For too long, pricing decisions have been dominated by economists, discounters, and financial analysts. While making a reasonable profit remains a necessity, pricing must become a more strategic element of marketing. Smarter pricing, as portrayed by the value-based strategy, appears to represent the future. A case in point is the Ford Motor Company, which managed to earn USD 7.2 billion in 2000, more than any automaker in history. Despite a loss of market share, the key to their success was a 420,000-unit decrease in sales of low-margin vehicles such as Escorts and Aspires, and a 600,000-unit increase in sales of high-margin vehicles such as Crown Victorias and Explorers. Ford cut prices on its most profitable vehicles enough to spur demand, but not so much that they ceased to have attractive margins.
The Wall Street Journal (wsj.com)
Customers make judgments about pricing based on perceived value, not production costs. For organizations, however, pricing determines the primary source of revenue for the business. Various market segments and their respective price sensitivities must be considered when marketers decide on a pricing strategy.
Increasingly, marketers are responsible for pricing. Marketers must understand strategies previously reserved for economists and financial analysts. Questions of price points, price lining and price bundling now fall to marketers.
What do marketers need to know to price products to maximize profits and capture market share? Break-even analyses, target rates of return, and mark-ups are a few of the processes marketers must master.
To learn more about profits and pricing, click on the Interactive Journal's link to Money & Investing on the Front Section.
In this section you'll find information about interest rates, economic conditions, and venture capital. Because interest rates affect consumer spending, it is important to understand economic indicators and their impact.
The Business Focus section of Marketplace is a good resource for articles that discuss various business marketing issues, including pricing.
Naming your own price is the strategy for Priceline.com. Customers name their own price for plane tickets, hotel rooms, and rental cars. Initially, the company relished great success. However, it has recently suffered financial losses, due in part to the "Name Your Own Price" strategy. Visit the site now at www.priceline.com.
Facilitating exchanges between customers is a successful business strategy for eBay. Calling itself "the world's online marketplace", eBay has created a trading medium for anyone interested in buying or selling items online. Items range from one-of-a-kind collectibles to everyday items such as musical instruments and sporting goods. Check out the website now at www.ebay.com.
The airline industry competes heavily on price. Select two airlines and research fares for one round trip tickets on each airline, any destination. Visit several websites that sell airline tickets and compare fares. Compare these prices to those offered on the airlines' websites. Check your local newspaper for fare prices, too. Write a one page overview of your findings.
- How do organizations decide whether to price to meet, price above, or price below competition? How do organizations measure the success or failure of their chosen strategy?
- Are you price sensitive to any products? Do you engage in comparative shopping, searching for the "best deal"?
- How has the Internet affected pricing strategies? How do Internet companies compete with traditional "brick and mortar" companies in pricing?