Chapter 9:Pricing Objectives

and Policies

Pricing Chapter objective What is price? Strategic dimensions Legal issues affecting pricing policies

Chapter objectives Understand how pricing objectives

should guide strategic planning Understand choices the marketing

manager must make about price flexibility and price levels over the product life cycle

Understand the many possible variations of a price structure

Understand some of the legal issues affecting pricing

Price Price : The amount of money that is charged for

something of value. Prices are how much someone is willing to pay. Price is called differently university: tuition landlord: rent banks: interest transportation: fares highway: toll doctor ,lawyer: fee employee: wage motels: room rate

Pricingobjectives

TargetMarket

PricePromotionPlaceProduct

Geographicterms

Discounts andallowancesPrice levelsPrice

flexibility

Strategic Planning for Price

Dollar or UnitSales Growth

Growth in Market Share

TargetReturn

MaximizeProfits

MeetingCompetition

NonpriceCompetition

PricingObjectives

SalesOriented

ProfitOriented

Status QuoOriented

Pricing Objectives

Profit-oriented objectives

Target return sets a specific level of profit as an objective.

Profit maximization: to get as much profit as possible.

Sales-oriented objectives Sales-oriented objective: to get some level

of unit sales, dollar sales, or share of market, without referring to profit.Sales growth – for companies pioneering

innovative products or technologies to develop markets.

Growth in market share – to enjoy better economies of scale (more profits, lower costs).

Status quo objectives Status quo: “Don’t rock the pricing boat.” To stabilize prices, or meet competition, or

even avoid competition. Nonprice competition: aggressive action o

n one or more of the Ps other than price.

One-price policy – used in mass selling The same price to all customers who purchase

products under essentially the same conditions and quantities

Flexible pricing (e.g., in channels, business markets, expensive consumer shopping products) – used in personal selling

Offering the same product and quantities to different customers at different prices.

Price Flexibility Policies

Price level policies (p540-545)

Influencing factors Skimming price policy Penetration pricing policy Introductory price dealing: temporary price cuts to

speed new products into a market. Basic list prices: are the prices final customers or

users are normally asked to pay for products. Value pricing – setting a fair price level for a marketing

mix that really gives the target market superior customer value. ( p553)

Factors influencing price levels

Demand Costs Competition

Price

Quantity

Initialskimmingprice

Secondprice

Finalprice

Skimming Pricing

Sell at highprice beforereducing tonext price leveland repeat

“Skim the cream” pricing involves selling at a high

price to those who are willing to pay before aiming at

more price-sensitive

consumers when demand is quite

inelastic.

Skimming Pricing

Penetration pricing involves selling the

whole market at one low price when the

demand curve is fairly elastic.

Wholemarket price

Penetration Pricing

Penetration Pricing

Price level over PLC

Introduction – skimming or penetrating Growth – lower the price Maturity – meeting competition, i.e. pricing

at the market. Decline – lower the price further

Discount (p546)

Discount: are reductions from list price given by a seller to buyers, who either give up some marketing function or provide the function themselves.

Quantity discounts - to buy larger quantities. Cumulative quantity discounts Noncumulative quantity discounts

Seasonal discounts – to buy earlier. Payment terms and cash discounts Trade discounts - to channel members. Sale price – temporary price cuts.

Payment terms and cash discounts (p547)

Cash discounts – to pay quickly Net: payment for the face value of the

invoice is due immediately. 2/10,net 30: the buyer can take a 2%

discount off the face value of the invoice if the invoice is paid within 10 days. The full face value is due within 30 days.

Allowance and rebates (p549-550)

Allowances: like discounts are given to final consumers, customers, or channel members for doing doing something or accepting less of something. Advertising allowances – to channel members for promotio

n. Stocking allowances – to intermediaries for shelf space. Push money(or prize money) allowances – to retailers to p

ass on to the salesclerks for selling certain items. Trade-in allowances (given the used products when simila

r new products are bought) – for used products. Rebates – refunds to consumers after a pruchase.

Common Geographic

PricingPolicies

F.O.B.

UniformDelivered

FreightAbsorption

Zone

Geographic Pricing Policies

Geographic pricing policies ( p550)

FOB: free on board

Zone pricing: making an average freight charge to all buyers within specific geographic areas.

Uniform delivered pricing: making an average freight charge to all buyers.

Freight absorption pricing: absorbing the freight cost so that a firm’s delivered price meets the nearest competitor’s.

Legal issues affecting pricing policies (p552)

Price fixing is illegal

Price discrimination

Predatory pricing Resale price

maintenance

The End