Page 198 - DMGT408DMGT203_Marketing Management

Unit 8: Pricing: Understanding and Capturing Customer Value

Captive Product Pricing: Some companies produce products that need the use of ancillary Notes
products such as razors and manufacturers of Inkjet or Laser printers.

Did u know? Gillette manufactures different types of razors and for each type the company
has different blades that fit a particular type of razor. The razor is priced low but the
margins are high on blades. Inkjet or Laser printer manufacturers sell their printers at a
low initial price and price their ink or toner cartridges at a price to earn higher margins.

8.5.6 Two-part Pricing

This pricing method is fairly common with service providing companies. They charge a fixed
price for providing the basic service plus a variable usage rate.

Example: Telephone service providers charge a monthly fixed price plus variable per
call charges for calls beyond a certain number. Internet broadband service providers charge a
fixed amount for cable model installation and variable charges for number of usage hours.

The pricing decision for such firms involves problems about deciding how much to charge for
the basic service and what rates should they keep for variable usage. The fixed price should be
at a level that would attract sufficient number of customers and profits can be earned through
varying usage charges.

8.5.7 Bid Pricing

This type of pricing involves submitting either a sealed or open bid price from the marketer for
buyer’s consideration. The buyer notifies potential suppliers to submit their bids by a fixed date.
The buyer evaluates these quotations in terms of quoted prices, product specifications, and the
ability of suppliers to deliver specified products according to the buyer’s schedule when and
where needed. Usually the lowest bidder is awarded the contract. Generally, central, state, or
local government departments, and construction companies use this method.

Case Study Dell uses Price as a Competitive Weapon

ichael Dell, just a student selling made-to-order personal computers over the
phone from his dormitory room at the University of Texas, had a huge ambition
Mof taking on IBM. In 1984, Dell quit his studies to pursue his quest full-time. He
had only $1000 as seed money.
Dell Computer’s share in the domestic PC market had crossed that of IBM by the end of
1996. Dell was the leader by 2001 with more than 25%, surpassing Compaq’s 13%, HP’s
10%, and 8% of Gateway’s.
Dell’s meteoric rise has revolutionised the industry. Dell created a new business model.
Instead of focusing on the usual strategy for computer companies of product innovation,
Dell’s approach focused on keeping the prices low and delivery times short.
Dell buys components directly from manufacturers, assembles them to meet individual
customer’s specifications, and then delivers the product in record time. Rather than selling
products through retail outlets, Dell relies on direct sales approach and catalogues.
Contd...

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