For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Chapter 17: Pricing Objectives and Policies

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Strategy Planning for Price Exhibit 17-1 Pricing objectives Target Market PricePromotionPlaceProduct Geographic term — who pays transportation and how Discounts and allowances— to whom and when Price levels over product life cycle Price flexibility 17-3

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Price - the amount of money that is charged for “something” of value. Price = list price - discounts - allowances - rebates/coupons + taxes

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Pricing Objectives Exhibit Dollar or Unit Sales Growth Growth in Market Share Target Return Maximize Profits Meeting Competition Nonprice Competition Pricing Objectives Sales Oriented Profit Oriented Status Quo Oriented

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Flexibility Policies One-price policy The same price to all customers who purchase products under essentially the same conditions and quantities. Various exchange rates may make this difficult in international markets. Flexible pricing (e.g., found in channels, business markets, expensive consumer shopping products) Issues: Use is increasing because of impact of information technology, customer databases, scanners, etc. Selling costs may be higher if prices are negotiated. Customer dissatisfaction may be a problem. 17-5

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Exhibit 17-5A 17-6 Price Level Policies Over the PLC “Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. Price Quantity Initial skimming price Second price Final price Skimming Pricing Sell at high price before reducing to next price level and repeat

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Quantity Penetration Pricing Whole market price Penetration pricing involves selling the whole market at one low price. Exhibit 17-5B 17-7 Price Level Policies Over the PLC

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Level Policies Over the PLC Introductory price dealing - temporary price cuts to speed new product into a market.

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Trade Quantity cumulative vs noncumulative Seasonal Discount Pricing Sale Cash 17-8 Discount Pricing

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Allowances Common Kinds of Allowances Advertising Allowance Push Money Allowance Trade-In Allowance Stocking Allowance 17-9

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Geographic Pricing Policies Common Geographic Pricing Policies F.O.B. Uniform Delivered Freight Absorption Zone 17-10

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Value Pricing Fits with Strategy Planning Fits with Strategy Planning Target Market and Competition Target Market and Competition Focus on Customer Requirements Focus on Customer Requirements $ $

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Pricing and the Law Unfair trade practice acts - put a lower limit on prices, especially at the wholesale and retail levels. Antidumping laws - make it illegal to sell in a foreign market below the cost of producing the product or at a price lower than in its domestic market. Wheeler Lea Amendment - bans “unfair or deceptive acts in commerce.” Price fixing - competitors getting together to raise, lower or stabilize prices. Price discrimination - selling the same product to different buyers at different prices - if it injures competition. Must offer promotional allowances to customers on “proportionately equal” terms.