The Different Aspects of Pricing That Could Change the Way a Business Functions

The Different Aspects of Pricing that Could Change the Way a Business Functions

Literature Review

Outline:

Summaries:

1. Summary of "Does Promotional Pricing Grow Future Business?".

2. Summary of "Dueling Pricing Strategies".

3. Summary of "Multiple-Choice Pricing".

4. Summary of "Medium Sized Companies Increase Market Share by Pricing Strategy".

5. Summary of "Managing Costs Using Common "Cents"".

Articles:

* Article: "Does Promotional Pricing Grow Future Business?".

* Article: "Dueling Pricing Strategies".

* Article: "Multiple-Choice Pricing".

* Article: "Medium Sized Companies Increase Market Share by Pricing Strategy".

* Article: "Managing Costs Using Common "Cents"".

Bibliography

Summary of "Does Promotional Pricing Grow Future Business?"

1. Objectives:

a. To understand the effects of promotional pricing on attracting new customers as well as their effects on existing customers

b. To understand both the negative and positive aspects of promotional pricing.

c. To have a clearer understanding of the mix of the overall outcome of promotional pricing.

2. Scope:

In this article, the author has first referred to case study of a U.S catalogue retailer that investigated the overall effects of discount promotion strategies on a business. That case study was published in the winter 2004 issue of marketing science. The author has also referred to an article titled "Long-run effects of promotion on new versus established customers; three field studies" which was authored by Eric Anderson, a visiting professor of marketing at northwestern university's Kellogg school of management, and Duncan Simester, associate professor of management science at the MIT sloan school of management. This article has covered three years of a catalog books and software retailer where three sets of tests where conducted. The first covered 56,000 existing customers. The others covered 300,000 and 245,000 customer prospects that were identified from rented mailing lists. Those three groups were sent different types of catalogs that offered different types of pricing then their purchasing patterns where monitored. After that the types of catalogs sent to them were changed and then a comparison takes place to understand the effects of promotional pricing.

3. Findings:

a. Promotional pricing do in fact attract new customers.

b. The new customers attracted by the promotional pricing spend more in the long run.

c. After being offered products at promotional prices, current customers buy fewer and less expensive items in subsequent purchases.

d. The reasons behind the drop of the demand of the current customers could've been stocking up actions to capitalize on the discounts.

e. The promotional catalog has induced the more value-oriented customers to purchase.

f. There is a large need to distinguish between new and established customers when evaluating the effects of promotions.

Summary of "Dueling Pricing Strategies"

1. Objectives:

a. To determine the best option between promotional pricing and every day low pricing.

b. To understand the effects of the increase in marked-down merchandise.

c. To know if promotional pricing is feasible or merely lowering profit margins.

d. To help in determining what portion of pricing should be advertised, every day low pricing or sales.

2. Scope:

The author has used a study by Kathleen Seiders, an associate professor of marketing at Babson College, and Glenn B. Voss, an associate professor of business management at North Carolina State University, titled "When Does Retail Price Promotion Make Sense?" to present a framework for retailers to evaluate, fine-tune, and shift their approaches to price promotions. This study examined the pricing of 38 U.S. retailers in 11 sectors. Those retailers included companies that represent their sectors such as Circuit City, Best Buy, Kmart, Wal-Mart, and Lowe's. They researchers have also analyzed the advertisements in the past five quarters by those companies and then used a three dimensional scoring system on the following three dimensions: price-variation policy (ranging from low variation such as in every day low pricing, to frequent variations such as in promotional pricing), price-promotion volume (concerning the price promotion advertising amount), and depth of discount (referring to the discount level on the sales items). After that a process of rating each sector follows, the rating is basically on two criteria

that are the assortment overlap, which refers to how closely different retailers' products resemble one another, and assortment lifespan, which refers to how long an assortment takes before becoming obsolete.

The author also refers to a four-cell matrix that was created by Voss and Seiders. The first dimension of that matrix comprises low to high assortment overlap and the other, low to high assortment lifespan. Each of the resulting four cells of the matrix indicates a different suggested approach to price promotion.

Seiders and Voss's study that concerned the relationship between price promotion and retailers' financial performance for all sectors