MarketingManagement.pdf

228 CHAPTER12 DESIGNINGPRICINGSTRATEGIES ANDPROGRAMS

Discriminatory Pricing

Companies often adjust their basic price to accommodate differences in customers,

products, locations, and so on. Discriminatory pricingoccurs when a company sells a

product or service at two or more prices that do not reflect a proportional difference

in costs. Discriminatory pricing takes several forms:

➤ Customer-segment pricing:Different customer groups pay different prices for the same

good or service. For example, museums often charge a lower admission fee to

students and senior citizens.

➤ Product-form pricing:Different versions of the product are priced differently but not

proportionately to their respective costs. Evian, for instance, prices a 48-ounce

bottle of its mineral water at $2, while its 1.7 ounce moisturizer spray sells for $6.

➤ Image pricing:Some companies price the same product at two different levels based

on image differences. For instance, a perfume manufacturer can put its perfume in

one bottle with a certain name and image priced at $10 an ounce; the same perfume

in another bottle with a different name and image could be priced at $30 an ounce.

Table 4.5 Promotional Pricing Techniques

Technique Description Example

Loss-leader pricing

Special-event pricing

Cash rebates

Low-interest

financing

Longer payment

terms

Warranties and

service contracts

Psychological

discounting

Stores drop the price on well-

known brands to stimulate

additional store traffic.

Sellers establish special prices

in certain seasons to draw in

more customers.

Manufacturers offer cash

rebates to encourage purchase

of their products within a

specified period; this helps

clear inventories without

cutting the stated price.

Instead of cutting its price, the

company can offer customers

low-interest financing.

Sellers stretch loans over

longer periods and thus lower

the monthly payments that

customers pay.

Companies can promote sales

by adding a free or low-cost

warranty or service contract.

Used legitimately, this involves

offering the item at substantial

savings from the normal price.

Kmart cuts the price of selected

toys to attract shoppers before

Christmas.

Staples offers special prices on

stationery items during a back-

to-school sale.

Mazda advertises cash rebates on

the purchase of selected

previous-year models to clear

these vehicles out of dealer

inventory.

Ford offers low- or no-interest

financing to encourage the

purchase of selected vehicles.

Auto companies and mortgage

banks use this approach because

consumers are more concerned

with affordable payments than

with the interest rate.

Real estate brokers offer special

warranties on selected homes to

expedite sales.

A jewelry store lowers the price

of a diamond ring and advertises

“Was $359, now $299.”