This page has been robot translated, sorry for typos if any. Original content here.

Marketing Basics - Kotler Philip

Pricing for sales promotion

Under certain circumstances, firms temporarily charge prices below their listing prices, and sometimes even below cost, on their products. Pricing for sales promotion takes various forms:

1. Supermarkets and department stores set prices for some goods as “unprofitable leaders” in order to attract customers to the store in the hope that they will also purchase other goods with the usual margins.

2. To attract a large number of customers in certain periods of time, sellers also use prices for special cases. So, in order to attract people tired of New Year’s purchases to stores, winter sales are held every January.

3. Sometimes manufacturers offer consumers who buy goods from dealers in a certain period of time a cash discount. This discount is passed by the manufacturer directly to the consumer. Cash discount is a flexible tool for reducing inventory during times of difficulty in sales without lowering list prices. Recently, they have become popular with Chrysler Corporation and other automakers, as well as with manufacturers of high-value goods such as Fedders, Polaroid, and Minolta.

4. Sellers often offer discounts at regular prices. One example of a sales promotion discount is described in Box 27.

Box 27. Reduced prices for mink coats to promote sales

Irwin and Carol Ware rented a fur salon for long-term rent in the premises of the fashionable I. Magnan ”on North Michigan Avenue in Chicago. In order to reduce stocks of fur coats, they decided to arrange a one-day sale. Fur coats were discounted from 50 to 70% and placed on hangers, to one of which an inscription was attached: "Everything costs less than $ 2000 on this hanger." The sale was reported using loud television ads, as well as newspaper ads that hailed it as the only chance in life.

From advertising, consumers learned that they would be able to pay for purchases within 24 months.

Did this aggressive advertisement work that imposed cheap goods? Without any doubt. On the day of the sale, more than two hundred customers visited the salon, and every second left the store with a new fur coat. But the average cabin turnover for a typical day is only $ 4,500.

Discriminatory pricing

Given the differences in consumers, goods, locations, etc. firms often make adjustments to their prices. When discriminatory prices are established, a firm sells a product or service at two or more different prices without regard to differences in costs. The establishment of discriminatory prices takes place in various forms.

1. Considering the varieties of buyers. Different buyers pay different prices for the same product or service. Museums charge less for entry from students and the elderly.

2. Subject to product options. Different variants of the goods are sold at different prices, but without taking into account the difference in the costs of their production. SCM Corporation sells its most expensive Procter-Sylex iron for $ 54.95, which is $ 5 more than the cost of the next of its most expensive products. The only difference between the most expensive model is in the signal light, which lights up when the iron is ready for use. And the installation of this light bulb costs the company less than a dollar.
3. Based on location. Goods are sold at different prices in different places, although the costs of offering them in these places are the same. Theater ticket prices vary depending on which sections of the audience the audience prefers.

4. Based on time. Prices vary depending on the season, the name of the week and even the hour of the day. Utilities change their rates for commercial consumers depending on the time of day and on weekends compared to weekdays.

In order for price discrimination to work, certain conditions must exist2. First, the market must be segmentable, and the segments obtained must differ in intensity of demand. Secondly, members of a segment in which a product is sold at a low price should not be able to resell it in a segment where a firm offers it at a high price. Thirdly, competitors should not be able to sell goods cheaper in the segment where the company offers it at a high price. Fourth, the costs associated with market segmentation and monitoring should not exceed the amount of additional revenue resulting from price discrimination. Fifthly, the establishment of discriminatory prices should not cause resentment and hostility of consumers. Sixthly, the specific form of price discrimination applied by the company should not be unlawful from the point of view of law.

In the current situation of weakening state regulation in a number of industries, such as air and road transport, firms operating in these industries have increasingly resorted to discriminatory pricing methods. Let's see how airlines use price discrimination.

At one time, due to fierce competition between Eastern and United companies and three other carriers serving the Cleveland-Miami line, a passenger could pay for 11 flights at this route. Many of them were aimed at certain market segments. These tariffs: 1) the first class - $ 218, 2) the standard economy class - 168, 3) the second class on night flights - 136, 4) weekend excursions - 134, 5) for the volunteers of the “Labor Corps” - 130, 6) a weekly tour - 128, 7) a tour for organized tourist groups - 118, 8) for military personnel - 112, 9) for youth - 112, 10) flights for the weekend - 103, 11) charter fare - $ 96.