Page 624 - Encyclopedia of Business and Finance

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Pricing

difference can be seen between a company’s product and Seasonal Pricing. The price for a product can also be
that of a competitor. adjusted based on seasonal demands. Seasonal pricing will
help move products when they are least salable, such as air
conditioners in the winter and snow blowers in the spring.
OPTIONS FOR INCREASING SALES
An advantage of seasonal pricing is that the price for a
Companies have several options available when attempt-
product is set high during periods of high demand and
ing to increase the sales of a product, including coupons, lowered as seasonal demand drops off to clear inventory to
prepayment, price shading, seasonal pricing, term pricing, make room for the current season’s products. Pricing for
segment pricing, and volume discounts.
seasonal holiday products, such as those connected with
Thanksgiving and Christmas, are frequently reduced the
Coupons. Almost all companies offer product coupons,
day after the holiday to clear inventory.
reflecting their numerous advantages. First, a company
might want to introduce a new product, enhance its mar-
Term Pricing. A company has another positive reinforce-
ket share, increase sales on a mature product, or revive an
ment strategy for use when establishing product price,
old product. Second, coupons can be used to generate
term pricing. For example, a company may offer a dis-
new customers by getting customers to buy and try a com- count if the customer pays for the product promptly. The
pany’s product in the hope that these trial purchases will definition of promptly varies depending on company pol-
result in repeat purchases. A variety of coupon distribu- icy, but normally it means the account balance is to be
tion methods are available, such as the Internet, point-of-
paid in full within a specified period; in return, a com-
purchase dispensers, and Sunday newspapers. Internet
pany may provide a discount to encourage continuation
coupons may be found at the following Web sites:
of this early payment behavior by the customer. This term
http://www.couponcraze.com, http://www.couponpages. pricing strategy is normally used with large retail or indus-
com, http://www.couponsurfer.com, and http://www. trial buyers, not with the general public. Occasionally, a
dealcatcher.com.
company will offer a small discount to customers who pay
for a product with cash. For example, Gill Brothers, a fur-
Prepayment. A prepayment plan is typically used with niture store located in Muncie, Indiana, occasionally
customers who have no credit history or a poor one. This offers additional discounts to customers who pay cash.
prepayment method does not generally provide customers During one promotional event, selected items were
with a price break, although sometimes it does. For exam- marked down as much as 40 percent; in addition, cus-
ple, the magazine industry widely uses the prepayment tomers who paid by cash or check were given an extra 10
strategy. A customer who agrees to purchase a magazine percent discount.
subscription for an extended period normally receives a
discount as compared to the newsstand price. Purchase of Segment Pricing. Segment pricing is another tactic a
gift certificates is another example of how prepayment can company can use to modify product price in order to
be used to promote sales. For example, a company may increase sales. Everyday examples of segment-pricing dis-
offer discounts on a gift certificate whereby the purchaser counts are those extended to children, senior citizen, and
may pay only 90 to 95 percent of the gift certificate’s face students. These discounts have several positive benefits.
value. This strategy has several advantages. First, con- First, the company is appearing to help those individuals
sumers are encouraged to buy from the company offering who are or are perceived to be economically disadvan-
the gift certificates rather than from other stores. Second, taged, a perception that helps create a positive public rela-
the revenue is available to a company for reinvestment tions image for a company. Second, members of those
prior to the product’s sale. Finally, receivers will not groups who ordinarily may not purchase the product are
redeem all gift certificates, and as a result, a company encouraged to do so. Therefore, a company’s sales will
retains all the revenue. increase, which will likely result in increased market share
and revenue. Best Western and Marriott are examples of
Price Shading. One way to increase company sales is to hotel chains offering discounts to senior citizens.
allow salespeople to offer discounts on the product’s price.
This tactic, known as price shading, is normally used with Volume Discounts. A common method used by a com-
aggressive buyers in industrial markets who purchase a pany to price a product is volume discounting. The idea
product on a regular basis and in large volumes. Price behind this pricing strategy is simple: If a customer pur-
shading allows salespeople to offer more favorable terms chases a large volume of a product, the product is offered
to preferred business buyers in order to encourage repeat at a lower price. This tactic allows a company to sell large
sales. quantities of its product at an acceptable profit margin.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 601