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Marketing Basics - Kotler Philip

Pricing in the framework of commodity nomenclature

The approach to pricing changes if the product is part of the product range. In this case, the company seeks to develop a price system that would ensure maximum profit on the item as a whole. Pricing is not an easy task, since different products are interconnected from the point of view of demand and costs and face different degrees of competitive opposition. We will consider four situations.

ESTABLISHING PRICES IN THE FRAMEWORK OF THE PRODUCT RANGE . The company usually creates not a single product, but a whole product range. For example, Panasonic offers five different color synchronous video cameras at once - from the simplest weighing about 2.1 kg to a complex weighing about 2.9 kg with automatic focus setting, an influx control system and two zoom lenses of different aperture. Each subsequent chamber of the assortment has some additional properties. Management must decide on a stepwise differentiation of prices for different cameras. When establishing the price step of each level, it is necessary to take into account the differences in the cost of cameras, the difference in the ratings of their properties by customers, as well as the prices of competitors. With a slight gap in prices between two adjacent assortment cameras, consumers will buy more advanced products, and with a significant one - less perfect ones.

In many areas of trade, sellers use well-established price guidelines when setting prices for goods of their assortment. So, in men's clothing stores I can sell costumes of three price levels - 150, 220 and 310 dollars. These three price guidelines will be associated in the minds of buyers with products of low, medium and high quality. Even in the case of a moderate increase in all three prices, people will usually continue to buy costumes of their preferred price level. The seller’s task is to identify the quality differences of goods perceived by the consumer that justify the difference in prices.

SETTING PRICES FOR ADDITIONAL PRODUCTS . Many companies along with the main product offer a number of complementary or auxiliary products. The buyer of the car can order electric windows, devices to prevent fogging of the windows and regulate the headlights. However, pricing these complementary products is a complex problem. Automobile companies have to decide what should be included in the initial price of the car as standard equipment, and what to offer as complementary products. General Motors' pricing strategy usually consists in advertising a “stripped” model at a price of, say, $ 6,000 to lure the public into salons, which show mostly cars equipped with additional equipment at a price of $ 8–9 thousand. Cheap “ stripped "model is deprived of so many amenities and advantages that most buyers reject it. When launching a series of its new front-wheel drive cars in the spring of 1981, the corporation took advantage of the experience of Japanese automakers by including in the list price the price of a number of useful devices that were previously sold only as complementary products for a special fee. Now a well-equipped car was offered for the advertised price. But unfortunately, this price exceeded $ 8 thousand, and many buyers refused to buy cars.

ESTABLISHING PRICES FOR MANDATORY ACCESSORIES . In a number of industries, so-called required accessories are produced, which are to be used together with the main product. Examples of required accessories are razor blades and film. Manufacturers of basic goods (shaving machines and cameras) often charge low prices on them, and charge high rates on essential supplies. So, the company "Kodak" offers its cameras at low prices, because it makes good money on the sale of films. Other manufacturers that do not offer their own film have to set higher prices on their cameras to get the same gross income.

ESTABLISHING PRICES FOR BY-PRODUCTS . Meat processing, the production of petroleum products and other chemicals are often associated with the appearance of various kinds of by-products. If these by-products have no value value, and getting rid of them is expensive, all this will affect the price level of the main product. The manufacturer seeks to find a market for these by-products and is often ready to accept any price if it covers the costs of their storage and delivery. This will allow him to reduce the price of the main product, making it more competitive.