230 CHAPTER 9 PRICINGTHEPRODUCT
IrrationalManPricing:FreedomRules
There aresimplytoomanyexamplestothecontrarytobelievethattheeconomicassulop-
tionsposi ted undertherationalmanmodelarevalid.Pricesgoupandpeoplebuymore.
Pricesgodownandpeoplebecomesuspiciousandbuyless. Sometimeswesimplybehave
inan irrationalmanner.Clearly, as notedinour earlierdiscu~siononconsumers, thereare
otherfactorsoperatinginthemarketplace.The abilityofpayinga pricefewothers canafford
maybeirrational,but i t providesimportantpersonalstatus.Thereare evenpeople whorefuse
tobuyanythingonsale.Or, otherswhobuyeverythingonsale.Oftenbusinesses arewill-
ingtohire a $10,000consultant,who does nomorethana $5, 000 consultant, simplyto
showthe worldthey're successful.
Inmanysocieties,anadditionalirrationalphenomenonmayexist-supportoftho~.e
thatcannotpay.IntheU.S., thereare literallyth ousandsofnot-for-profit organizationsthat
providegoodsand servicesto individualsforverylittlecostorfree. Therearealsogov-
ernmentagenciesth at doevenmore.Imaginewhatgivingawaysurplusfoodtotheneedy
doesto thebelieversofth e economicmodel.
Pricingplanners mustbeawareofboththerationalaswellasthe irrationalmodel,
since,atsomelevel,botharelikelyoperatingina society.Choosingoneovertheotheris
neitherwise nor necessary.
TheMarketer'sViewofPrice
Priceis importanttomarketers,becauseitrepresentsmarketers' assessmentofthevalue
customers seeinthe productorserviceandarewillingtopayfor a productorservice.A
numberoffactorshavechanged thewaymarketersundertakethepricingoftheirproducts
andservices.I
- Foreigncompetitionhasput considerablepressureonU.S.firms' pricing strate-
gies. Manyforeign-made productsare highinqualityand competeinU.S.mar-
kets onthe basisoflower priceforgoodvalue.
- Competitorsoftentrytogainmarket sharebyreducingtht:irprices.Thepncereduc-
tionisintendedtoincreasedemandfromcu stomerswhoarejudgedtobe~ensi
tivetochangesinprice.
- Newproductsarefarmoreprevalent todaythaninthepast.Pricinga newprod-
uctcanrepresenta challenge,asthereis oftennohistoricalbasisforpricingnew
products.Ifa newproductis pricedincorrectly,themarketplacewillreactunfa-
vorablyandthe"wro ng" pricecandolong-termdamagetoa product's chances
formarketplacesuccess.
- Technologyhasledtoexi stingproductshavingshortermarketplacelives. New
products areintroducedtothemarketmorefrequently, reducingthe"shelflife"
ofexistingproducts.Asa result,marketersfacepressurestopriceproducts to
recovercostsmorequickly.Pricesmust beset forearlysuccessesinCludingfast
salesgrowth,quickmarketpenetration, and fastrecoveryof researchanddevel-
opmentcosts.
PricingObjectives
Firms relyonpricetocoverthecostofproduction,topayexpenses,andtoprovidethe
profitincentivenecessarytocontinuetooperatethebu~iness.We mightthinkofthesefac-
