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

534 Chapter 18

electric energy. Some firms are setting up their own auctions, especially for prod-

ucts in short supply. Recently the U.S. government used an auction to sell

broadcast rights to use transmission frequencies (air waves) for a new type of cel-

lular phone service. The bidding among communications companies was so

intense that the auction raised more money than anyone had imagined. Count

on more growth in online auctions, not only for business products but also for

consumer products.^10

Customers may have
reference prices

If the price of a product is lower
than the target market’s reference
price, it is likely to be viewed as
offering better customer value.

Some people don’t devote much thought to what they pay for the products they

buy—including some frequently purchased goods and services. But most consumers

have a reference price—the price they expect to pay—for many of the products

they purchase. And different customers may have different reference prices for the

same basic type of purchase. For example, a person who really enjoys reading might

have a higher reference price for a popular paperback book than another person

who is only an occasional reader. Marketing research can sometimes identify dif-

ferent segments with different reference prices.^11

If a firm’s price is lower than a customer’s reference price, customers may view

the product as a better value and demand may increase. See Exhibit 18-12. Some-

times a firm will try to position the benefits of its product in such a way that

consumers compare it with a product that has a higher reference price. Public Broad-

casting System TV stations do this when they ask viewers to make donations that

match what they pay for “just one month of cable service.” Insurance companies

frame the price of premiums for homeowners’ coverage in terms of the price to repair

flood damage—and advertising makes the damage very vivid. Some retailers just

Internet

Internet Exercise SportStop launched an Internet auction site for many

different categories of sporting goods. Go to the auction website

(www.sportstop.com) and review the activities in two auction categories, one

for a sport that is in season and another sport that is not. For example, you

might compare snowboarding and golfing. Do you think that season makes a

difference in the bidding activity? Explain your thinking.