232 CHAPTER 9 PRICINGTHEPRODUCT
products.Nothingcould be furtherfromthetruth.inalmosteverycase,theprocessofdeci-
sionisoneofguesswork."2
Goodpricing strategyis usuallybasedonsoundassumptionsmadebymarketers.It
is al so basedon anunderstandingofthe:twootherperspectivesdiscussedearlier.Clearly,
sale pricing mayproveunsuccessfulunlessthemarketeradoptstheconsumer'sperspec-
tivetowardprice. Similarly,a companyshouldnotchargehighpricesif it hurtssociety's
health. Hertzillus trateshowthiscanbedoneintheIntegratedMarketingBoxthatfollows.
Apricingdecisionthatmustbemadebyallorganizationsconcemstheircompeti-
tivepositionwithintheirindustry.Thisconcernmanifestsitselfineithera competitivepric-
ingstrategyora nonprice competitivestrategy.L~t'slookatthelatterfirst.
Nonprice Competition
Nonprice competitionmeansthatorganizationsusestrategiesotherthanpricetoattractcus-
tomers. Advert ising,credit,delivery, displays,privatebrands,andconvenienceareallexam-
pleoftoolsusedinnonpricecompetition.Businesspeopleprefertousenonpricecompetition
HOWTOSELECTTHEBESTPRICE
TheHertzCorporation knowswhen its rental carswillbegone
andit knowswhenthelotswillbefull.How? By tracking
demandthroughoutpastsixyears. "Weknow, basedonpas t
petformanceandseasonalchanges,whattimesofyearthere
is a weakdemand,andwhenthereis toomuchdemandforour
supplyofcars,"saysWayneMeserue,directorofpricingand
yieldmanagementat Hertz.Tohelp strikea balance,thecom-
- panyusesa pricingstrategycalled"yieldmanagement" that
keepssupplyanddemandincheck. The strategylooksattwo
aspectsofHertz'spricing: theratethatis chargedandthe length
oftherental.
"Price isa legitimaterationingdevice,". says Meserue.
"Whatwe'rereallytalkingaboutisefficientdistribution,pric-
ing,andresponseinthemarketplace." Forexample, thereare
timeswhencarsareingreat demand."It's alwaysa gamble,
butit'sdefinitelya calculatedgamble. With yieldmanage-
ment,wemonitordemanddaybyday,andadjust(pricesas
necessary),"Meseruesays.
Hertzalsouseslengthof rentalasa yieldmanagement
device.Forinstance,theyestablisheda three-nightminimum
fo r carrentals duringPresident 's DayweekendinFebmary.
"Wedidn'twanttobeturningawaybusinessforsomeonewho
wantedthecarforfivenightsjustbecausewehad givenour
carstopeoplewhocameinfrrstforone night,"saysMeserue,
whoaddsthatit'softenbetterforHertz tomandatea mini-
mumnumberofdaysfora rental,becauseit ensuresthatcars
willberentedformoredays.
Asmartpricingstrategy is essentialforincreasingprofit
marginsandreducingsupply.Yet atlastcount, only 15 %of
largecorporations wereconductinganysortofpricing
research,reportsRobertDolan,professoratHarvardBusiness
School."Peopledon' t realizethatifyoucanraiseyourprices
byjustonepercent, that'sa bigincreaseinyourprofitmar-
gin,"hesays.Forexample,ifa supermarketis operatingwith
a two-percentnetmargin,raisingthepricesbyonepercent
willincreaseprofitabilityby33%. "Thekeyis nottakingone
percentacrosstheboard,butraising it10%for10%ofyour
customers,"saysDolan, "Findthosesegmentsofthemarket
thatarewillingtotaketheincrease." Thatdoesn'tmeanthat
companiescanautomaticallypasstheircostincreasesonthe
customer, notesDolan.Ifthecostsareaffectinganentire
industry, thenthosecostscanbepassedthrougheasilytothe
consumer,becausecompetitorswilllikelyfollowthelead.
A fundamentalpointinsmartpricing,accordingtoDolan:
basepricesonthevaluetothecustomer,Asmuchaspeople
talkabout customerfocus,theyoftenpriceaccordingtotheir
owncosts,Companiescanprofitfromcustomizingpricesto
differentcustomers.Thevalueofa productcanvarywidely
dependingonfactorssuchasageandlocation.
Source:GingerConlon,"MakingSurethePriceis Right;'Sales
andMarketingManagement,May1996,pp.92--93;ThomasT.
NagleandReedK.Holden,TheStrategyandTacticsofPricing,
2nded.,UpperSaddleRiver,N.J.:PrenticeHall,Inc.1995;
WilliamC.Symonds,"'Builda BetterMousetrap'is NoClaptrap;'
BusinessWeek,February1, 1999 ,p.47;MarciaSavage, "Intelto
SlashPentiumIIPrices,"CompanyResellerNews,February8,
1999 , pp. 1, 10.