Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

17. Pricing Objectives and
    Policies

Text © The McGraw−Hill

Companies, 2002

Pricing Objectives and Policies 507

into losses at a lower price. And a higher price would simply prompt competitors

to promote their price advantage.^22

Similarly, a B2B supplier may have a better marketing mix than competitors; but if

buyers have decided to use a procurement hub and reverse auction as the only way to

buy, the supplier may not have any choice but to decide what the lowest price is that

it will bid to get the business. Winning the bid at a profit-losing price doesn’t help.

Even though competition can be intense, too many marketers give up too easily.

They often can find a way to differentiate, even if it’s something that competitors

dismiss as less important. Research showed that many McDonald’s customers actu-

ally prefer the burgers at Burger King. But they judge the bathrooms at McDonald’s

to be cleaner and assume that the kitchen is cleaner and that the food is safer and

of higher quality. That and more tasty fries are more important than Burger King’s

prices and burgers. However, that’s why Burger King came up with new fries. It’s

not yet clear if they have the bathroom part figured out.^23

Similarly, there may be little choice about Price in oligopoly situations. Pricing

at the market—that is, meeting competition—may be the only sensible policy. To

raise prices might lead to a large loss in sales—unless competitors adopt the higher

price too. And cutting prices would probably lead to similar reductions by com-

petitors—downward along an inelastic industry demand curve. This can only lead

to a decrease in total revenue for the industry and probably for each firm. The major

airlines faced these problems recently.

To avoid these problems, each oligopolist may choose a status quo pricing objec-

tive and set its price at the competitive level. Some critics call this pricing behavior

conscious parallel action, implying it is unethical and the same as intentional con-

spiracy among firms. As a practical matter, however, that criticism seems overly

harsh. It obviously isn’t sensible for firms to ignore their competitors.

There are times when the marketing manager’s hands are tied and there is little

that can be done to differentiate the marketing mix. However, most marketing man-

agers do have choices—many choices. They can vary strategy decisions with respect

to all of the marketing mix variables, not just Price, to offer target customers supe-

rior value. And when a marketer’s hands are really tied, it’s time to look for new

opportunities that offer more promise.

So when you stop to think about it, value pricing is simply the best pricing approach

for the type of market-oriented strategy planning we’ve been discussing throughout this

whole text. To build profits and customer satisfaction, the whole marketing mix—

including the price level—must meet target customers’ needs and offer superior value.

Legality of Pricing Policies

Value pricing fits with

market-oriented

strategy planning

This chapter discusses the many pricing decisions that must be made. However,

as was suggested in Chapter 4, some pricing decisions are limited by government

legislation.

The first step to understanding pricing legislation is to know the thinking of leg-

islators and the courts. To get a better idea of the “why” of legislation, we’ll focus

on U.S. legislation here, but many other countries have similar pricing laws.^24

Unfair trade practice actsput a lower limit on prices, especially at the whole-

sale and retail levels. They have been passed in more than half the states in the

United States. Selling below cost in these states is illegal. Wholesalers and retailers

are usually required to take a certain minimum percentage markup over their

merchandise-plus-transportation costs.

Minimum prices are

sometimes controlled