SUMMA RY
The chapter begins by defining price from the perspective of the consumer, society, and the business.
Each contributes to our understanding of price and positions it as a competitive advantage.
The objectives of price are fivefold: (1) survival, (2) profit, (3) sales, (4) market share, and (5) image. In addition, a pricing strategy can target to: meet competition, price above competition, and price below competition.
Several pricing tactics were discussed. They include new product pricing, price lining, price
flexibility, price bundling, and the psychological aspec ts of pricing.
The chapter concludes with a description of the three alternative approaches to pricing : cost-
oriented, demand-oriented, and value-based.
MARKETER'S VOCABULARY
Demand curve
Quantity demanded at various price levels.
Nonprice competition
Organization uses strategies other than price to attract customers.
Price war
Pricing significantly lower than competition.
Penetration pricing
Accepting a lower profit margin during the introduction of a product.
Price skimming
Price set relatively high to generate a high profit margin.
Price lining
Selling a product with several price points.
Quantity discounts
Reducti on in base price given as the result of a buyer purchasing some pre-
determined quantity of merchandise.
Seasonal discounts
Price discount given on out-of-season merchandise.
Cash discounts
Reduction on base price given
customers for payin g cash or paying within a
short period of time.
Trade discount
Price reductions given to middlemen to encourage them to stock and give pre-
ferred treatment to an organization's product.
Spiffs
Prize money given to retailers to pass on to the retailer's sales personnel for selling ce11ain
items.
Price bundling
Grouping similar complementary products and charging a total price th at is
lower than if they were sold separately.
Mark-up
Difference between the average cost and price of a produc t.
Break-even price
Price that will produce enough revenue to cover all costs at a given level of
production.
Value-based pricing
What that product is worth to that customer at that point in time.
DISCUSSION QUESTIONS
1. Why is price an important
of the marketing mix?
2. Who typically has responsibility for setting prices in most organizations? Why?
3. Discuss the objectives which pricing policies can be established to accomplish.
CASE APPLICATION
2 4 9
4. What conditions are necessary if a "pricing above the competition" strategy is to be successful?
5. Discuss the
strategies that can be adopted
new product pricing. Under what con-
ditions should each be used?
6.
some advantages of
pricing. What are some of the risks?
7. What are some of the more common types of discounts and allowances and the purpose of
8. What is price lining? What benefits does price lining hold for customers?
9. What advantage might a uniform delivered price have for a
PROJECT
Interview a marketing person responsible for pricing in their organization.
Assess the type of pricing strategy they use and why. Write a three- to five-page report.
CASE APPLICATION
UNITED
United Techtronics faced a major pricing decision with respect
its new video screen television.
"We're really excited here at United Techtronics," exclaimed Roy Cowing, founder and president of United Techtronics. "We've made a most signifi cant technological breakthrough in large screen, video television systems." He went on to explain that the marketing plan for this product was now his major area of concern and that what price to charge was the marketing question that was giving him the most difficulty.
founded United Techtronics (UT) in Boston in 1959. Prior to
time, Cowing had
been an associate professor of electrical engineering at M.LT. Cowing founded UT to manufacUlre
and market products making use of some of the electronic inventions he had developed while at M.I.T.
were made mostly to the space program and the military.
For a number of years, Cowing had been trying to reduce the company's dependency on gov-
ernment sales. One of the diversification projects that he had committed research and development monies to was the so-called video screen project. The objective of this project was to develop a system whereby a television picture could be displayed on a screen as big as eight to ten feet diagonally.
One of UT 's engineers made the necessary breakthrough and developed working prototypes. Up to
that point, UT had invested $600,000 in the project.
Extra-large television systems
not
There were a number of companies who sold such
systems both to the consumer and commercial
restaurants, and so on) markets. Most cur-
rent systems made use of a special magnifying screen. The result of this process is that the final picture lacked much of the brightness of the original small screen. As a result, the picture had to be viewed in a darkened room. There were some other video systems that did not use the magnifying process.
These systems used special tubes, but they also suffered from a lack of
UT had developed a system that was bright enough to be viewed in regular daylight on a screen
up to ten feet diagonally. Cowing was unwilling to discu ss how this was accomplished. He would
only say that a patent protected the process and that he thought it would take at least two to three years for any competitor to duplicate the results of the system.
A number of large and small companies were active in this area. Admiral, General
RCA, Zenith, and Sony were all thought to be working on developing large-screen systems directed at the consumer market. Sony was rumored to be ready to introduce a 6O-inch diagonal screen
tern that would retail for about $2,500.
number of small companies were already producing sys-
Advent Corporation, a small New England company, claimed to have sold 4,000 84-inch diagonal
250
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