Core Concepts of Marketing

CHAPTER9

PRICING THE PRODUCT

LEARNINGOBJECTIVES

Afte ryouhavereadthi scr,apter,V0Usroulddevelop anunderstand-

ingo f thefollowing keypointsrelatedtopricing:

Them eaningofpricingfromtheperspectiveofthebuyer,seller,

andsociety.

Thesellers'o bjectivesinmaking pricingdecisions.

Thealternativepric i n g approachesavailabletothemanager.

THEMCDONALD'SEFFECT

McDonald'sisonehumongouscompany.'Nith 2 ~,OOOrestaurantsin 101 coun-

tries , it is everywhere-whichiswhytheglotaleconomyis sometimescalledMcWorld.

Butback homeinAmerica,theexecsthatrunthisvaste.mpirearen'tfeelingverylordly.

Morethanevertheyfindtheyhavetokowtowtothepricedemandsofordinaryfolks

likeAlonso Reyes, a 19-year-oldChicagoanwhoworksata localcardealership.Never

mindthatChicagois MickyD's worl d headquarters-hesplitshisfast-foodpatronage

betweenMcDonald's andits arCh-rival, Burger King,andcountseverypennyworthof

beefwhendecidingwheretoeat.SoReyesperkedupwhenheheardthatMcDonald's

hadannounced " anunprecedentedvalueoffering"-a 55-centBigMacthatthecompany

boastedwasbadnewsfo r theircompetition."Cool," saidReyes,"Coupons,specials,

sales.I'lltake whateverI canget."

ForMcDonald'stopmanagement,thispricingstrategymadeperfectsense.After

all, decliningsame-store salesin theU.S.wer~thecnain'smostglaringweakness.What

betterwaytoput so mesizzleinthetoplinethana boldpocketbookappeal?

Well, McDonald' s executivesshouldhaverealizedthatthereis,infact,a better

way.But apparently theytooknonoticeofthefalloutwhenPhillipMorrisannounced

deepcuts on"MarlboroFriday,"orof"GrapeNutsMonday," whenthePostunitofKraft

Foodskickedoffa cerealpricewar. Predictably, "HamburgerWednesday"sentinvestors

ona Big Macattack,slicing9%offMcDonald'ssharepriceinthreedaysanddragging

rival fast-foodissuesdownwithit."It looks almostdesperate," saysPiperJaffray,Inc.

analyst AllanHickok of the55-centcome-on.AddsDamonBrundageofNatWestSecu-

ritiesCorp.; "They have tran sformedoneofthegreatbrandsinAmericanbusinessintoa

commodity."

In theory, McDonal d' s planwillpayoff, becausecustomersonlygetthediscount

iftheybuy adrinkandfrench-frie s, too.Yetthatgimrnick-within-a-gimmickthreatensto

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