Notes 233
➤ Launching a low-price fighter lineor creating a separate lower-price brand to combat
competition. Miller Beer, for example, launched a lower-priced beer brand called
Red Dog.The best response varies with the situation. Successful firms consider the prod-
uct’s stage in the life cycle, its importance in the company’s portfolio, the competitor’s
intentions and resources, the market’s price and quality sensitivity, the behavior of
costs with volume, and the company’s alternative opportunities.
EXECUTIVE SUMMARY
Price is the only one of the four Ps that produces revenue. In setting prices, a company
follows a six-step procedure: (1) Select the pricing objective, (2) determine demand,
(3) estimate costs, (4) analyze competitors’ costs, prices, and offers, (5) select a pric-
ing method, and (6) select the final price.
Companies do not usually set a single price, but rather a pricing structure that
reflects variations in geographical demand and costs, market-segment requirements,
purchase timing, order levels, and other factors. Several price-adaptation strategies are
available: (1) geographical pricing; (2) price discounts and allowances; (3) promo-
tional pricing; (4) discriminatory pricing, in which the company sells a product at dif-
ferent prices to different market segments; and (5) product-mix pricing, which
includes setting prices for product lines, optional features, captive products, two-part
items, by-products, and product bundles.
After developing pricing strategies, firms often face situations in which they need
to change prices by initiating price cuts or price increases. In these situations, compa-
nies need to consider how stakeholders will react to price changes. In addition, mar-
keters must develop strategies for responding to competitors’ price changes. The
firm’s strategy often depends on whether it is producing homogeneous or nonhomo-
geneous products. Market leaders who are attacked by lower-priced competitors can
choose to maintain price, raise the perceived quality of their product, reduce price,
increase price and improve quality, or launch a low-price fighter line.
NOTES
- Amy E. Cortese, “Good-Bye to Fixed Pricing?”Business Week,May 4, 1998, pp. 71–84.
- Steve Gelsi, “Spin-Cycle Doctor,”Brandweek,March 10, 1997, pp. 38–40; Tim Stevens,
“From Reliable to ‘Wow,’”Industry Week,June 22, 1998, pp. 22-26. - Thomas T. Nagle and Reed K. Holden, The Strategy and Tactics of Pricing,2d ed. (Upper
Saddle River, NJ: Prentice-Hall, 1995), ch. 4. This is an excellent reference book for
making pricing decisions. - Kevin J. Clancy, “At What Profit Price?”Brandweek,June 23, 1997, pp. 24–28;
“GreenMountain.com Begins Supplying Cleaner Electricity to Pennsylvania State
Government,”PR Newswire,January 4, 2000. - See Sidney Bennett and J. B. Wilkinson, “Price-Quantity Relationships and Price Elasticity
Under In-Store Experimentation,”Journal of Business Research,January 1974, pp. 30–34. - John R. Nevin, “Laboratory Experiments for Estimating Consumer Demand—A Validation
Study,”Journal of Marketing Research,August 1974, pp. 261–68; and Jonathan Weiner,
“Forecasting Demand: Consumer Electronics Marketer Uses a Conjoint Approach to
Configure Its New Product and Set the Right Price,”Marketing Research: A Magazine of
Management & Applications,Summer 1994, pp. 6–11.