Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e
- Price Setting in the
Business World
Text © The McGraw−Hill
Companies, 2002Price Setting in the Business World 539Gillette shaver, for example, may be priced low to sell the blades, which must be
replaced regularly.
Complementary product pricing differs from full-line pricing because different
production facilities may be involved—so there’s no cost allocation problem.
Instead, the problem is really understanding the target market and the demand
curves for each of the complementary products. Then various combinations of prices
can be tried to see what set will be best for reaching the company’s pricing
objectives.A firm that offers its target market several different products may use product-
bundle pricing—setting one price for a set of products. Firms that use
product-bundle pricing usually set the overall price so that it’s cheaper for the cus-
tomer to buy the products at the same time than separately. Drugstores sometimes
bundle the cost of a roll of film and the cost of the processing. A bank may offer a
product-bundle price for a safe-deposit box, traveler’s checks, and a savings account.
Sprint bundles wireless minutes and long distance. Bundling encourages customers
to spend more and buy products that they might not otherwise buy—because
the added cost of the extras is not as high as it would normally be, so the value is
better.
Most firms that use product-bundle pricing also set individual prices for the
unbundled products. This may increase demand by attracting customers who want
one item in a product assortment but don’t want the extras. Many firms treat ser-
vices this way. A software company may have a product-bundle price for its software
and access to a toll-free telephone assistance service. However, customers who don’t
need help can pay a lower price and get just the software.^16Product-bundle
pricing—one price for
several productsWe introduced the issue of competitive bidding and reverse auctions in Chap-
ter 7. But now let’s take a closer look at bid pricing. Bid pricingmeans offering a
specific price for each possible job rather than setting a price that applies for all
customers. In an e-commerce reverse auction for a standardized product, this may
just require that the manager decide the firm’s lowest acceptable selling price. But
in many situations bid pricing is more complicated. For example, building con-
tractors usually must bid on possible projects. And many companies selling
services (like cleaning or data processing) must submit bids for jobs they would
like to have.
A big problem in bid pricing on a complicated job is estimating all the costs that
will apply. This may sound easy, but a complicated bid may involve thousands of
cost components. Further, management must include an overhead charge and a
charge for profit.
Because many firms use an e-mail distribution list or website to solicit bids,
the process is fast and easy for the buyer. But a seller has to be geared up to set
a price and respond quickly. However, this system does allow the seller to set a
price based on the precise situation and what marginal costs and marginal
revenue are involved.
Bids are usually based on purchase specifications provided by the customer. The
specs may be sent as an attachment to an e-mail message, or increasingly, they
are posted on a website. Sometimes the seller can win the business, even with a
higher bid price, by suggesting changes in the specs that save the customer money.
Sometimes it isn’t possible to figure out specs or costs in advance. This may lead
to a negotiated contract where the customer agrees to pay the supplier’s total costBid Pricing and Negotiated Pricing Depend Heavily on Costs
A new price for
every job