1. Chapter 19
Pricing Strategies

2. Chapter Objectives
Compare the alternative pricing strategies and explain when each strategy is most appropriate.
Describe how prices are quoted.
Identify the various pricing policy decisions that marketers must make.
Relate price to consumer perceptions of quality.
Contrast competitive bidding and negotiated prices.
Explain the importance of transfer pricing.
Compare the three alternative global pricing strategies.
Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies.

3. Pricing Strategies
Skimming pricing strategy: involves the use of a high price relative to competitive offerings
Often used by marketers of high-end products
Also by firms introducing a distinctive good with little or no competition
Allows firms to control demand during the introductory stages of a products life cycle
Can be used as a tool for segmenting a product’s market on a price basis

4. Penetration pricing strategy: involves the use of a relatively low entry price as compared with competitive offerings; based on the theory that this initial low price will help secure market acceptance
Everyday low pricing (EDLP): Pricing strategy of continuously offering low prices rather than relying on such short term price cuts as cents-off coupons, rebates, and special sales
Competitive Pricing Strategy: reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors
Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix

5. Price Quotations
List prices: Established prices normally quoted to potential buyers
Market price: Price that an intermediary or final consumer pays for a product after subtracting any discounts, rebates, or allowances from the list price

6. 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
Trade Discounts: payment to a channel member or buyer for performing marketing functions; also known as a functional discount

7. Quantity discount: price reduction granted for a large-volume purchase
Cumulative quantity discounts
Non-cumulative quantity discounts
Allowances
Trade-in
Promotional allowance
Rebates

8. Geographic Considerations
FOB (free on board) plant or FOB origin
Freight absorption
Uniform-delivered price
Zone pricing
Basing-point system

9. Pricing Policies
Pricing policy: general guidelines based on pricing objectives and intended for use in specific pricing decisions
Psychological pricing
Odd pricing
Unit pricing
Price Flexibility
Product-line pricing

10. Promotional pricing
Pricing policy in which a lower than normal price is used as a temporary ingredient in the marketing strategy
“Loss leader: product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices
Leader pricing

11. Price-Quality Relationships
Without other cues, price serves as an important indicator of a product’s quality to buyers
Customers often view price as an indicator of a product’s overall quality and may be willing to pay a higher price

12. 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
Buyers and sellers can communicate and negotiate prices online

13. The Transfer Price Dilemma
Transfer price: cost assessed when a product is moved from one profit center to another
Profit center: any part of an organization to which revenue and controllable costs can be assigned

14. Global Considerations and Online Pricing
International markets are subject to external influences such as regulatory limitations, trade restrictions, competitor’s actions, economic events, and the global status of the industry
The effect the exchange rate can have on international trade can be significant. It is important that pricing of products take exchange rates into account.

15. Traditional Global Pricing Strategies
Standard Worldwide: Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets
Dual Pricing: Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each
Market Differentiated: Flexible pricing strategy that sets prices according to local marketplace and economic conditions

16. Characteristics Of Online Pricing
Cannibalization: Loss of sales of an existing product due to competition from a new product in the same line
Shopping Bots: Search engines which act as comparison shopping agents
Bundle pricing: Offering two or more complementary products and selling them for a single price