Page 131 - Marketing the Basics 2nd

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base razor. However, the sale of replacement blades with their larger mark-ups is how the company generates significant profits. This same concept applies to HP which sells printers with low margins knowing that this purchase will stimulate greater demand for higher margin ink cartridges
GROUP PRICING
Finally, group pricing is a method where a group of buyers pool their resources and use their buying power to negotiate a lower price from the seller. Vendors are more likely to reduce the per- unit cost if they sell larger quantities. Therefore group pricing is an attractive option for buyers with the same interests. This is used by buying groups in retail who try to partially play catch-up with Wal-Mart by buying together in quantities closer to Wal-Mart’s enormous volumes. This was also quite big during the dot-com boom when buying groups used the Internet to help in the process and though the dot-com boom has gone bust there are still groups successfully doing this.
STEP 6. SELECTING THE PRICE
Before settling on the final price, there are other elements that must be discussed that aid the company in selecting a price. They are psychological pricing, gain and risk sharing.
PSYCHOLOGICAL PRICING
Information plays a primary role in a consumer’s mind as they formulate their perceived value of a product. Elements such as price of substitutes, advertising, consumer-advocacy reports and the reputation of the company contribute to brand equity. Eventually, the consumer decides what the price of a product should be, any deviation from that price is either a bargain, or too expensive. Marketers call this perceived price a reference price. Research has shown that consumers are more willing to buy a product if the retail price is listed as $999 than if it were priced at $1,000. The psychological barrier between 999 and 1000 is larger than the difference of a dollar.