Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

18. Price Setting in the
    Business World

Text © The McGraw−Hill

Companies, 2002

Price Setting in the Business World 533

These factors apply in many different purchase situations, so it makes sense for

a marketing manager to consider each of them in refining estimates of how

customers might respond at different prices.^8

Organizational buyers think about how a purchase will affect their total costs.

Many marketers who aim at business markets keep this in mind when estimating

demand and setting prices. They use value in use pricing—which means setting

prices that will capture some of what customers will save by substituting the firm’s

product for the one currently being used.

For example, a producer of computer-controlled machines used to assemble cars

knows that the machine doesn’t just replace a standard machine. It also reduces

labor costs, quality control costs, and—after the car is sold—costs of warranty

repairs. The potential savings (value in use) might be different for different cus-

tomers—because they have different operations and costs. However, the marketer

can estimate what each auto producer will save by using the machine—and then

set a price that makes it less expensive for the auto producer to buy the computer-

ized machine than to stick with the old methods. The number of customers who

have different levels of potential savings also provides some idea about the shape of

the demand curve.

Creating a “better mousetrap” that could save customers money in the long

run isn’t any guarantee that customers will be willing to pay a higher price. To

capture the value created, the seller must convince buyers of the savings—and

buyers are likely to be skeptical. A salesperson needs to be able to show proof of

the claims.^9

Auctions have always been a way to determine exactly what some group of

potential customers would pay, or not pay, for a product. However, as we dis-

cussed in Chapter 13, auctions were traditionally used for specific types of

products and drew only local buyers. That has changed dramatically with the

development of online auctions on the Internet. New firms are setting up auc-

tions that specialize in categories of products ranging from vacation trips to

Value in use pricing—

how much will the

customer save?

Auctions are coming

online fast

Internet-based auctions have

quickly become a very important

force in business-to-business

markets.