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Basics of Marketing - Kotler Philip

Chapter 11. Pricing of goods: approaches to the problem of pricing

Objectives

After reading this chapter, you should be able to:

1. Tell about how the company sets a price or a new product.

2. List and characterize the five main types of discounts.

3. Tell about how the price policy is connected with other elements of the marketing mix - the goods, methods of its distribution and stimulation.

4. Explain why firms are hesitant to change prices.

The success of the price policy of the firm "Hublin" to "Smirnovsky Vodka"

The firm "Hublin , Inc." produces the most widespread in the United States "Smirnovka Vodka", which accounts for 23% of the US market. In the 60-ies the competitor firm "Wolfschmidt" launched an attack on the position of "Smirnovskaya". Bottles of vodka "Wolfschmidt" began to cost a dollar less, no different, as claimed by its manufacturer, from "Smirnovskaya" in quality. The firm "Hublin" felt the danger of possible switching of consumers to the goods of the firm "Wolfschmidt" and thought out several variants of countermeasures.

1. Reduction of the price of Smirnovskaya to a dollar per bottle in order to retain its market share.

2. Preserving the price at the same level, but increasing the cost of advertising and promotion.

3. Preservation of the price at the same level and non-resistance to a reduction in the share of the market.

All three strategic approaches should necessarily lead to a reduction in profits. It seemed that the firm "Hublin" was in a desperate situation.

And at that moment the specialists of "Hublin" developed the fourth strategy, which turned out to be brilliant. The firm raised the price of Smirnovskaya by a dollar per bottle! And as a competitor to vodka "Wolfschmidt" offered the market vodka brand new - "Rail". Simultaneously, she also released another brand of vodka - Popov - at a price lower than the price of vodka "Wolfschmidt". As part of the product mix strategy, Smirnovskaya was positioned as an elite one, and Wolfschmidt as an ordinary brand of vodka. The skillful maneuver of the firm "Hublin" allowed it to significantly increase its overall profits.

The irony is that all three brands of vodka offered by the firm "Hublin" almost do not differ from each other either in taste or in production costs. The firm "Hublin" has learned to sell practically the same goods at different prices, having substantiated each of them with the corresponding effective concept.

In this chapter, we will consider approaches to the problem of pricing. The firm does not just assign this or that price. It creates a whole pricing system that covers different goods and products within the product range and takes into account differences in the cost of sales in different geographic regions, differences in demand levels, the distribution of purchases over time, and other factors. In addition, the company operates in a constantly changing competitive environment and sometimes itself initiates price changes, and sometimes responds to price initiatives of competitors. We will consider in detail the main strategic approaches to the problem of pricing, which can be used by the company's management.