Initiating and Responding to Price Changes 231
Another factor leading to price increases is overdemand.When a company cannot
supply all of its customers, it can use one of the following pricing techniques:
➤ Withdelayed quotation pricing,the company does not set a final price until the product is
finished or delivered. This is prevalent in industries with long production lead times.
➤ Withescalator clauses,the company requires the customer to pay today’s price and all
or part of any inflation increase that occurs before delivery, based on some specified
price index. Such clauses are found in many contracts involving industrial projects
of long duration.
➤ Withunbundling,the company maintains its price but removes or prices separately
one or more elements that were part of the former offer, such as free delivery or
installation.
➤ Withreduction of discounts,the company no longer offers its normal cash and
quantity discounts.
Instead of raising prices, companies can respond to higher costs or overdemand
in other ways, as shown in Table 4.6.
Table 4.6 Marketing-Mix Alternatives
Strategic Options Reasoning Consequences- Maintain price and
perceived quality. Engage
in selective customer
pruning. - Raise price and
perceived quality. - Maintain price and raise
perceived quality. - Cut price partly and
raise perceived quality. - Cut price fully and
maintain perceived
quality. - Cut price fully and
reduce perceived
quality. - Maintain price and
reduce perceived
quality. - Introduce an economy
model.
Firm has higher customer
loyalty. It is willing to lose
poorer customers to
competitors.
Raise price to cover rising
costs. Improve quality to
justify higher prices.
It is cheaper to maintain price
and raise perceived quality.Must give customers some
price reduction but stress
higher value of offer.Discipline and discourage
price competition.Discipline and discourage
price competition and
maintain profit margin.
Cut marketing expense to
combat rising.Give the market what it
wants.Smaller market share.
Lowered profitability.Smaller market share.
Maintained profitability.Smaller market share. Short-
term decline in profitability.
Long-term increase in
profitability.
Maintained market share.
Short-term decline in
profitability. Long-term
maintained profitability.
Maintained market share.
Short-term decline in
profitability.
Maintained market share.
Maintained margin. Reduced
long-term profitability.
Smaller market share.
Maintained margin. Reduced
long-term profitability.
Some cannibalization but
higher total volume.