Pricing the Product
Read this chapter. Pricing is a difficult issue because most products will sell at some volume at just about any price level. Some customers are willing to pay almost any price for a specific product, but how many of those customers exist? Marketers could consider a value-priced model, but this may make the product's price so low that there is no way to profit. One common pricing strategy is known as "the loss leader", which involves selling one product below the cost to manufacture it to get it in customers' hands. They make up for this loss later with complementary goods. This is commonly seen in video game console sales. Console system manufacturers like Sony and Nintendo will price the system below the cost to manufacture it. Consumers adopt the systems due to the attractive price point, and the manufacturer makes up for the initial loss on the system with sales of proprietary accessories and video games.
BEAM ME UP, SCOTTY
You remember William Shatner, a.k.a. Captain James T. Kirk. As Kirk, he represented the epitome of integrity and professionalism. Death was better than compromise. Yet, here he is doing rather strange TV ads for Pliceline.com. Inc. Why? Probably because he's being paid a ton of money, and he's having fun. Working for an apparent winner is also exciting.
We say "apparent" because transferring Priceline's patented "name your own price" system of selling airline tickets, groceries, cars, gasoline, telephone minutes, and a raft of other products is proving quite difficult. Complicating matters, several airlines and hotels are studying whether to launch Web services that could cut the legs out from under Priceline's established travel businesses.
Priceline could soon face stiff competition from its own suppliers. Hyatt, Marriott, Starwood, and Cendant-most of which sell excess hotel rooms through Priceline-are having serious discussions about starting their own company to distribute over the Internet. Essentially, these chains worry that by handing sales to Priceline, they could lose control of their customers. Several airlines have the same concerns.
To stay one step ahead, Priceline has decided to introduce 18 new products. Initially, Priceline generated 90% of its revenues from airline tickets, rental cars, and hotel rooms. By 2003, Priceline estimates that only 50% of revenues win come from these sources.
By June 2000, users were able to name their price for long-distance phone service, gasoline, and cruises. At the end of 2000, Priceline.com started selling blocks of long-distance phone time to small companies. Later, it will offer them ad space, freight services, and office equipment. New joint ventures are in the works with companies in Hong Kong, Australia, Japan, Europe, and Latin America.
Execs at Priceline say they're on the right track and that they're building a broad-based discounting powerhouse.
Some manufacturers or wholesalers also give prize money called spijfs for retailers to pass on to the retailer's sales clerks for aggressively selling eel lain items. This is especially common in the electronics and clothing industries, where it is used primarily with new products, slow movers, or high margin items.
Trade-in allowances also reduce the base price of a product or service. These are often used to allow the seller to negotiate the best price with a buyer. The trade-in may, of course, be of value if it can be resold. Accepting trade-ins is necessary in marketing many types of products. A construction company with a used grader worth $70,000 would not likely buy a new model from an equipment company that did not accept trade-ins, particularly when other companies do accept them.