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Marketing Basics - Kotler Philip

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


After reading this chapter, you should be able to:

1. Talk about how the company sets the price of a new product.

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

3. To talk about how the price policy is associated with other elements of the marketing mix - the product, its distribution and incentive methods.

4. Explain why firms decide to change prices.

The success of the Hublin pricing policy for Smirnovskaya Vodka

The Hublin , Inc. company produces Smirnovskaya Vodka, the most widespread in the USA, which accounts for 23% of the American market. In the 60s, rival Wolfshmidt launched an attack on the Smirnovskaya position. Bottle of Wolfschmidt vodka began to cost a dollar less, no different, according to its manufacturer, from Smirnovskaya in quality. The Hublin firm felt the danger of consumers switching to Wolfschmidt products and thought out several countermeasures.

1. Reducing the price of “Smirnovskaya” per dollar per bottle in order to maintain its market share.

2. Retaining prices at the same level, but increasing spending on advertising and sales promotion.

3. Maintaining prices at the same level and not opposing the reduction of market share.

All three strategic approaches should have necessarily led to a reduction in profits. The Hublin firm seemed to be in a hopeless situation.

And at that moment, the Hublin specialists developed the fourth strategy, which turned out to be brilliant. The company raised the price of “Smirnovskaya” by a dollar per bottle! And as a competitor to vodka, Wolfschmidt offered the market a new brand of vodka - Relska. At the same time, she also produced another brand of vodka - Popov - at a price lower than the price of Wolfschmidt vodka. As part of the product mix strategy, Smirnovskaya was positioned as elitist, and Wolfschmidt as an ordinary brand of vodka. The skillful maneuver of the Hublin firm allowed her to significantly increase her total profits.

The whole irony is that all three brands of vodka offered by the Hublin company almost do not differ from each other either in taste or in production costs. The Hublin company has learned to sell almost the same product at different prices, justifying each of them with a corresponding effective concept.

In this chapter, we will look at approaches to the problem of pricing. The company does not just set a price. It creates a whole pricing system, covering different goods and products within the product range and taking into account differences in marketing costs in different geographical regions, differences in demand levels, distribution of purchases over time and other factors. In addition, the company operates in a constantly changing competitive environment and sometimes acts as the initiator of price changes, and sometimes responds to competitors' price initiatives. We will consider in detail the main strategic approaches to the problem of pricing, which can be used by company management.