Change Period of Agreement
Period of Price Effectiveness
| You may use pricing to change your revenues and profitability with customers by altering the period during which you agree to hold the price. A change in the period of agreement between a supplier and a customer to hold the price of the product can change the effective price of a product or it may simply accompany a change in price.
1. Offer short period: A supplier offers a short period to increase flexibility for the customer in the hope of increasing share, to limit his exposure to low prices and to create a sense of urgency for the buyer. |
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CHANGE PRICING/PERIOD OF AGREEMENT EXAMPLE: Offer Short Period |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 3300 | 1985 | Because stainless-steel producers are living hand-to-mouth they are reluctant to sign quarterly supply contracts, and instead are buying relatively small lots of nickel on the spot market. |
| 2 | 4512 | 1987 | Texas Air also modified the widely used "supersaver" fare concept, reducing the advance-booking requirement for discounted fares to as little as two days. |
| 3 | 4512 | 1989 | United announced it will offer a special one-way fare of just $25 the first week of its new flight between Oakland and Ontario. Tickets apply to flights from 7/5 through 7/12, & must be bought before 7/4. |
| 4 | 5311 | 1991 | J.C. Penney has a promotion where the customer can save 25% on all regularly priced items purchased during one shopping day, from April 7 through April 20. |
| 5 | 7514 | 1992 | Alamo announced sharply discounted uniform nationwide rates. Mid-size cars were reduced to $19 a day, and economy cars were cut to $15. The only hitches: 24-hour advance booking is required and the renter must keep the car over a Saturday night. |
| 2. Offer long period: A supplier would offer a longer period to provide predictability for both the customer and the supplier. Sometimes, a longer period may also be a vehicle to ensure the supplier a larger volume of sales to the customer. |
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CHANGE PRICING/PERIOD OF AGREEMENT EXAMPLE: Offer Short Period |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 1041 | 1986 | New gold miners are also locking in profits by hedging, a practice that farmers have used for years, but that's new to gold. Generally, a company agrees to sell gold at a future date for a specific price – thereby insulating itself from drop in price. |
| 2 | 0100 | 1991 | The Central Calif. Lettuce Producers Co-op has offered to quote customers firm prices as much as 6 weeks in advance. (In the past, they quoted prices only 2 weeks in advance.) New system will be based on a collective market forecast. |
| 3 | 6331 | 1991 | "To avoid volatile commercial-property and casualty rates, some firms try offering more three-year contracts, sharing some risk by locking in premiums for nervous clients. Johnson & Higgins offers a property policy that sets premiums for 10 years and puts a portion of the cost in a 'premium reserve,' which the insured keeps if claims don't surpass a set level. At worst, the insured forfeits the reserve. At best, it has stable premiums (despite any disaster) and it shares profits." |
| 4 | 7514 | 1992 | Most car rentals give corporate rates by contract. Most corporate customers haven't been affected as much by price increases because they mostly rent cars under fixed rates from contractual agreements. But, when the contracts expire, they too will be paying higher prices. |
| 6 | 3312 | 1994 | U.S. steelmakers are demanding a 10% price increase from automakers. Overall, about half of all flat-rolled steel sold in the U.S. is covered by contracts (with people like automakers). |