The use of modeling and statistics for the design and development of pricing strategy is prevalent in academia as well as the industry. One of the more commonly used tools by researchers and managers alike for the estimation of linear demand models is the ordinary least squares (OLS) regression. Unfortunately, a majority of data sets to which such models are applied suffer from nonstationarity - that is, the dependence of a variable on its prior values - thereby violating the assumptions of a basic (naïve) regression model. Estimates of variables under these conditions are known commonly to be inflated and inaccurate. While this problem is well-known and can be corrected for among statisticians and econometricians, a simple and effective tool has not yet been designed for managers - the actual users of such models. Studies some of the problems encountered when using a naïve model and proposes a simple method to check for nonstationarity and redesign the model to account for the same. Using scanner data on soup, shows that the redesigned model predicts better, fits better and offers more meaningful results. Finally, looks at the implications of estimating such models for pricing strategies and issues. Surface response analysis shows how a manager can use such models for conducting insightful studies on price sensitivity.
States that one weakness of new product introduction (NPI) is the elapsed time required to bring the product to market. Many manufacturing companies are losing the competitive race in this area to the speedy and effective execution process, which other successful companies (for example, some Japanese electronic manufacturers) use. Analyzes two sets of companies: those that bring the products to market early; and those which do so late. Describes the advantages of a company bringing product into the marketplace before its competitors, and how a company can wrestle away a larger share of the marketplace. Also provides some closed form algorithms for computing projected shares of sales volume. Using this formula, a company can compute what sales volume a company can lock-in by introducing a product to market when demand or need for a product is at its peak. Also provides a computational means for calculating possible loss of revenues when a company is not able to bring a product timely to the marketplace.
States that reference price has emerged as a central feature in consumer decisions. The goal of this study was to explore the contribution of mode of payment to the formulation of personal reference prices (what one believes to be a fair price for a product) and reservation prices (the highest price one is willing to pay for a product). Reference prices for the products were significantly influenced by mode of payment (check, cash, credit card). Those in the credit card condition formulated significantly higher reference and reservation prices than when other modes of payment were considered. That credit cards can raise reference prices leads to a better understanding of why consumers spend more with credit cards.
The practice of selling cigarettes by sticks is a phenomenon that can be observed among Asian countries. It is prevalent in urban centers where the retailing activity is one of the major economic activities undertaken by the middle and lower echelons of the social class. In a study of the switching of consumers from one brand to the other as a response to price increases, the practice has shown a bi-directional effect. In an inter-brand shift, it acts as a buffer slowing down the change in preference by granting the consumers an ability to buy the same brand even if the budget is not enough for one pack. The opposite, however, happens in the intra-brand (local to foreign) shift. The practice makes it easier for the consumer to shift by lowering the perceived "sacrifice" in incremental price vis-à-vis the differential value between the imported and local brand.
An experiment was conducted in which level of claim (plausible versus implausible), claim type (tensile versus objective), and brand familiarity were manipulated to determine consumer responses to sale ads. Conducted in an Asian setting using percentage instead of dollar value price reductions, the results replicated and extended past findings in the pricing literature. Specifically, implausible claims that purported exaggerated savings led to greater discounting, higher perceived price reduction, higher perceived offer value, and higher shopping intention than those with plausible price reductions. Objective price claims that state the exact amount of reduction generally elicited more favorable responses than tensile claims of the "save up to ____ percent" genre. When the price reductions were implausible, tensile claims resulted in higher discounting, lower perceived price reduction, and lower perceived offer value than did objective claims. Finally, greater brand familiarity resulted in higher claim discounting and lower perceived price reduction when the claims were implausible rather than plausible. Theoretical and managerial implications are furnished together with directions for future research.
Examines the effects of four factors (the bundle: pure or mixed, the price discount, the functional complementarity of bundle components, and the number of bundle components) on consumers' intentions to purchase product and service bundles. The findings were relatively consistent across product (automobile) and service (automotive service) contexts, and illustrate that pure bundles are preferred to mixed bundles, and a greater price discount is preferred to a lesser one. The results also indicate that five component bundles generate greater purchase intention than either three or seven component bundles, and that "very related" bundle components result in greater purchase intention than either moderately or not related components. Additionally, several interactions are present.
Many brand manufacturers are facing increasing competition from competitors entering the market with extremely aggressive prices. To face this new competition the branded manufacturers traditionally lower their own prices or do not react to such attacks at all. Both strategies are not optimal. A third alternative is the two-product strategy which can be successful in many cases. This strategy foresees a second, lower positioned product to be added to the existing higher positioned brand product, which is targeted directly against the low-priced competitors. The most important aspect for such a strategy is that the two products are differentiated strongly enough to minimize cannibalization. This can be achieved by differentiating brand, quality, price and or distribution. A two-product strategy has proven successful in many countries and markets, but can also help in a less competitive environment by opening new distribution channels or offering more customized products for specific market segments.
Sustainable competitive advantage is recognized as a critical factor for survival in the turbulent environments of the 1990s. The limited use of pricing as a strategic tool to gain and hold competitive advantage has created an opportunity for companies willing to redesign their competitive portfolios and go with unorthodox strategy mixes. Proposes an approach to value pricing that can be used to seize and drive competitive advantage, and which yields a price that minimizes the risk that buyers will not perceive value at least equivalent to that provided by a reference product. At the same time, the risk to sellers of not achieving minimum margins is controlled. Suggests that this approach enhances the ability of management to develop dynamic and proactive strategies for pricing.
Over the past 15 years, many UK car manufacturers have learned that quality must be designed into cars before they are manufactured - it is expensive, if not misguided, to create quality by inspection after the car has left the production line. Examines the rigorous cost management technique which helps prevent senior managers from launching low-margin cars which do not generate enough returns on investment. Finds that most UK-based car manufacturers employ the logic of target costing as a marketing management tool to determine the prices of new car models. Suggests that before a new car is launched, senior managers must determine its ideal selling price, establish the feasibility of meeting that price, and then control costs to ensure that the set price is met. Reports the conclusive evidence that when target costing works well, quantifiable hurdles are established in a transparent process, and senior managers are more likely to commit themselves to what the statistical numbers show.
Examines the relationship between a product's features, the consumer's quality evaluation, and the marketer's pricing in the context of a dynamic product market environment. Estimates a simultaneous system model using two-stage-least-squares regression on Consumer Reports data of three high-technology consumer durables which have shared common product market characteristics but reached different levels of household ownership in the late 1980s. The results of pairwise correlation and 2SLS regression analyses revealed that the associations between prices and quality evaluations were insignificant, but the associations between product features and prices or between product features and quality evaluations, varied across the three product categories at their different levels of market penetration. As a product's customer base widens or the consumer's knowledge and experience with the product accumulates, the significant association of marketer's prices changes from "with the product's feature availability" to "with the consumers' experience-in-use advantages," while the significant association of consumers' quality evaluations changes from "with the consumers' experience-in-use advantages" to "with the consumers' experience-in-use disadvantages." The empirical results, however, suggest no relationship between the marketer's pricing of a product and the Consumer Reports' overall quality evaluations on the product.
The 1980s and 1990s have seen competition emerge within industries traditionally imbued with monopoly status, for instance, the field of telecommunications. Within these industries, increased competition and the threat of the removal of statutory monopoly has resulted in greater awareness regarding the impact of quality on service and efficient pricing. Discusses, as an example, postal services, an industry of immense importance worldwide, suggests that the emphasis postal services place on the implementation of both timely and reliable service and competitive prices will inherently determine the success they will have withstanding the ever growing threat of international and national competition. While postal services and public utilities share similar peak-load problems as discussed in the traditional natural monopoly literature, limited deferrability of mail service, together with service differentiated pricing, yields a framework sufficiently different so as to warrant a separate analysis. Presents a model which considers this analysis by developing welfare-optimal prices, reliabilities and capacities under conditions of stochastic demand subject to reliability constraints on service quality and a minimum profit Ramsey constraint.
Using a sample of 872 shoppers and data for 14 products, tests the degree to which extrinsic cue reliance differs between "store brand" versus "non-store brand" prone consumers. Results indicate that store brand prone consumers exhibit significantly less reliance on extrinsic cues in quality assessment. Reliance on brand name had an especially strong effect in forming taste expectations. Price reliance had a marked effect in determining perceptions of quality and reliability of ingredients. Discusses the implications for management.
Observes the increasing influence of new communications technologies on information transfer and business practices, and highlights features of the Internet which could prove essential for marketing managers and academic researchers. Spotlights new developments, such as the "virtual university" model, which can provide cost-effective management learning programs, and concludes that the Internet has much to offer, particularly for global companies.
Describes the decision-support system CAPPLAN which has been developed for firms which sell their products through a salesforce to industrial customers or wholesalers and retailers. Explains that in such situations, it is common practice to negotiate the price based on guidelines provided by the sales management. Details how CAPPLAN offers a jointly optimal differentiation of prices and allocation of calling effort across account groups subject to both a limited production capacity and working-time capacity, and also provides a parametric optimization of prices and calling effort for varying levels of production capacity. Reports how the system has been applied at an industrial photo laboratory selling the development of film and the production of prints through retailers, resulting in a substantial improvement in profits.
Recognizes that Web surfing can be a little unrewarding and aims to ease the task by reviewing specific resources that are available. Recommends various sites to visit, covering sites which provide links to other sites, information sources, business magazines, journals, management education, networking and skills. Supplies the URL number, reasons to visit the site and a brief outline of what each site has to offer.
Addresses the following issues: What is the importance of a firm's reputation to the success or failure of its brands? What is the effect on the firm's brands when a firm's reputation, either through acquisition or restructuring, decays. How important is it for a firm to maintain or enhance its reputation? Can a brand's reputation be transferred successfully to other products?
This article expands on Rowley's (1995) analysis of the difficulty of making pricing decisions in the electronic-information market with additional examples. Although the conclusion is still that this is a more difficult market than most in which to price correctly, the article advises management to enter the market in any case provided that management feels their product is good enough to sell. Early entry by a new-product firm enables that firm to learn what the correct price might be through the use of the marketing concept.
Pricing products in markets where there is substantial inflation is a growing management problem as more firms market products globally. Consequently, in order to price products, managers must understand the behavior of customers and of firms in inflationary environments. This article proposes a framework suggesting that these behaviors result from the interaction between the inflation rate and the real rate of interest. This framework is applied to describe the behavior of customers and of firms under four different combinations of inflation and real interest rate levels. The behavior of customers in inflationary environments will be influenced by their knowledge of prices. When uncertain, customers tend to shop and then make quick decisions because price information becomes highly perishable as the rate of inflation increases. The behavior of firms is often the result of existing pressures to sell. Maintaining high inventory levels is a preferred strategy when the interest rate is low. When the interest rate is high, firms have a strong incentive to sell.
This article notes that pricing for tenders can be a simple or complex process, depending on the type of contract being bid for, and the industry in which the contractor is based. The paper describes the factors that influence pricing strategy and tactics, and explores the use of information technology (in particular expert systems) to assist in the estimating process. It then explains how, to this end, an expert system was developed at the University of Ulster in conjunction with BKS Surveys Ltd., a high-tech mapping company for which accuracy in its complex estimating process is vital; a system which operates in a decision-support mode when processing tenders, and produces the necessary bid documentation. It then details the steps involved in evaluating the system's contribution to business performance along with the implications of the results obtained. Finally, the paper makes recommendations on managing this technology and evaluating its effectiveness.