Page 425 - Marketing Management

402 PART 5 SHAPING THE MARKET OFFERINGS

inventories or used goods. These are the three major types of auctions and their separate pricing
procedures:
• English auctions (ascending bids) have one seller and many buyers. On sites such as eBay and
Amazon.com, the seller puts up an item and bidders raise the offer price until the top price is
reached.The highest bidder gets the item.English auctions are used today for selling antiques,cat-
tle, real estate, and used equipment and vehicles. After watching eBay and other ticket brokers,
scalpers, and middlemen reap millions by charging what the market would bear, Ticketmaster has
overhauled the way it sells tickets to try to gain more of the multi-billion-dollar ticket resale indus-
try. It now runs auctions for 30 percent of major music tours including popular artists such as
Christina Aguilera and Madonna and allows some customers to resell their seats on its Web site. 64
• Dutch auctions (descending bids) feature one seller and many buyers, or one buyer and many
sellers. In the first kind, an auctioneer announces a high price for a product and then slowly
decreases the price until a bidder accepts. In the other, the buyer announces something he or
she wants to buy, and potential sellers compete to offer the lowest price. FreeMarkets.com—
later acquired by Ariba—helped Royal Mail Group plc, the United Kingdom’s public mail
service company, save approximately £2.5 million (almost $4 million), in part via an auction
where 25 airlines bid for its international freight business. 65
• Sealed-bid auctions let would-be suppliers submit only one bid; they cannot know the other
bids. The U.S. government often uses this method to procure supplies. A supplier will not bid
below its cost but cannot bid too high for fear of losing the job. The net effect of these two
pulls is the bid’s expected profit. 66
To buy equipment for its drug researchers, Pfizer uses reverse auctions in which suppliers sub-
mit online the lowest price they are willing to be paid. If the increased savings a firm obtains in an
online auction translates into decreased margins for an incumbent supplier, however, the supplier
may feel the firm is opportunistically squeezing out price concessions. 67 Online auctions with a
large number of bidders, greater economic stakes, and less visibility in pricing result in greater
overall satisfaction, more positive future expectations, and fewer perceptions of opportunism.

Step 6: Selecting the Final Price
Pricing methods narrow the range from which the company must select its final price. In selecting that
price, the company must consider additional factors, including the impact of other marketing activi-
ties, company pricing policies, gain-and-risk-sharing pricing, and the impact of price on other parties.
IMPACT OF OTHER MARKETING ACTIVITIES The final price must take into account the
brand’s quality and advertising relative to the competition. In a classic study, Paul Farris and David
Reibstein examined the relationships among relative price, relative quality, and relative advertising
for 227 consumer businesses and found the following: 68
• Brands with average relative quality but high relative advertising budgets could charge premium
prices.Consumers were willing to pay higher prices for known rather than for unknown products.
• Brands with high relative quality and high relative advertising obtained the highest prices.
Conversely, brands with low quality and low advertising charged the lowest prices.
• For market leaders, the positive relationship between high prices and high advertising held
most strongly in the later stages of the product life cycle.
These findings suggest that price is not necessarily as important as quality and other benefits.

COMPANY PRICING POLICIES The price must be consistent with company pricing policies.
Yet companies are not averse to establishing pricing penalties under certain circumstances. 69
Airlines charge $150 to those who change their reservations on discount tickets. Banks charge fees
for too many withdrawals in a month or early withdrawal of a certificate of deposit. Dentists, hotels,
car rental companies, and other service providers charge penalties for no-shows who miss appoint-
ments or reservations. Although these policies are often justifiable, marketers must use them judi-
ciously and not unnecessarily alienate customers. (See “Marketing Insight: Stealth Price Increases.”)
Many companies set up a pricing department to develop policies and establish or approve
decisions. The aim is to ensure that salespeople quote prices that are reasonable to customers and
profitable to the company.