Discussion Exercises
Discussion Assignments and Mini-cases
Chapter 16 Pricing Strategies: Basic Decisions
- How should farmers price their products?
In general, farmers do not have a pricing problem due to the fact that they usually have no control over how the products should be priced. Because they offer commodities, the prices are determined by the demand and supply. The farmers are thus forced to accept market prices. They can be above the market prices only if their offerings are somewhat differentiated or have a higher quality than those offered by foreign farmers.
- To protect itself, how should a marketer price its product in a country with high inflation?
In a country with high inflation, a marketer needs to adjust price on a continuous basis, sometimes sharply. It is risky to offer a long-term contract without any allowance for price adjustment. A product may have to be overpriced to begin with. Accounts receivable must be quickly collected. Unbundling may be necessary so that an affordable price can be achieved.
- Price haggling is an art. Discuss how you can haggle effectively.
There are several rules of thumb of haggling. First, after being quoted a price which the seller claims to be very cheap, you should say that it is still too expensive, forcing the seller to be the first to lower the price. Then it is time to make a counteroffer, usually at half the original offer. After that, you should expect the offer and counteroffer to move by 10-percent increments.
In the process of bargaining, point out the flaws of the product (e.g., style, size, quality, quantity, defect, etc.). Bargaining is easier with a friend's support. Persistence and patience are necessary, although aggressiveness may be unsuitable in some places. You may also ask for the best offer immediately, claiming to be in a hurry. Keep in mind that many merchants are superstitious and that they do not want to lose a sale to begin the day.
If nothing seems to work, the tactic is to show disinterest by walking away. Usually, the merchant will call you back for further bargaining. If he does not and you are really interested in his merchandise which is not available elsewhere, your return trip will weaken your position and pride. To soften the blow, you may want to walk by while asking whether the seller is willing to lower the offer. If the seller is receptive or friendly or if you are desperate, you then can go in to make a purchase.
Still in the end, the best way to protect yourself is to do your homework. The knowledge is essential to determine a product's fair value. It is thus desirable to talk to the locals — a friend, hotel personnel, etc. in order to learn when, where, and how to haggle.
- Explain why U.S. automakers prefer to use the ‘unbundling’ approach in pricing their cars while their foreign competitors tend to use the "bundling" pricing approach.
U.S. automakers prefer to use the unbundling approach because of several reasons. First, unbundling gives the appearance of affordable and lower prices. Second, there is extra profit to be made for each option added. Third, Detroit can claim that cars can be custom-made to fit buyers' specifications.
For the Japanese, bundling greatly simplifies production, especially when their cars for the U.S. market have to come from overseas factories. Bundling also offers a better value without the proportionate increase in price. It simplifies consumers' decision making as well. Overall, production and marketing activities are simplified.