Page 355 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 329

4. Implement the elimination or retention decision. If management decides to
drop a product, that decision must be implemented in an orderly way that
considers both the firm’s and its customers’ interests. Exhibit 9.6 lists the most
important factors to consider.
When management decides to retain a product, it must then consider strategies
that will improve its performance. These strategies are also listed in Exhibit 9.6.
These are marketing mix alternatives. It is obvious that some of them involve a
decrease in marketing effort for the retained product. Decreased marketing support
is frequently an effective strategy for a product whose revenues will not drop greatly
as a result of the reduced support. In some cases, greater profit will result because
the sales decline is less than the decreased cost involved.

Developing the Pricing Mix

Once a company has put together its product mix, its executives can turn their
attention to formulating the pricing mix. Their first consideration is to decide on
the objectives they want the pricing mix to achieve.

LEARNING OBJECTIVE 7
List the major objectives of a company’s pricing strategies.

Pricing Objectives
Maximizing net profit is the most important performance objective. Some compa- performance objective A pricing
nies are more concerned with the assets needed to obtain that profit and will, as a objective designed to achieve a certain
level of profit, revenues, or market
result, stipulate a return-on-investment target. Still others will use price to secure a
share
particular market share. Japanese companies, especially automobile and consumer
electronics firms, will price low in overseas markets to gain a foothold with the
expectation that adequate profits will eventually follow. Intel engaged in steep price
cuts in 2001 in an effort to gain a bigger share of the $81 billion PC chip market.
Firms will often have a prevention objective—keeping other firms from enter- prevention objective A pricing objective
ing their market. For example, setting a low price will cause a potential competitor designed to keep other firms from
entering the market
to be reluctant to enter because the low price needed to be competitive may not
allow a potentially entering firm enough profit. Another prevention objective is to
deter unfavorable government action. High prices may be suspect because they are
viewed as causing consumers to pay too much. Low prices may be condemned
because larger companies will supposedly use them to drive smaller competitors
out of business, because they can’t sustain them for long periods of time.
A maintenance objective may be employed to maintain the current competitive maintenance objective A pricing
situation. In this case, price reductions will offset competitors’ price cuts, increases objective involving the desire to retain
the current market or competitive
in their promotional effort, or their introduction of a new product. Lower prices for
situation
wholesalers encourage them to maintain the same relationship with their suppliers.
Occasionally, marketers have a survival objective. In this case, pricing strategies will survival objective A pricing objective
allow a firm to remain in business. Mazda used $500 rebates to dealers and cus- related to a firm remaining in business
tomers in the 1970s to survive after seeing its sales plummet due to the low mileage
its models were getting and higher gasoline prices that were being charged.

reality Glance through your favorite magazine looking for ads for automobiles.
CH ECK Can you calculate how much money the buyer would save over four or
five years if he or she paid low or no interest?

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