Managing the Pricing Function Chapter 14 Managing the Pricing Function

What kind of pricing decisions do you think went into the introduction of the product shown in this commercial?

Pricing Strategies Skimming pricing strategy Often used by marketers of high-end products Also by firms introducing a distinctive product with little or no competition Allows firms to control demand during the introductory stages

Weber Distinctive Grills Marketed through a Skimming Pricing Strategy

Lincoln Navigator Maintaining a High Price in Periods of High Demand

Price Reductions to Increase Market Share

What pricing recommendation would you have for Ruffles if they had a strategic goal of acquiring a greater market share.

Penetration pricing strategy Designed to generate many trial purchases

Everyday low pricing (EDLP Wal-Mart has successfully utilized an EDLP strategy

Southwest Airlines Often enters new markets with low penetration prices and maintains market share with everyday low pricing strategy

Competitive Pricing Strategy Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix

Lendingtree.Com Practices a Competitive Pricing Strategy

Class Discussion Does Cartier Use a Skimming, Penetration, or Competitive Pricing Strategy?

Price Quotations List prices: Established prices normally quoted to potential buyers The take on a $25 T-Shirt

Market price: Price that an intermediary or final consumer pays for a product after subtracting any discounts, rebates, or allowances from the list price Kraft offering a rebate promotion

Reductions from List Price Cash discount: price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill 2/10 net 30

Quantity discount: price reduction granted for a large-volume purchase Large orders reduce selling expenses, storage, and transportation costs Cumulative quantity discounts Non-cumulative quantity discounts

Allowances Trade-in Promotional Rebates: refund for a portion of the purchase price, usually granted by the product’s manufacturer

Geographic Considerations FOB (free on board) plant or FOB origin Freight absorption Uniform-delivered price Zone pricing

Pricing Policies Pricing policy Psychological pricing

Odd pricing For example, this John Deere at $1,999 instead of $2000

Unit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count Nextel Seeks to Gain a Competitive Advantage by Using Seconds Instead of Minutes in It’s Unit Pricing Policy

Price Flexibility: pricing policy that permits variable prices for goods and services

Product-line pricing Hallmark has different prices for its card lines

Purina Puppy Chow is Only One of Purina’s Product Lines – Each of Which is Priced Differently

Shell Oil Practices Product Line Pricing by Offering Several Different Gasoline Products and Price Ranges

Promotional pricing “Buy one, get one free” is a common pricing promotion

Loss leader Freeinternet.Com’s Price (Free) Is a Loss Leader. This Price Is Meant to Attract Customers in the Hope That They Will Buy Merchandise From the Many Firm’s on the Site

Price-Quality Relationships Without other cues, price serves as an important indicator of a product’s quality to buyers

Competitive Bidding and Negotiated Prices Many purchases are made through competitive bidding, a process in which potential suppliers and manufacturers are invited to quote prices on proposed purchases or contracts Negotiated Prices Online

RealEstate.Com Is an Example of Negotiated Prices Online

Online Auctions: Purest form of negotiated pricing

Traditional Global Pricing Strategies Standard Worldwide Dual Pricing Market Differentiated

Characteristics Of Online Pricing Cannibalization Shopping Bots Bundle pricing