Page 188 - DMGT408DMGT203_Marketing Management

Unit 8: Pricing: Understanding and Capturing Customer Value

Often, there is a fine distinction even in mass-market products, between charging premium Notes
pricing with a narrow base or an inclusive price, which reveals a market size that leaves
everyone dazed. Take the telecom industry, for example. The industry presumed carrying
a mobile phone to be a luxury, charged over ` 14 per minute of talk-time. Somewhere
along the line, telecom players sensed that this market was driven by social factors than
by businessmen and decided to get into the volume game by drastically slashing talk-time
charges and the result is for all to see. Today, there are nearly 50 million mobile phones in
the country and this segment is growing by 25 per cent per year.
But when it comes to status symbol or snob value then price is irrelevant. Here the reverse
works. The more costly a product, better it is perceived to be. Flashing a platinum card,
wearing a Cartier glass, talking on a Nokia Vertu, carrying a Louis Vuitton bag, driving
around in a Porsche becomes a fashion statement. When quite a lot of people can afford to
buy a Calvin Klein, how will you distinguish yourself? You buy a Patek Philippe, which
is in a league of its own. In Italy, there have been stories of people tightening their belts so
that one day, they could buy their dear Ferrari. That’s brand, the very antithesis of price.
Source: Selected excerpts from USP Age, April 2005

8.1.1 Price Competition

There is tremendous price competition in free market economies all around the world. A company
can use price to compete by changing its prices or by reacting to price changes by competitors.
This influences decisions concerning other marketing mix variables. Typically, price-based
competition occurs when consumers cannot readily differentiate between competitive offerings.
In this situation companies use price as a tool to differentiate its products from competitors’
products to beat or match prices set by competitors. To adopt this competitive approach, a
company should be low-cost producer. In case all competitors charge the same price, then the
company producing at the lowest-cost would be most profitable. Companies adopting price-
based competition tend to market standardised products and are generally adept at frequently
adjusting prices or quite willing to do so.
A company adopting price-based competition can exercise flexibility in making adjustments to
changes in company’s costs or product demand. Over the time period most companies manage
to lower costs at varying levels and are able to adjust prices. Too frequent price reductions
sometimes lead to price wars and weaken companies.

Example: In India, Coke and Pepsi occasionally indulge in price-cutting, attempting to
take advantage. The day, one of them announces price reduction the response of the other
company is immediate and apparently neither firm gains advantage.

8.1.2 Non-price Competition

Non-price competition focuses on other than price factors of a product such as distinctive product
features, quality, service, packaging, and promotion to make it meaningfully differentiated
from competing brands. The company attempts to add more value to its brand to push sales
rather than changing its price. It is important that consumers must be able to perceive these
distinctions and view them as important.

Example: When we go to buy an otherwise ordinary product toothbrush, we find significant
differences in prices ranging between ` 5 to ` 38. Major companies differentiate their brands on the
basis of bristle-head flexibility and tiny shock absorbers to benefit teeth and gums.
This approach is more appropriate when customers primarily do not buy a product only for
price reasons such as those products, the customers consider a commodity. When the customers

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