Page 406 - Marketing Management
P. 406

Developing Pricing



                             Strategies and Programs







           Price is the one element of the marketing mix that produces revenue;
           the other elements produce costs. Prices are perhaps the easiest element of the marketing
           program to adjust; product features, channels, and even communications take more time. Price
           also communicates to the market the company’s intended value positioning of its product or
           brand. A well-designed and marketed product can command a price premium and reap big
           profits. But new economic realities have caused many consumers to pinch pennies, and many
           companies have had to carefully review their pricing strategies as a result.

                     For its entire century-and-a-half history, Tiffany’s name has connoted diamonds and
                     luxury. Tiffany designed a pitcher for Abraham Lincoln’s inaugural, made swords for the
                     Civil War, introduced sterling silver to the United States, and designed the “E Pluribus
                     Unum” insignia that adorns $1 bills as well as the Super Bowl and NASCAR trophies.
                     A cultural icon—its Tiffany Blue color is even trademarked—Tiffany has survived the
           economy’s numerous ups and downs through the years.With the emergence in the late 1990s of the
           notion of “affordable luxuries,” Tiffany seized the moment by creating a line of cheaper silver jewelry.
           Its “Return to Tiffany” silver bracelet became a must-have item for teens of a certain set. Earnings
           skyrocketed for the next five years, but the affordable jewelry brought both an image and a pricing
           crisis for the company: What if all those teens who bought Tiffany
           charm bracelets grew up to think of Tiffany only as a place where they
                                                                   Pricing decisions are clearly complex and difficult,
           got the jewelry of their girlhood? Starting in 2002, the company began
                                                                                                            2
                                                                   and many marketers neglect their pricing strategies. Holistic
           hiking prices again. At the same time, it launched higher-end
                                                                   marketers must take into account many factors in making pricing
           collections, renovated stores to feature expensive items appealing to
                                                                   decisions—the company, the customers, the competition, and the
           mature buyers, and expanded aggressively into new cities and shop-
                                                                   marketing environment. Pricing decisions must be consistent
           ping malls. When the recession began in 2008, the firm knew it had to
                                                                   with the firm’s marketing strategy and its target markets and
           be careful not to dilute its high-end appeal. Tiffany offset softer sales
                                                                   brand positionings.
           largely with cost-cutting and inventory management, and—very  In this chapter, we provide concepts and tools to facilitate
           quietly—it lowered prices on its best-selling engagement rings only, by  the setting of initial prices and adjusting prices over time and
           roughly 10 percent. 1                                   markets.





           Understanding Pricing


           Price is not just a number on a tag. It comes in many forms and performs many functions. Rent,
           tuition, fares, fees, rates, tolls, retainers, wages, and commissions are all the price you pay for some
           good or service. Price also has many components. If you buy a new car, the sticker price may be
           adjusted by rebates and dealer incentives. Some firms allow for payment through multiple forms,
           such as $150 plus 25,000 frequent flier miles for a flight. 3
              Throughout most of history, prices were set by negotiation between buyers and sellers.
           Bargaining is still a sport in some areas. Setting one price for all buyers is a relatively modern idea
                                                                                                                 383
   401   402   403   404   405   406   407   408   409   410   411