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For use only with Perreault and McCarthy texts.© 2006 McGraw-Hill Companies, Inc.McGraw-Hill/Irwin

CHAPTER SIXTEENCHAPTER SIXTEEN

Pricing Objectives and Policies

1. Understand how pricing objectives should guide strategy planning for pricing decisions.

2. Understand choices the marketing manager must make about price flexibility.

3. Know what a marketing manager should consider when setting the price level for a product in the early stages of the product life cycle.

4. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs.

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When we finish this lecture you should

5. Understand the value pricing concept and its role in obtaining a competitive advantage and offering target customers superior value.

6. Understand the legality of price level and price flexibility policies.

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When we finish this lecture you should

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Price Has Many Strategy Dimensions

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Shaping Customer Value

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Strategy Planning for PriceExhibit 16-1

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The Price Equation: Price Equals Something of ValueExhibit 16-2

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Price as Seen by Channel MembersExhibit 16-3

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Objectives Should Guide Strategy Planning for PriceExhibit 16-4

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Objectives Should Guide Strategy Planning for PriceExhibit 16-4

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Objectives Should Guide Strategy Planning for PriceExhibit 16-4

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Most Firms Set Specific Pricing Policies to Reach Objectives

OR

One-Price Policy

• The same for everyone

• Frequently purchased items

• Convenient• Low cost• Maintains goodwill

Flexible-Price Policy

• Different customers, different prices

• Databases make it easier

• Salespeople can adjust prices

• Too much cutting can hurt profits

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Price-Level Policies over the Product Life Cycle

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Skimming vs. PenetrationExhibit 16-5

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Other Price-Level Policies

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TradeTrade

CashCash

SeasonalSeasonalQuantityQuantity

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Discount Policies: Reductions from List Prices

FromList Price

Sale

Push MoneyPush Money

StockingStockingAdvertising

CommonTypes of

Allowances

Advertising

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Allowance Policies – Off List Prices

Trade-Ins

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Some Customers Get Something Extra

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Coupon Distribution

Uniform DeliveredUniform

Delivered

ZoneZoneF.O.B.F.O.B.

CommonGeographic

Policies

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List Price May Depend on Geographic Pricing Policies

Freight Absorption

Define Target Market and Competition

Define Target Market and Competition

Value Pricing = Customer ValueValue Pricing = Customer Value

Look at Customer’s Viewpoint

Look at Customer’s Viewpoint

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Pricing Policies Combine to Impact Customer Value

Value Pricing Fits with Market-Oriented Strategy

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Interactive Exercise: Pricing Policies & Discounts

Phony List Prices

Phony List Prices

DumpingDumpingUnfair Trade Practice ActsUnfair Trade Practice Acts

KeyIssues

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Legality of Pricing Policies

Price Fixing

Meeting Competition

Meeting Competition

Cost Differences

Cost Differences

“Like Grade & Quality”

“Like Grade & Quality”

Robinson-Patman ActRobinson-

Patman Act

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Price Discrimination

KeyIssues

“Proportionately Equal” Basis

• Price• Target return

objective• Profit maximization

objective• Sales-oriented

objective• Status quo objectives• Nonprice competition• Administered prices• One-price policy• Flexible-price policy

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Key Terms

• Skimming price policy

• Penetration price policy

• Introductory price dealing

• Basic list prices• Discounts• Quantity discounts• Cumulative quantity

discounts• Noncumulative

quantity discounts

• Seasonal discounts• Net• Cash discounts• 2/10, net 30• Trade (functional)

discount• Sale price• Everyday low pricing• Allowances• Advertising

allowances• Stocking allowances

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Key Terms

• Push money (or prize money) allowances

• Trade-in allowance• Rebates• F. O. B.• Zone pricing• Uniform delivered

pricing• Freight absorption

pricing• Value pricing

• Unfair trade practice acts

• Dumping• Phony list prices• Wheeler-Lea

Amendment• Price fixing• Robinson-Patman Act• Price discrimination

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Key Terms