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

Strategic Planning for Price Pricing objectives Target Market Price Promotion Place Product Geographic terms Discounts and allowances Price levels flexibility

Pricing Objectives Profit Pricing Sales Objectives Oriented Status Quo Dollar or Unit Sales Growth Growth in Market Share Target Return Maximize Profits Meeting Competition Nonprice Pricing Objectives Sales Oriented Profit Status Quo

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 on one or more of the Ps other than price.

Price Flexibility Policies 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 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

Skimming Pricing Price Quantity Initial skimming price Second Final Skimming Pricing Sell at high price before reducing to next price level and 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.

Penetration Pricing Penetration Pricing Penetration pricing involves selling the whole market at one low price when the demand curve is fairly elastic. Whole market price

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 promotion. Stocking allowances – to intermediaries for shelf space. Push money(or prize money) allowances – to retailers to pass on to the salesclerks for selling certain items. Trade-in allowances (given the used products when similar new products are bought) – for used products. Rebates – refunds to consumers after a pruchase.

Geographic Pricing Policies Common Geographic Pricing Policies F.O.B. Uniform Delivered Freight Absorption Zone

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