Core Concepts of Marketing

232 CHAPTER 9 PRICINGTHEPRODUCT

products.Nothingcould be furtherfromthetruth.inalmosteverycase,theprocessofdeci-

sionisoneofguesswork."2

Goodpricing strategyis usuallybasedonsoundassumptionsmadebymarketers.It

is al so basedon anunderstandingofthe:twootherperspectivesdiscussedearlier.Clearly,

sale pricing mayproveunsuccessfulunlessthemarketeradoptstheconsumer'sperspec-

tivetowardprice. Similarly,a companyshouldnotchargehighpricesif it hurtssociety's

health. Hertzillus trateshowthiscanbedoneintheIntegratedMarketingBoxthatfollows.

Apricingdecisionthatmustbemadebyallorganizationsconcemstheircompeti-

tivepositionwithintheirindustry.Thisconcernmanifestsitselfineithera competitivepric-

ingstrategyora nonprice competitivestrategy.L~t'slookatthelatterfirst.

Nonprice Competition

Nonprice competitionmeansthatorganizationsusestrategiesotherthanpricetoattractcus-

tomers. Advert ising,credit,delivery, displays,privatebrands,andconvenienceareallexam-

pleoftoolsusedinnonpricecompetition.Businesspeopleprefertousenonpricecompetition

HOWTOSELECTTHEBESTPRICE

TheHertzCorporation knowswhen its rental carswillbegone
andit knowswhenthelotswillbefull.How? By tracking
demandthroughoutpastsixyears. "Weknow, basedonpas t
petformanceandseasonalchanges,whattimesofyearthere
is a weakdemand,andwhenthereis toomuchdemandforour
supplyofcars,"saysWayneMeserue,directorofpricingand
yieldmanagementat Hertz.Tohelp strikea balance,thecom-

• panyusesa pricingstrategycalled"yieldmanagement" that
  keepssupplyanddemandincheck. The strategylooksattwo
  aspectsofHertz'spricing: theratethatis chargedandthe length
  oftherental.
  "Price isa legitimaterationingdevice,". says Meserue.
  "Whatwe'rereallytalkingaboutisefficientdistribution,pric-
  ing,andresponseinthemarketplace." Forexample, thereare
  timeswhencarsareingreat demand."It's alwaysa gamble,
  butit'sdefinitelya calculatedgamble. With yieldmanage-
  ment,wemonitordemanddaybyday,andadjust(pricesas
  necessary),"Meseruesays.
  Hertzalsouseslengthof rentalasa yieldmanagement
  device.Forinstance,theyestablisheda three-nightminimum
  fo r carrentals duringPresident 's DayweekendinFebmary.
  "Wedidn'twanttobeturningawaybusinessforsomeonewho
  wantedthecarforfivenightsjustbecausewehad givenour
  carstopeoplewhocameinfrrstforone night,"saysMeserue,
  whoaddsthatit'softenbetterforHertz tomandatea mini-
  mumnumberofdaysfora rental,becauseit ensuresthatcars
  willberentedformoredays.
  Asmartpricingstrategy is essentialforincreasingprofit
  marginsandreducingsupply.Yet atlastcount, only 15 %of

largecorporations wereconductinganysortofpricing

research,reportsRobertDolan,professoratHarvardBusiness

School."Peopledon' t realizethatifyoucanraiseyourprices

byjustonepercent, that'sa bigincreaseinyourprofitmar-

gin,"hesays.Forexample,ifa supermarketis operatingwith

a two-percentnetmargin,raisingthepricesbyonepercent

willincreaseprofitabilityby33%. "Thekeyis nottakingone

percentacrosstheboard,butraising it10%for10%ofyour

customers,"saysDolan, "Findthosesegmentsofthemarket

thatarewillingtotaketheincrease." Thatdoesn'tmeanthat

companiescanautomaticallypasstheircostincreasesonthe

customer, notesDolan.Ifthecostsareaffectinganentire

industry, thenthosecostscanbepassedthrougheasilytothe

consumer,becausecompetitorswilllikelyfollowthelead.

A fundamentalpointinsmartpricing,accordingtoDolan:

basepricesonthevaluetothecustomer,Asmuchaspeople

talkabout customerfocus,theyoftenpriceaccordingtotheir

owncosts,Companiescanprofitfromcustomizingpricesto

differentcustomers.Thevalueofa productcanvarywidely

dependingonfactorssuchasageandlocation.

Source:GingerConlon,"MakingSurethePriceis Right;'Sales

andMarketingManagement,May1996,pp.92--93;ThomasT.

NagleandReedK.Holden,TheStrategyandTacticsofPricing,

2nded.,UpperSaddleRiver,N.J.:PrenticeHall,Inc.1995;

WilliamC.Symonds,"'Builda BetterMousetrap'is NoClaptrap;'

BusinessWeek,February1, 1999 ,p.47;MarciaSavage, "Intelto

SlashPentiumIIPrices,"CompanyResellerNews,February8,

1999 , pp. 1, 10.