MDD regulate product pricing somehow? (I apologize for my ignorance, but I have no idea what is behind these refereces.)

Sorry to be unclear. No, neither regulatory system mentions pricing or selling.

As I mentioned, neither has as a goal the maximization of customer satisfaction.

For me, a big factor in how I think about the question is the definition of "QMS." Also, I get the feeling that the question is one of compliance and conformity asessment.


Possiblity of successful certification is of secondary concern (to me) in this context. What really matters is whether this management system works and justifies its existence.

If somebody kindly explained to me what's the difference between compliance and conformity :o, I could probably provide a better explanation of what I meant by "QMS".


My organization has a process for pricing with checks, balances, and required approvals and records. Within that process, there are also controls for price changes and the approval process for making exceptions.

Is our process part of the "QMS?" Not from an ISO 9001 conformity assessment standpoint but the process is part of our business management system.


So there is a formal process around pricing and your organization can somehow measure effectiveness/efficiency of this process and prove (at least to itself) that it is worth the trouble, right?


In my opinion, "quality" is subjective.


It is tempting to respond to this (not necessarily in dissent), but... I've already offtopic-ed one discussion by my musings about semantics of "quality" and promised to myself to avoid using (let alone discussing) this term at Cove. :rolleyes:

For the purposes of this thread, I propose to use "customer satisfaction".

But I still think that "subjectivity of quantity" might be a great topic for a separate discussion, though... :)

Best regards,
Yarik.

This thought provoking question helps to drive my point that ISO 9001 does not equal a business management system. The processes covered under the scope of ISO 9001 are a subset of the total QMS (think ISO 9004:2009), which in it's turn is a subset of the Business Management System.................

That's how I look at it also. Perhaps we should make a distinction between 'pricing' and 'costing'. Costing is a process affair and can be standardized or should be standardized in many businesses.

I think per 1.1b of the Standard, the Pricing process must be a part of any QMS.

BTW, isn't "Quality" an adjective for "Management System"?

BTW, isn't "Quality" an adjective for "Management System"?

I don't think this question quite makes sense grammatically. An adjective qualifies or modifies a noun or noun phrase ('management system'. So if the question were 'can quality be used adjectivally with management system'? I'd agree.

Quality can be a noun (we want quality) or an adjective, just as say 'girls' can -"Girls are wonderful. She goes to a girls school.'

Yes, in the example you use, it functions as an adjective, meaning a management system for quality. Other examples include safety management system, food safety management system and environmental management system.

That's how I look at it also. Perhaps we should make a distinction between 'pricing' and 'costing'. Costing is a process affair and can be standardized or should be standardized in many businesses.

Isn't the term "costing" too ambiguous? Personally I encountered at least two interpretations: "accounting for costs only" and "accounting for costs and benefits".

If "costing" is just about the costs, then I agree - it would be a natural complementary process for pricing (or maybe a sub-process of pricing).

Standardization of any of these processes does not make much sense to me, at least not without some elaboration on the idea.

Thank you,
Yarik.

More generally, my perspective would be that the problem is formulated in a way that tends to preclude the most organization-sensible response, which is that an objectively based quality management system is not going to be able to make a productive contribution to the effectiveness of the subjective and creative parts of the selling process, just as it would be unlikely to benefit the effectiveness of artistic judgment and creativity.

An organization's highest goal in "customer satisfaction" must be regarded as its own continued business success, so that it remains available to its customers. Thus QMS applicability must be limited to those realms of business activity where it makes a positive contribution. Per quality principles, that's almost everything a business does, because almost everything benefits from objective measurement and procedurization...but subjective activities are excluded.


Frankly, I don't understand why subjectivity or creativity of something (activity, product characteristic, etc.) would be sufficient reasons to exclude that something from the scope of QMS (or any other process-based management system focused on customer satisfaction). Could you please elaborate on this?

Also, I think that real pricing processes/activities are neither entirely subjective, nor entirely creative. Well, maybe a monopolist could be totally creative about pricing...

Isn't the term "costing" too ambiguous? Personally I encountered at least two interpretations: "accounting for costs only" and "accounting for costs and benefits".

Why bring accounting in to complicate matters. That's for the other department to crack and they are paid for it.

If "costing" is just about the costs, then I agree - it would be a natural complementary process for pricing (or maybe a sub-process of pricing).

Yes, that's what I mean. I would prefer people from each processes concentrate on doing what they know best and are expected to do. Anyway, it is practiced by many businesses including mine.


Standardization of any of these processes does not make much sense to me, at least not without some elaboration on the idea.
On and off some smart guys will come in and say you should include this or exclude that. They are not wrong but I wouldn't want frequent changes. So, many industries will usually standardized their costing sheets and leave the adjustments in a separate area or during the pricing stage. I recognized there isn't a best way but there are many ways often due to different treatments, techniques and perhaps strategy.