Demand and Competition-oriented Pricing

Abstract

The above comments from the Advertising Age shed some light on the problems attendant on pricing in today’s business world. Costs are important, and so too are the consumer and product variables present in a given market.

Pricing strategy, if not the most important part of the marketing mix, has become the trickiest. It’s hard for outsiders to know why a company initiates a price change, and it’s equally difficult to gauge how the new price will be perceived by consumer, retailers and competitors. For instance, last year American Airlines introduced a simplified pricing scheme which reduced ticket prices by 30 per cent to 40 per cent and eliminated many discounts. American said at the time it would initially lose money but in the long run the prices would be the best medicine for American and the rest of the industry, if all the players went along. They didn’t, and American finally had to withdraw the new tariffs. Travel agents also were up in arms over American’s plan, just as most retailers are hostile to Procter & Gamble’s ‘value pricing’ in which it has cut back on trade allowances and couponing and lowered list prices on about 90 per cent of its items.

(Rance Crain, ‘Pricing Mistakes Carry a High Cost’, Advertising Age, 9 August 1933, p. 13)