Page 376 - Foundations of Marketing

Pricing Concepts and Management | Chapter 12 343

© Christopher Parypa/ Shutterstock.com

Demand-Based Pricing
Airline companies engage in demand-based pricing. When demand for a specific flight is higher, the
fares are higher, and when demand is lower, the fares will be lower.

To use this pricing basis, a marketer must be able to estimate the quantity of product
consumers will demand at different times and how demand will be affected by changes in
the price. The marketer then chooses the price that generates the highest total revenue. The
effectiveness of demand-based pricing depends on the marketer’s ability to estimate demand
accurately. Compared with cost-based pricing, demand-based pricing places a fi rm in a better
position to attain high profi t levels, assuming demand is strong at times and buyers value the
product at levels suffi ciently above the product’s cost.
Competition-Based Pricing

With competition-based pricing , an organization considers costs to be secondary to competi-
tors’ prices. This is a common method among producers of relatively homogeneous products,
particularly when the target market considers price to be an important purchase consideration. A
firm that uses competition-based pricing may choose to price below competitors’ prices or at the
same level. Amazon has been accused by bookstores of pricing e-books for its Kindle e-reader
so low that they are actually below-cost. Competitors believe that Amazon's competition-based
pricing model has been an attempt to gain a monopoly control of the e-book market. The strat-
8
egy has been partially successful, as Amazon commands about 60 percent of the e-book market.

SELECTION OF A PRICING STRATEGY LO 7 . Explain the different types
of pricing strategies.
A pricing strategy is a course of action designed to achieve pricing objectives, which are set
to help marketers solve the practical problems of setting prices. The extent to which a busi-
ness uses any of the following strategies depends on its pricing and marketing objectives, the
markets for its products, the degree of product differentiation, the product’s life-cycle stage, competition-based
and other factors. Figure 12.8 contains a list of the major types of pricing strategies. We will pricing Pricing influenced
discuss the various pricing strategies in the remainder of this section. primarily by competitor’s prices

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.