Pricing And Frequent Promotions

A major consideration in business from both the manufacture’s and customer viewpoints is and has always been the price.

The issue discussed here is” should the retailer practice “everyday fair pricing” or engage in “frequent price promotions”? Is it better for a brand to raise its regular price and offer price promotions or is the brand better off offering lower regular price with limited price promotions?

In my paper I will support and argue for setting the right price, which in other words make shoppers feel they are getting a fair shake from the businesses they regularly patronize.

Importance of setting the Right Fair Price

Pricing strategies are important criteria which affects the overall success of the company. The price set is simply not a financial issue but a marketing issue that determines how the product is positioned and how the market (customers) perceives the product.

Pricing is a challenge with different implications at any stage of the business cycle, whether you are setting the prices for the first time, raising or lowering existing prices, or determining how to react to an unsteady economic climate. Overprice and you will risk losing your business to your competitors. Under price and you may inadvertently devalue your offerings.

Tom McNeil, President of Executive Career Resource Group, Wellesley, MA describes the implication of price:

1. “Your price is too high, and you knock yourself out of the game.

2. Your price is much less than the client was prepared to pay, and you lose money.

3. Your price is much less than that of your competitors, and you are perceived as offering less value.

4. The client accepts your price but then decides that your services aren't worth it, because you haven't convinced him or her of your value.”

Fair Pricing is to be viewed from two perspectives:

“From a consumer perspective, this means a discounter's prices have to be low enough to make it worthwhile for a person to give up some customer services and brand choices; at an upscale store, the level of services and brand choices must be worth the premium prices.

From a retailer perspective, "fair" means prices reflect a firm's operating structure in a way that enables it to earn a satisfactory profit. “

Wal-Mart’s fair pricing approach has enabled it to maintain a discounter image, and attract a steady stream of price-conscious shoppers, reduce advertising expenditures, with less frequent sales.

The “everyday fair pricing." approach has the perception of regular prices in a way that appeals to the chosen customer market. This fairly reflects the merchandise, customer service, ambience, etc. which is part of the enormous success story of Wal-Mart.

In the “big picture” of pricing and from the customer's point, prices must be perceived as fair - every day.

Fair prices doesn’t necessarily equate with low prices. There are certain customers who are willing and even eager to pay top dollar for what they want. They are suspicious of anything priced below their expectations or below their competitors advertised price. On the other hand, there are customers who seek endlessly for what they want at the lowest possible price. Both these appeals are opposed to each other and some department stores e.g.: Filenes has bargain basements where prices are much lower than those on the upper floor to cater to both segments of the customers.

It is important for companies to differentiate and be distinctive to the customers, be different from and more attractive, and appealing to their prospective customers than their competitors. The greatest influence on the context of a purchasing decision is whether the consumer believes the price is fair.

Wal-Mart has made a conscious decision to play the price card all the time. It has decided to make its money on turnover and low-cost operations. It uses volume to achieve its objectives. This is a very sound and well-executed price strategy.

Effective as the price can be, it is not the only option.

For example, Saturn has adopted a fair price strategy and leaves little room to negotiate on price. Saturn is convinced that it is offering good value for the posted price and expects to make a reasonable profit in doing so. The company will not sacrifice per-unit contribution for higher volume. In adopting this strategy, it is expressing confidence in its product; it also intends to differentiate itself from the rest of the market and to maximize profit in the long run.

Companies can also adopt different marketing strategies for the traditional “price buyer”. Reed K. Holden, founder of Holden Advisors, a pricing strategy firm in Concord, Mass quotes “The key is to do business with a price buyer only when you can do it profitably -- if you have excess inventory, for example, a price buyer might be exactly what you're looking for. (Case in point: Airlines often sell excess capacity to vacation-tour operators but don't create extra capacity to serve that market.)

Another option with price buyers is to sell only what they're buying. "If people want a lower price, always be willing to give it to them," says Holden. "But be sure to take away some value." An electronics company that Holden worked with, for example, gave one customer the price it demanded -- but only on older technology. Newer, more innovative products were reserved for those willing to pay for them. “

Case against Frequent Price Promotions

Every retailer offers discounts, promotions, incentives, and giveaways. Such tactics are time-honored ways of keeping clients happy -- and luring new ones into the store.

Robert J. Dolan, dean of the University of Michigan's Ross School of Business and a business consultant warns “you might be giving away the store if you're not careful. And you'd be surprised at how many savvy managers are anything but savvy when it comes to discounts”

For e.g.: Sales and marketing execs give breaks to help close deals, while inventory managers cut rates to move excess stock. It adds up fast. The consulting firm McKinsey studied this phenomenon in 2003, dubbing it the "pocket-price waterfall"