Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e
- Pricing Objectives and
Policies
Text © The McGraw−Hill
Companies, 2002Pricing Objectives and Policies 495When the first version of the PalmPilot was introduced, competitors were close
behind. In addition, Apple had failed when it tried to introduce the Newton
personal information manager at a skimming price of $1,000. Most customers just
didn’t think it was worth it. So the focus for Palm was on a combination of fea-
tures and price that would be a good value and help penetrate the market quickly.
The initial price of about $250 resulted in sales of a million units in 24 months.
Once Palm had a large base of users it worked at keeping them. For example, cur-
rent owners could get $75 for trading in their old units on a new model, or they
could upgrade for $129.^15
Palm certainly faces competition in this market now, but its initial price proba-
bly kept some firms from jumping into the fray. That’s why a low penetration price
is sometimes called a stay-out price. It discourages competitors from entering the
market.Low prices do attract customers. Therefore, marketers often use introductory price
dealing—temporary price cuts—to speed new products into a market. Introductory
price dealing may be used to get customers to try a new product concept as part of
the pioneering effort or to attract customers to a new brand entry later in the life
cycle. However, don’t confuse these temporaryprice cuts with low penetration prices.
The plan here is to raise prices as soon as the introductory offer is over. By then,
hopefully, target customers will have tried the product and decided it was worth
buying again at the regular price.
Established competitors often choose not to meet introductory price dealing—as
long as the introductory period is not too long or too successful. However, some
competitors quickly match introductory price deals with their own short-term sale
prices; they want to discourage their established customers from shopping around.When a product is sold to channel members instead of final consumers, the price
should be set so that the channel members can cover costs and make a profit. To
achieve its objectives, a manufacturer may set different price-level policies for differ-
ent levels in the channel. For example, a producer of a slightly better product might
set a price level that is low relative to competitors when selling to retailers, while sug-
gesting an above-the-market retail price. This encourages retailers to carry the
product, and to emphasize it in their marketing mix, because it yields higher profits.Introductory price
dealing—temporary
price cutsMarketers often use introductory
price dealing—in the form of
temporary price cuts or
introductory coupons—to speed
new products into a market.Different price-level
policies through the
channel