Page 361 - Foundations of Marketing

328 Part 4 | Product and Price Decisions

Before a product’s price can be set, an organization must determine the basis on which it will
compete—whether on price alone or some combination of factors. Price competition occurs
when a seller emphasizes a product’s low price and sets a price that equals or beats that of
competitors. To use this approach most effectively, a seller must have the flexibility to change
prices rapidly and aggressively in response to competitors’ actions. While price competition
allows a marketer to set prices based on demand for the product or in response to changes
in the firm’s finances, so can competitors. It is a major drawback of price competition that
competitors can meet or outdo an organization’s price cuts. If unforeseen circumstances that
force a seller to raise prices do not also affect other firms, competitors will likely maintain
their lower prices. Non-price competition is competition based on factors other than price. It
is used most effectively when a seller can distinguish its product through distinctive product
quality, customer service, promotion, packaging, or other features. However, buyers must be
able to perceive these distinguishing characteristics and consider them desirable for non-price
competition to be effective. An advantage is that, once customers have chosen a brand for
non-price reasons such as unique features, they may not be attracted as easily to competing
firms and brands.
In this chapter, we examine the eight stages of a process that marketers can use when
setting prices. Figure 12.1 illustrates these stages. Stage 1 is developing a pricing ob-
jective that is compatible with the organization’s overall marketing objectives. Stage 2
entails assessing the target market’s evaluation of price. In Stage 3, marketers should
examine a product’s demand and the price elasticity of demand. Stage 4 consists of ana-
lyzing demand, cost, and profi t relationships—it is a necessary step in estimating the eco-
nomic feasibility of various price alternatives. Stage 5 involves evaluating competitors’
prices, which helps determine the role of price in the marketing strategy. Stage 6 requires
price competition Emphasizes
price as an issue and matching choosing a basis for setting prices. Stage 7 is selecting a pricing strategy, or determining
or beating competitors’ prices the role of price in themarketing mix. Stage 8 involves determining the fi nal price. This
non-price competition fi nal step depends onenvironmental forces and marketers’ understanding and use of a sys-
Emphasizes factors other than tematic approach to establishing prices. These stages are not rigid, and not all marketers
price to distinguish a product will follow all the steps. They are merely guidelines that provide a logical sequence for
from competing brands establishing prices.

Jeff Greenberg/Alamy The Advertising Archives

Price and Non-Price Competition Generally, there is a considerable amount of price competition among brands of hair care products.
However, L’Oréal products compete on the basis of non-price competition, which emphasizes product quality.

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