Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Price Setting in the
Business World
Text © The McGraw−Hill
Companies, 2002538 Chapter 18
Our emphasis has been, and will continue to be, on the problem of pricing an
individual product mainly because this makes our discussion clearer. But most mar-
keting managers are responsible for more than one product. In fact, their “product”
may be the whole company line! So we’ll discuss this matter briefly.Full-line pricingis setting prices for a whole line of products. How to do this
depends on which of two basic situations a firm is facing.
In one case, all products in the company’s line are aimed at the same general tar-
get market, which makes it important for all prices and value to be logically related.
This is a common approach with shopping products. A producer of TV sets might
offer several models with different features at different prices to give its target cus-
tomers some choice. The difference among the prices and benefits should appear
reasonable when the target customers are evaluating them. Customer perceptions
can be important here. A low-priced item, even one that is a good value at that
price, may drag down the image of the higher end of the line. Alternatively, one
item that consumers do not see as a good value may spill over to how they judge
other products in the line.
In other cases, the different products in the line are aimed at entirely different
target markets so there doesn’t have to be any relation between the various prices.
A chemical producer of a wide variety of products with several target markets, for
example, probably should price each product separately.The marketing manager must try to recover all costs on the whole line—perhaps
by pricing quite low on more competitive items and much higher on ones with
unique benefits. However, estimating costs for each product is a challenge because
there is no single right way to assign a company’s fixed costs to each of the prod-
ucts; we’ll address this topic in more detail in Chapter 21. Regardless of how costs
are allocated, any cost-oriented pricing method that doesn’t consider demand can
lead to very unrealistic prices. To avoid mistakes, the marketing manager should
judge demand for the whole line as well as demand for each individual product in
each target market.
As an aid to full-line pricing, marketing managers can assemble directly vari-
able costs on the many items in the line to calculate a price floor. To this floor
they can add a reasonable markup based on the quality of the product, the strength
of the demand for the product, and the degree of competition. But finally, the
image projected by the full line and the value of individual items must be
evaluated.Complementary product pricingis setting prices on several products as a group.
This may lead to one product being priced very low so that the profits from another
product will increase, thus increasing the product group’s total profits. A newFull-line pricing—
market- or firm-
oriented?
Pricing a Full Line
Costs are complicated
in full-line pricing
Complementary
product pricing
Internet
Internet Exercise Tiffany & Co. is widely recognized as one of the world’s
premiere jewelers. It commands high prices for what it offers. Go to the
Tiffany website (www.tiffany.com) and review the different sections. Do you
think that the website communicates superior customer value to the Tiffany
target market? Explain your opinion and which specific aspects of the web-
site support your view.