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CHAPTER 9

PRICING THE PRODUCT

Some manufacturers or wholesalers also give prize money called spijfs for retailers to

on to the retailer's sales clerks for aggressively selling ce11ain items. This is especially common in the electronics and clothing industries, where it is used primarily with new prod-

ucts, slow movers, or high margin items .

Trade-in allowances alSO reduce the

price of a product or service. These

often

to allow the seller to negotiate the

price with a buyer. The trade-in may, of course,

be of value if it can be resold. Accepting trade-ins is necessary in marketing many types

of products. A construction company with a used grader worth $70,000 would not likely

buy a new model from an equipment company that did not accept trade-ins, particularly

when other companies do accept them .

PRICE BUNDLING

A very popular pricing strategy, price bundling, is to group similar or complementary products and to charge a total price that is lower if they were sold separately. Dell Computers

and Gateway Computers follow this

by combining different components for a set

price. Customers assume that these computer experts are putting together an effective prod-

uct package and they are paying less. The underlying assumption of this pricing strategy

is that the increased sales generated will more than compensate for a

profit margin.

It may also be a way of selling a less popular product by combining it with popular ones .

Clearly, industries such as

services and telecommunications are big users of this.

PSYCHOLOGICAL ASPECTS OF PRICING

Price, as is the case with certain other elements in the marketing mix, appears to

mean-

ing to

buyers that goes beyond a simple utilitarian statement. Such meaning is often

referred to as the psychological aspect of pricing. Inferring quality from price is a

mon example of the psychological aspect. A buyer may assume that a suit priced at $500

is of higher quality than one priced at $300. From a cost-of-production, raw material, or

workmanship perspective, this mayor may not be the case. The seller may be able to secure

the

price by nonprice means

as offering alterations and credit or the benefit to

the buyer may be in meeting some psychological need such as ego enhancement. In some

situations, the higher price may oe paid simply due to lack of information or lack of

parative shopping skills. For some products or services, the quantity demanded may act.l-

ally rise to some extent as price is increased. This might be the case with an item such as

a fur coat.

a pricing strategy is called prestige pricing.

Products and services frequemly have customary prices in the minds of consumers.

A customary price is one that customers identify with particular items. For example, for

many

a five-stick package of chewing gum cost five cents and a six-ounce bottle

of Coca-Cola cost five cents . Candy bars now cost 60 cents or more, a customary price for

a standard-sized bar. Manufacturers tend to adjust their wholesale prices to permit retail-

in using customary pricing. However, as we have

duriDg the past decade, prices

have changed so often that customary prices are weakened.

Another manifestation of the psychological aspects of pricing is the use of odd prices. 3

We call prices that end in such digits as 5, 7, 8, and 9 "odd prices" (e.g., $2.95, $ 15.98, or $299.99). Even prices are $3, $16, or $300. For a long time marketing

have attempted

to explain why odd prices are used. It seems to make little difference whether one pays

$29.95 or $30 for an item. Perhaps one of the most often heard explanations concerns the