Chapter 14 - Arriving at the Final Price
Chapter 14 - Arriving at the Final Price
LECTURE NOTES
CHAPTER OPENING EXAMPLE
NANO, THE CAR PRICED AT ONE LAKH
When Ratan Tata, chairman of Tata Motors, announced his dream of selling a car at one lakh (100,000 rupees or approximately US$2,500), many scoffed. Leaders in the automobile industry around the world questioned the logic of such a proposition. Tata’s car is expected to change the face of the automobile industry, both in India and around the world. It is the first time a two-cyclinder gasoline engine is used in a car with a single balancer shaft. Many are concerned that a car so cheap may not be safe. The company has assured consumers that the car has passed all safety tests, including a full-frontal crash test. The Nano is half the price of current low-priced cars—China’s Chevy and India’s Maruti 800. The Maruti engine is considered old while the Nano’s twin-cyclinder engine is seen as considerably more advanced. Although the car is fuel efficient, environmentalists are concerned that increased numbers of cars made more available to consumers will only result in more pollution.
I. STEP 4: SELECT AN APPROXIMATE PRICE LEVEL [LO1]
A key to a marketer’s setting a final price for a product is to find an approximate price level to use as a reasonable starting point. There are four common approaches to helping find this approximate price level. A. Demand-Oriented Pricing Approaches Demand-oriented approaches weigh factors underlying expected customer tastes and preferences more heavily than such factors as cost, profit, and competition when selecting a price level. 1. Skimming Pricing. a. A firm introducing a new or innovative product can use skimming pricing, setting the highest initial price that customers really desiring the product are willing to pay. • These customers are not very price sensitive. They weigh the new product’s price, and quality against the same characteristics of substitutes.
14-1
Chapter 14 - Arriving at the Final Price
LECTURE NOTES
CHAPTER OPENING EXAMPLE
NANO, THE CAR PRICED AT ONE LAKH
When Ratan Tata, chairman of Tata Motors, announced his dream of selling a car at one lakh (100,000 rupees or approximately US$2,500), many scoffed. Leaders in the automobile industry around the world questioned the logic of such a proposition. Tata’s car is expected to change the face of the automobile industry, both in India and around the world. It is the first time a two-cyclinder gasoline engine is used in a car with a single balancer shaft. Many are concerned that a car so cheap may not be safe. The company has assured consumers that the car has passed all safety tests, including a full-frontal crash test. The Nano is half the price of current low-priced cars—China’s Chevy and India’s Maruti 800. The Maruti engine is considered old while the Nano’s twin-cyclinder engine is seen as considerably more advanced. Although the car is fuel efficient, environmentalists are concerned that increased numbers of cars made more available to consumers will only result in more pollution.
I. STEP 4: SELECT AN APPROXIMATE PRICE LEVEL [LO1]
A key to a marketer’s setting a final price for a product is to find an approximate price level to use as a reasonable starting point. There are four common approaches to helping find this approximate price level. A. Demand-Oriented Pricing Approaches Demand-oriented approaches weigh factors underlying expected customer tastes and preferences more heavily than such factors as cost, profit, and competition when selecting a price level. 1. Skimming Pricing. a. A firm introducing a new or innovative product can use skimming pricing, setting the highest initial price that customers really desiring the product are willing to pay. • These customers are not very price sensitive. They weigh the new product’s price, and quality against the same characteristics of substitutes.
14-1
Chapter 14 - Arriving at the Final Price