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18.Price Concepts and Approaches

19.Pricing Strategies


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Pricing Strategies


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1. Compare the alternative pricing strategies and

explain when each strategy is most appropriate.2. Describe how prices are quoted.3. Identify the various pricing policy decisions that

marketers must make.

4. Relate price to consumerperceptions of quality.5. Contrast competitive bidding and negotiated prices.6. Explain the importance of transferpricing.7. Compare the three alternative global pricing

strategies.8. Relate the concepts of cannibalization, bundle

pricing, and bots toonline pricing strategies.

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` What kind ofpricing decisions do youthink went into the introduction of theproduct shown in this commercial?

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` Skimming pricing strategySkimming pricing strategy: involves the use of ahigh price relative to competitive offerings Often used by marketers of high-end products

Also by firms introducing a distinctive good with little or nocompetition

Allows firms to control demand during the introductorystages of a products life cycle

Can be used as a tool for segmenting a products marketon a price basis

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` Figure 19.1Figure 19.1 Distinctive Flat-

Screen TVsMarketed with aSkimming Pricing

Strategy

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` WeberWeber Distinctive Grills Marketed through a Skimming Pricing

Strategy

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` Lincoln NavigatorLincoln Navigator

Maintaining a High Price in Periods of High Demand

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` Penetration pricingPenetration pricing

strategystrategy: involves the

use of a relatively lowentry price as comparedwith competitiveofferings; based on the

theory that this initiallow price will helpsecure marketacceptance

Designed to generatemany trial purchases

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` Figure 19.4Figure 19.4 Credit-Card Offers:

Penetration Pricing

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` Everyday lowEveryday low

pricing (EDLP):pricing (EDLP):Pricing strategy ofcontinuously offeringlow prices rather

than relying on suchshort termprice cutsas cents-offcoupons, rebates,

and special sales Wal-Mart

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` Southwest Airlines, Known forIts Low Prices,Often Enters New Markets with Incredibly Low

Penetration Prices and Then Maintains Market ShareWith Everyday Low Pricing Strategy

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` Competitive PricingCompetitive PricingStrategyStrategy: reduces

emphasis on price asa competitive variableby pricing goods at thegeneral level ofcompetitors Firms focus theirownmarketing efforts on theproduct, distribution andpromotion elements ofthe marketing mix

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` Figure 19.6F

igure 19.6 AmericanAirlines:Reducing theEmphasis on

PriceCompetition

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` List pricesList prices: Established prices normally quoted

topotential buyers Gasoline Prices:Where the Money Goes

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` Market priceMarket price: Pricethat an intermediaryor final consumerpays for a productafter subtracting any

discounts, rebates,or allowances fromthe list price Kraft offering a

rebate promotion

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` Reductions from List PriceReductions from List Price Cash discountCash discount: price reduction offered to a consumer,

industrial user, ormarketing intermediary in return forprompt payment of a bill

x 2/10 net 30, a common cash discount notation, allows

consumers to subtract 2percent from the amount due ifpayment is made within 10 days

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` Trade DiscountsTrade Discounts:payment to a channel memberor buyer forperforming marketing functions; alsoknown as a functional discount

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` Quantity discountQuantity discount: price reduction granted fora large-volume purchase Justified on the grounds that large orders reduce

selling expenses, storage, and transportation costs

Cumulative quantity discounts reduce prices inamounts determined by purchases over stated time

periods Non-cumulative quantity discounts provide one-time

reductions in the list price

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` AllowancesAllowances Trade-in: credit allowance given for a used item when a

new item is purchased Promotional allowance: advertising orpromotional fundsprovided by a manufacturer toother channel members inan attempt to integrate the promotional strategy within thechannel

` RebatesRebates: refund for a portion of the purchase price,usually granted by the products manufacturer

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` Figure 19.9Figure 19.9 Rebates forComputer-Related Goods

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2010 South-Western,

Cengage Learning. All rightsreserved.1922

table 19.3


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` Geographic ConsiderationsGeographic Considerations

FOB (free on board) plant orFOB originFOB (free on board) plant orFOB origin: Pricequotation that does not include shipping charges.Buyerpays all freight charges to transport the productfrom the manufacturer

Freight absorptionFreight absorption: system for handling

transportation costs under which the buyermay deductshipping expenses from the costs of goods

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UniformUniform--delivered pricedelivered price: system for handlingtransportation costs under which all buyers are quotedwith the same price, including transportation expenses

Zone pricingZone pricing: system for handling transportation costsunder which the market is divided into geographicregions and a different price is set in each region

BasingBasing--point systempoint system: system for handlingtransportation costs in which the buyers costs included

the factory price plus freight charges from the basing-point city nearest the buyer. Seeks to equalizecompetition between distant marketers.

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`

Pricing policyPricing policy:

general guidelines based onpricing objectives and intended for use in specificpricing decisions

` Psychological pricingPsychological pricing: pricing policy based onthe belief that certain prices orprice ranges makea good or service more appealing than others tobuyers

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` Odd pricingOdd pricing:

pricing policybased on thebelief that a priceending with and

odd number justbelow a roundnumber is moreappealing John Deere at

$1,999 instead of$2000

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` Unit pricingUnit pricing: pricing policy in which prices arestated in terms of a recognized unit ofmeasurement or a standard numerical count For example, a gallon ofmilk, orone dozen eggs

NextelNextel seeks to gain a competitive advantage by

using seconds instead ofminutes in its unit pricingpolicy

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` Figure 19.10F

igure 19.10 Fractional

Ownershipof aPersonal Jet:Example of

Variable Pricing

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` ProductProduct--line pricingline pricing:practice ofmarketing

different lines ofmerchandise at alimited numberofprices Hallmark has differentprices for its card lines

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`

Purina Puppy ChowPurina Puppy Chow is only one of Purinasproduct lines each of which is priceddifferently

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` Shell OilShell Oil practices product line pricing byoffering several different gasoline productsand price ranges

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` Promotional pricingPromotional pricing:pricing policy in which

a lower than normalprice is used as atemporary ingredient inthe marketing strategy Buy one, get one free is

a common pricingpromotion

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Loss leaderLoss leader: product offered to consumers at

less than cost to attract them to stores in thehope that they will buy othermerchandise atregularprices

xx Leader pricingLeader pricing

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` PricePrice--Quality RelationshipsQuality Relationships Without other cues, price serves as an important indicatorof a products quality to buyers

Customers often view price as an indicatorof a productsoverall quality and may be willing topay a higherprice

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` Figure 19.11F

igure 19.11 Rolex CelliniCellissimaWatch:Exampleof the Price-

QualityRelationship

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` Many purchases are made through competitivebidding, a process in which potential suppliers andmanufacturers are invited to quote prices onproposed purchases or contracts

` Negotiated Prices OnlineNegotiated Prices Online Buyers and sellers can communicate and negotiate pricesonline

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` Online Auctions: Purest formof negotiated pricing

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` Transfer priceTransfer price: cost assessed when a product is

moved fromone profit center to another` Profit centerProfit center: any part of an organization to

which revenue and controllable costs can beassigned

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` International markets are subject to externalinfluences such as regulatory limitations,trade restrictions, competitors actions,economic events, and the global status of theindustry

` The effect the exchange rate can have oninternational trade can be significant.It isimportant that pricing ofproducts takeexchange rates into account.

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` Characteristics OfOnline PricingCharacteristics OfOnline Pricing Cannibalization: Loss of sales of an existing product

due to competition from a new product in the same line Shopping Bots: Search engines which act as

comparison shopping agents

` Bundle pricing: Offering twoormorecomplementary products and selling them for asingle price

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` Figure 19.14F

igure 19.14 Cable TVCompanies andBundle Pricing

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