Post on 21-Jan-2016
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