When should a companyinitiate a price change?

By,

Anurag Kar

B.Tech. Student

Department of E and ECE

IIT Kharagpur

Based on Chapter 3: Developing Pricing

Strategies and Programs

Of

Marketing Management: A South Asian

Perspective

By Kotler, Keller, Koshy and Jha

Initiating Price Cuts

Companies may initiate price cuts for various

reasons…

1. Excess plant capacity

2. To dominate the market through lower costs

3. Need additional business which is not being

generated through increased sales effort,

product improvements, etc.

But a price cutting strategy can lead the company

to certain

TRAPS

Consumers assume

quality is low.

Price CuttingTraps

Low-Quality Trap

Low prices buy market share

but not market loyalty.

Customers shift to any lower

priced firm that comes along.

Price CuttingTraps

Fragile Market

Share Trap

Higher priced competitors match

the lower prices but have longer

staying powers because of

deeper cash reserves.

Price CuttingTraps

Shallow-Pockets

Trap

Competitors respond by

lowering their prices even more,

triggering a price war.

Price CuttingTrapsPrice War Trap

Price CuttingTraps

Low-Quality Trap

Fragile Market

Share Trap

Shallow-Pockets

Trap

Price War Trap

Initiating Price Increases

Price increases can raise profits considerably,

assuming the sales volume remains unaffected.

Company does not set a final

price until the product is

finished or delivered.

Price IncreasingTactics

Delayed Quotation

Pricing

The company requires the

customer to pay today’s cost and

all or part of inflation increase

that takes place before delivery.

Price IncreasingTactics

Escalator

Clauses

The company removes or prices

separately elements that were

part of the former offer.

Price IncreasingTactics

Unbundling

Company instructs its sales

force to not offer the normal

cash and quantity discounts.

Price IncreasingTactics

Reduction of

Discounts

Price IncreasingTactics

Delayed Quotation

Pricing

Escalator

Clauses

Unbundling

Reduction of

Discounts

Although there is a chance that price rise can

carry some positive meanings.

Eg. The item is in demand and represents and

unusually good value…

Customers usually DO NOT LIKE

higher prices.

Hence marketers find alternate approaches to

avoid price rise.

1. Shrinking the amount of product.

2. Substituting less expensive ingredients.

3. Reducing or removing product features.

4. Removing or reducing product services.

5. Reducing the number of sizes or models offered

6. Creating new economy brands.

Recap

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Based on “Marketing Management: A South Asian Perspective”

By Kohler, Kelter, Koshy and Jha

Credits