What would you do? A pricing consultant has suggested that your firm set a premi

Question

What would you do? A pricing consultant has suggested that your firm set a premium price for the paper-shredding machines it sells through office equipment stores—but that there be a $20 mail-in rebate with each unit. The consultant says his research shows that, when an office shredder wears out, it’s usually the administrative assistant who is sent to buy a replacement. The consultant says that many of these buyers will pick your firm’s shredder, in spite of the higher price, so that they can pocket the rebate. At the end of his report he says, “This is an accepted way to motivate the decision maker. Think about all those executives who rack up frequent-flier miles on business trips and then use the free tickets they get for family vacations.” Your boss has left the decision up to you. Would you follow the consultant’s advice? Why or why not?

Explanation / Answer

Yes, we will follow the consultant’s advice.

In this scenario, the price consultant has suggested for setting the premium price for the paper-shredding machine along with promotional scheme of $20 rebate to the buyer. These machines will be selling through “Office Equipment Stores” and upon any machine replacement generally the administrative assistant is being sent for buying the replacement. The buying decision is to be made by the administrative assistant. So this $20 rebate upon any purchase will influence the administrative assistant to make the decision to purchase this particular machine. The $20 will be the benefit the administrative assistant will get, upon one purchase of the machine replacement. This will be high motivator for the administrative assistant.

The purpose of pricing and promotion is to help in buying decision among the competition. The buy/sell of the product is the ultimate aim of the pricing process and associated promotional activities. The pricing and promotional activities needs to be planned in such a way that the buyer sees the value proposition for him and he can influenced the buyer to make the buying decision for the product.

In this scenario, the buyer is administrative assistant. The $20 rebate option, is a high motivator value proposition for the administrative assistant. It helps him in earning $20 and use for himself in future. Other sellers do not provide any rebate for the buyers, hence this scheme of $20 will be a high differentiator for the company and it will have high impact on buying decision.       

The $20 rebate scheme will be directly benefiting the administrative assistant, who is the decision maker for the buy of the machines. Hence it will help in selling of the machines with this approach.

Such promotional practices are already being in use by the organizations at various locations like in airline, the frequent flyer scheme of getting the bonus point and using it later for personal travel.

Another example is mechanics scheme, in which the mechanics will be added benefit upon sale of any product during repair of any vehicles. This will helps to sell the company products by the mechanics , who can influence the customer during repair process.

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