Page 407 - Marketing Management

384 PART 5 SHAPING THE MARKET OFFERINGS

that arose with the development of large-scale retailing at the end of the nineteenth century. F. W.
Woolworth, Tiffany & Co., John Wanamaker, and others advertised a “strictly one-price policy,”
because they carried so many items and supervised so many employees.
Traditionally, price has operated as a major determinant of buyer choice. Consumers and pur-
chasing agents who have access to price information and price discounters put pressure on retailers
to lower their prices. Retailers in turn put pressure on manufacturers to lower their prices. The
result can be a marketplace characterized by heavy discounting and sales promotion.

A Changing Pricing Environment

Pricing practices have changed significantly. At the turn of the 21st century, consumers had easy ac-
cess to credit, so by combining unique product formulations with enticing marketing campaigns,
many firms successfully traded consumers up to more expensive products and services. The onset
of the Great Recession—a recession more severe than previous recessions, which resulted in many
jobs lost and many businesses and consumers unable to receive loans due to their poorly leveraged
situations—changed things though.
A combination of environmentalism, renewed frugality, and concern about jobs and home val-
ues forced many U.S. consumers to rethink how they spent their money. They replaced luxury pur-
chases with basics. They bought fewer accessories like jewelry, watches, and bags. They ate at home
more often and purchased espresso machines to make lattes in their kitchens instead of buying
them at expensive cafés. If they bought a new car at all, they downsized to smaller, more fuel-
efficient models. They even cut back spending on hobbies and sports activities. 4
Downward price pressure from a changing economic environment coincided with some longer-
term trends in the technological environment. For some years now, the Internet has been changing
how buyers and sellers interact. Here is a short list of how the Internet allows sellers to discriminate
between buyers, and buyers to discriminate between sellers. 5
Buyers can:
• Get instant price comparisons from thousands of vendors. Customers can compare the
prices offered by multiple bookstores by just clicking mySimon.com. PriceSCAN.com lures
thousands of visitors a day, most of them corporate buyers. Intelligent shopping agents
(“bots”) take price comparison a step further and seek out products, prices, and reviews from
hundreds if not thousands of merchants.
• Name their price and have it met. On Priceline.com, the customer states the price he or she
wants to pay for an airline ticket, hotel, or rental car, and Priceline looks for any seller willing
6
to meet that price. Volume-aggregating sites combine the orders of many customers and press
the supplier for a deeper discount.
• Get products free. Open Source, the free software movement that started with Linux, will
erode margins for just about any company creating software. The biggest challenge con-
fronting Microsoft, Oracle, IBM, and virtually every other major software producer is: How do
you compete with programs that can be had for free? “Marketing Insight: Giving It All Away”
describes how different firms have been successful with essentially free offerings.

free items or gifts known as “swag.” Other manufacturers, such as
Gillette and HP, have built their business model around selling the host
product essentially at cost and making money on the sale of necessary
supplies, such as razor blades and printer ink.
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Marketin
Marketing InsightInsight With the advent of the Internet, software companies began to
adopt similar practices. Adobe gave away its PDF Reader for free in
1994, as did Macromedia with its Shockwave player in 1995. Their
software became the industry standard, but the firms really made
their money selling their authoring software. More recently, Internet
Giving It All Away start-ups such as Blogger Weblog publishing tool, MySpace online
community, and Skype Internet phone calls have all achieved some
Giving away products for free via sampling has been a successful mar-
success with a “freemium” strategy—free online services with a pre-
keting tactic for years. Estée Lauder gave free samples of cosmetics to
mium component.
celebrities, and organizers at awards shows lavish winners with plentiful