Page 194 - DMGT408DMGT203_Marketing Management

Unit 8: Pricing: Understanding and Capturing Customer Value

Notes
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Caution Marketers set artificially high prices to communicate a status or high quality
image. This pricing method is appropriate for perfumes, jewellery, autos, liquor, and
ready-to-wear garments etc.
John C. Groth and Stephen W, McDaniel found that marketers use prestige pricing and consumers
associate a higher price with higher quality.

Example: Acer and Sony have adopted this type of pricing for their range of Ferrari and
Vaio Lifestyle notebook PCs. Apple adopts this method of pricing for its high-end PowerBook
laptop computers.
This pricing method requires creation of strong brand image through promotion programmes
that reinforce the brand’s quality and image of total exclusiveness.
Price perceptions are significantly influenced by the brand’s perceived quality and extent of
advertising. Paul W. Farris and David J. Reibstein studied 227 consumer businesses to examine
the relationships among relative price, relative quality, and relative advertising and found
that:
1. Brands with high relative advertising but with average product quality were able to
charge premium prices successfully than brands that were relatively unknown.

2. Brands with both high relative advertising and high relative product quality could charge
the highest prices. Brands with low ad budgets and low quality realised the lowest prices.
3. The positive relationship between high relative advertising and high relative product
quality was very strong during later life cycle stages for market leaders.
Odd-even Pricing: Marketers sometimes set their product prices that end with certain numbers.
The assumption is that this type of pricing helps sell more of a product. It is supposed that if the
price is ` 99.95, consumers view it not as ` 100 and certain types of consumers are attracted more
by odd prices rather than even. This assumption is not supported by substantial research findings,
but still odd prices seem to be far more common than even prices. Also, supposedly even prices
favour exclusive or upscale product image and consumers view the product as a premium
quality brand.
8.4.4 Promotional Pricing

Companies can choose a variety of pricing techniques to motivate consumers to buy early. As
the name suggests, these techniques are considered as an important part of sales promotions.
Some of these techniques include loss leader pricing, special event pricing, low-interest financing,
longer payment period, cash rebates, free auto insurance, warranties, increased number of free
services, etc. Generally, these techniques do not lead to significant gains because most competitors
can copy them in a hurry: To illustrate, just three techniques are briefly discussed.

Loss Leader Pricing: Sometimes large retail outlets use loss leader pricing on well-known brands
to increase store traffic. By attracting increased number of consumers to store the retailers hope
that sales of routinely purchased products will rise and increase sales volume and profits. This
compensates for the lower margins on loss leader brands. Firms whose brands are chosen as loss
leader oppose this approach as the image of their brands gets diluted and consumers resist
paying list price to retailers selling the same brands.
Superficial Discounting: It is superficial comparative pricing. It involves setting an artificially
high price and offering the product at a highly reduced price.

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