Core Concepts of Marketing by John Burnett - HTML preview

CHAPTER 9

PRICING THE PRODUCT

MARKETING CAPSULE

•

1. Approaches to determining price include:

a. Cost-plus and mark-ups

b. Demand-oriented pricing

c. Value-based approaches to pricing

• Establish highest possible price level and justify it with comparable value.

• Use price as a basis

establishing strong customer relationships.4

THE FUTURE OF PRICING

For too long, pricing decisions have been dominated by economists, discounters, and finan-

cial analysts. While making a reasonable profit remains a necessity,

must become

a more strategic element of marketing. Smarter pricing, as portrayed by the value-based

strategy, appears to represent

future. A case in point is the Ford Motor Co. , which man-

aged to earn $7.2 billion in 2000, more than any automaker in history. Despite a loss

market share , the key to their success was a 420,000-unit decrease in sales of low-margin

vehicles such as Escorts and Aspires, and a 600,000-unit increase in sales of high-margin

vehicles such as Crown Victorias and Explorers. Ford cut prices on its most profitable vehi-

cles enough to spur demand, but not so much that they ceased to have attractive margins .

THE WALL STREET JOURNAL.

IN PRACTICE

has

suffered financial

Customers make

losses, due in part to the "Name

pricing based on perceived value,

Your Own Price" strategy. Visit the

not production costs. For

site now at www.priceline.com.

tions, however, pricing determines

Facilitating exchanges between

the primary source of revenue for

customers is a successful business

the business. Various market seg-

strategy for eBay. Calling itself "the

ments and their respective price

worid's online marketplace," eBay

sensitivities must be considered

has created a trading medium for

when marketers decide on a pricing

anyone interested in buying or sell-

strategy.

ing items online. Items range from

Increasingly, marketers are

one-of-a-kind collectibles to every-

responsible for pricing.

day items such as musical instru-

must understand strategies previ-

ments and sporting goods. Check

ously reserved for economlsls and

out the Web site now at

financial analysts. Questions of

www.ebay.com.

price points, price

and price

bundling now

to marketers.

DELIVERABLE

What do marketers need to

The airline industry competes

know to price products to maxi-

heavi ly on price. Select two airlines

mize profits and capture market

and research fares for one round

share? Break-even analyses, target

trip

on each airline, any des-

rates of re turn, and mark-ups are a

tination. Visit several Web sites that

few of the processes marketers

sell airline tickets and compare

must master.

fares. Compare these prices to

To learn more about profits

those offered on the airlines' Web

and pricing, click on the Interactive

sites. Check your local newspaper

Journal's link to Money & Invest-

for fare prices, too. Write a one-

ing on the Front Section.

page

of your fin dings.

In this section you'll find infor-

mation about interest rates, eco-

DISCUSSION QUESTIONS

nomic conditions, and venture

1. How do organizations decide

capital. Because interest rates

whether to price to meet, price

affect consumer spending, it is

above, or price below competi-

important to understand economic

lion? H ow do organizations

indicators and their impact

measure the success or failure

The Business Focus section of

of their chosen strategy?

Marketplace is a good

2. Are you price sensitive to any

articles that discuss various

products? Do you engage in

ness marketing issues, including

conparative shopping, search-

pricing.

ing for the

deal"?

Naming your own

is the

3. H ow has the Internet affected

strategy for Priceline.com. Cus -

pricing strategies? H ow do

tomers name their

price for

Internet companies compete

plane tickets, hotel rooms, and

tra ditional "brick and

rental cars. Initially, the compary

mortar" companies in pricing?

relished great success. Powever,

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