Page 197 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes

Task Identify some companies that use competition based pricing method. Can
you suggest any alternative and more effective pricing method for them?

8.5.3 Demand-based Pricing

Companies using this method mainly consider the level of demand. The price is high when the
product demand is strong and low price when the demand is weak. This approach is fairly
common with hotels, telephone service companies, and museums etc. The marketer must be in
a position to accurately estimate the product amount consumers will demand at different price
levels. Demand based pricing can help a company to achieve more profits if consumers perceive
product’s value sufficiently above its cost. Demand based pricing can be favourable when the
company is able to accurately estimate demand at different prices, and it is often quite difficult
to forecast the demand accurately at different prices.

Example: Hotels and Airlines often use this kind of pricing. They charge higher prices
during peak season when demand is high.

8.5.4 Perceived-value Pricing

Many companies use perceived-value pricing. In this approach the price is based on customer’s
perceived value of a product or service. The company must deliver the promised value proposition
it communicates to its target customers. And of course, it is important that customers must
perceive this value. Marketers carefully use different elements of promotion mix to effectively
communicate and enhance customers’ perception of product or service’s perceived value.
Customers’ perceptions of value depend on elements such as company image, trustworthiness,
reputation, product performance, quality assurance, channel members’ image, warranty, post
sale services etc. Also, much would depend upon, how much importance each customer places
on these different elements. Depending on individual customer’s value assessment some will be
loyal buyers, some will be value buyers, and still others will be price-buyers.
Companies adopt different strategies for these groups. Loyal buyers, companies work hard to
build relationship. For value buyers, companies make efforts to keep innovating new value and
effectively communicate this. For price-buyers, companies offer a stripped down product and few
services. Some companies have a uniform policy of offering high-quality products at lower prices.

Example: Zenith Computers has this policy and offers good-quality desktop and laptop
computers at lower prices.

8.5.5 Product Range Pricing

Many companies sell a range or line of products and price of each individual item should
consider the prices of other products in the range.

Optional Additional Items: These additional items or features a customer may or may not
choose to add to the main product purchased. The basic stripped-down product carries a low
price, and the margin on additional components is more.

Example: Some computer and auto companies keep a lower price for the basic model
and for additional components such as LCD monitor, larger RAM, power windows, or power
steering etc. charge additionally.

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