Marketing_Management_14th_Edition-min

Developing Pricing
Strategies and Programs
Price is the one element of the marketing mix that produces revenue;
the other elements produce costs. Prices are perhaps the easiest element of the marketing
program to adjust; product features, channels, and even communications take more time. Price
also communicates to the market the company’s intended value positioning of its product or
brand. A well-designed and marketed product can command a price premium and reap big
profits. But new economic realities have caused many consumers to pinch pennies, and many
companies have had to carefully review their pricing strategies as a result.
For its entire century-and-a-half history, Tiffany’s name has connoted diamonds and
luxury. Tiffany designed a pitcher for Abraham Lincoln’s inaugural, made swords for the
Civil War, introduced sterling silver to the United States, and designed the “E Pluribus
Unum” insignia that adorns $1 bills as well as the Super Bowl and NASCAR trophies.
A cultural icon—its Tiffany Blue color is even trademarked—Tiffany has survived the
economy’s numerous ups and downs through the years. With the emergence in the late 1990s of the
notion of “affordable luxuries,” Tiffany seized the moment by creating a line of cheaper silver jewelry.
Its “Return to Tiffany” silver bracelet became a must-have item for teens of a certain set. Earnings
skyrocketed for the next five years, but the affordable jewelry brought both an image and a pricing
crisis for the company: What if all those teens who bought Tiffany
charm bracelets grew up to think of Tiffany only as a place where they
got the jewelry of their girlhood? Starting in 2002, the company began
hiking prices again. At the same time, it launched higher-end
collections, renovated stores to feature expensive items appealing to
mature buyers, and expanded aggressively into new cities and shopping
malls. When the recession began in 2008, the firm knew it had to
be careful not to dilute its high-end appeal. Tiffany offset softer sales
largely with cost-cutting and inventory management, and—very
quietly—it lowered prices on its best-selling engagement rings only, by
roughly 10 percent. 1
Pricing decisions are clearly complex and difficult,
and many marketers neglect their pricing strategies. 2 Holistic
marketers must take into account many factors in making pricing
decisions—the company, the customers, the competition, and the
marketing environment. Pricing decisions must be consistent
with the firm’s marketing strategy and its target markets and
brand positionings.
In this chapter, we provide concepts and tools to facilitate
the setting of initial prices and adjusting prices over time and
markets.
Understanding Pricing
Price is not just a number on a tag. It comes in many forms and performs many functions. Rent,
tuition, fares, fees, rates, tolls, retainers, wages, and commissions are all the price you pay for some
good or service. Price also has many components. If you buy a new car, the sticker price may be
adjusted by rebates and dealer incentives. Some firms allow for payment through multiple forms,
such as $150 plus 25,000 frequent flier miles for a flight. 3
Throughout most of history, prices were set by negotiation between buyers and sellers.
Bargaining is still a sport in some areas. Setting one price for all buyers is a relatively modern idea
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