Change the Optional Components of the Price
Optional Price Components
| Every price has a variable component that defines the basis on which the product sale takes place. You may add price components over and above this variable price component to change the net cash equivalent payment the customer makes to you for your product. An individual price has at least four potential optional components. Each of these optional components may have a basis for the charge or credit that differs from the variable price component.
1. Additional fee: You can add a fee to the variable per unit price you charge. You can not have an additional fee without the existence of the variable charge. Usually, this fee covers a cost that is separable from the cost of the standard product. |
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CHANGE PRICING/OPTIONAL COMPONENTS OF THE PRICE EXAMPLE: Additional Fee on Top of Variable Charge |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 4513 | 1997 | "Federal Express is junking its flat-rate price structure and will now charge for its package-delivery services according to the distance a parcel travels. Rates will go down for short-distance packages and up for long-distance. One year ago, UPS did the same thing." |
| 2 | 4813 | 1997 | In early December, AOL began offering customers unlimited use of its service for $19.95 a month. Now cheap flat rates abound. |
| 3 | 4513 | 1996 | UPS is switching to distance-based pricing for domestic air shipping. Rather than relying solely on a package's weight, it will factor distance into the rates. As a result, charges for long-distance deliveries will rise as much as 28%, while shorter air deliveries will cost as much as 40% less. Overall, prices for domestic air delivery will rise about 5%. |
| 4 | 4813 | 1996 | AT&T is drafting an aggressive flat-rate offer for all local, long-distance and in-state "toll" calls, regardless of time of day, or weekday or weekend. People close to the company say the rate could be as low as 15 cents a minute. |
| 5 | 4813 | 1996 | IDT offers a flat monthly rate of $15.95 for Internet access. Claims to be the "lowest flat monthly national Internet rate." Has no per minute charges: just a monthly rate. |
| 2. Penalty/bonus for the buyer: You can extract from the customer a penalty in the event his performance is not as agreed or pay him a bonus for performance above that agreed with the basic product. |
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CHANGE PRICING/OPTIONAL COMPONENTS OF THE PRICE EXAMPLE: Penalty/Bonus for the Buyer |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 3711 | Volkswagen's new leasing rate charges for $0.10 a mile over 60,000 miles. Usage cap. | |
| 2 | 2834 | 1996 | In the past year, drug companies have reined in discounts to HMO's, by tying discounts to demands that an HMO's business had to visibly increase a maker's market share or revenues. |
| 3 | 4512 | 1995 | Delta became the latest carrier to raise its fee to $50 from $35 for changing or rewriting a restricted ticket, following Northwest, United, and TWA. |
| 4 | 4724 | 1995 | American Express continues to charge $10 for reissuing a ticket, $10 for overnight priority mail, $75 for planning a complicated domestic itinerary and $150 for planning a complicated international itinerary. |
| 5 | 7514 | 1995 | National will offer new levels of discounts in Florida this spring. But, now it will require travelers to reserve and pay for cars 14 days in advance and agree to a cancellation fee ranging from $25 to the entire price of the rental in order to get the bargain rates. The standard is not to impose cancellation fees. |
| 3. Penalty/bonus for the seller: You can agree to pay a penalty in the event you fail on an agreed-upon performance level or you can request a bonus in the event that you exceed agreed-upon performance levels. |
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CHANGE PRICING/OPTIONAL COMPONENTS OF THE PRICE EXAMPLE: Penalty/Bonus for the Seller |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 8900 | 1996 | HLW has an incentive-based fee scale for a laboratory it's designing. 10% of the total fee is at risk. Various benchmarks must be hit for HLW to recoup all of its money. |
| 2 | 4813 | 1994 | MCI offers "proof positive," a pledge to scrutinize a company's calls every 90 days and always charge the lowest possible rate. |
| 3 | 3999 | 1993 | Sharper Image has also asked for "guaranteed sale" rights from some suppliers, meaning the suppliers must take back products that don't sell. |
| 4 | 6200 | 1992 | The amount customers pay is determined by the performance or value they receive. Ex: Money managers who are paid a part of profits. |
| 5 | 5411 | 1991 | Safeway has a Hot Buy guarantee. If you find a lower advertised price on any HOT BUY item this week, let Safeway know and they'll match that price. Item must be the same Size, Brand and Quality. |
| 4. Extended payment option: You can change the time the customer has to make his full payment to you for the product he has purchased. |
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CHANGE PRICING/OPTIONAL COMPONENTS OF THE PRICE EXAMPLE: Extended Payment Option |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 5731 | 1991 | Circuit City offers 0% interest for 6 months when you purchase any Mitsubishi audio/video product using a Mitsubishi Three Diamond Card. If paid in full within 6 months of the date of purchase, no finance or insurance charges will apply during that time. If not paid in full, you have to pay accrued charges for the 6 months. Required $500 minimum initial purchase of Mitsubishi products. |