Page 433 - Marketing Management

410 PART 5 SHAPING THE MARKET OFFERINGS

Brand leaders also face lower-priced store brands. Three possible responses to low-cost competitors
are: (1) further differentiate the product or service, (2) introduce a low-cost venture, or (3) reinvent
as a low-cost player. 87 The right strategy depends on the ability of the firm to generate more de-
mand or cut costs.
An extended analysis of alternatives may not always be feasible when the attack occurs. The
company may have to react decisively within hours or days, especially where prices change with
some frequency and it is important to react quickly, such as the meatpacking, lumber, or oil indus-
tries. It would make better sense to anticipate possible competitors’ price changes and prepare con-
tingent responses.

Summary

1. Despite the increased role of nonprice factors in mod- 4. Firms often need to change their prices. A price
ern marketing, price remains a critical element of decrease might be brought about by excess plant
marketing. Price is the only element that produces capacity, declining market share, a desire to domi-
revenue; the others produce costs. Pricing decisions nate the market through lower costs, or economic
have become more challenging, however, in a changing recession. A price increase might be brought about
economic and technological environment. by cost inflation or overdemand. Companies must
2. In setting pricing policy, a company follows a six-step carefully manage customer perceptions when raising
procedure. It selects its pricing objective. It estimates the prices.
demand curve, the probable quantities it will sell at each 5. Companies must anticipate competitor price changes
possible price. It estimates how its costs vary at different and prepare contingent responses. A number of re-
levels of output, at different levels of accumulated pro- sponses are possible in terms of maintaining or chang-
duction experience, and for differentiated marketing of- ing price or quality.
fers. It examines competitors’ costs, prices, and offers. It 6. The firm facing a competitor’s price change must try to
selects a pricing method, and it selects the final price. understand the competitor’s intent and the likely dura-
3. Companies usually set not a single price, but rather a tion of the change. Strategy often depends on whether
pricing structure that reflects variations in geographical a firm is producing homogeneous or nonhomogeneous
demand and costs, market-segment requirements, pur- products. A market leader attacked by lower-priced
chase timing, order levels, and other factors. Several competitors can seek to better differentiate itself, intro-
price-adaptation strategies are available: (1) geographical duce its own low-cost competitor, or transform itself
pricing, (2) price discounts and allowances, (3) promo- more completely.
tional pricing, and (4) discriminatory pricing.

Applications

Marketing Debate Marketing Discussion
Is the Right Price a Fair Price? Pricing Methods
Prices are often set to satisfy demand or to reflect the pre- Think about the pricing methods described in this
mium that consumers are willing to pay for a product or chapter—markup pricing, target-return pricing, perceived-
service. Some critics shudder, however, at the thought of value pricing, value pricing, going-rate pricing, and
$2 bottles of water, $150 running shoes, and $500 concert auction-type pricing. As a consumer, which do you prefer
tickets. to deal with? Why? If the average price were to stay the
Take a position: Prices should reflect the value same, which would you prefer a firm to do: (1) set one
consumers are willing to pay versus Prices should re- price and not deviate or (2) employ slightly higher prices
flect only the cost of making a product or delivering a most of the year but offer slightly discounted prices or spe-
service. cials for certain occasions?