1. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 14 Managing the Pricing Function

2. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-2 What kind of pricing decisions do you think went into the introduction of the product shown in this commercial?

3. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-3 Pricing Strategies Skimming pricing strategy 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

4. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-4 Weber Distinctive Grills Marketed through a Skimming Pricing Strategy

5. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-5 Lincoln Navigator Maintaining a High Price in Periods of High Demand

6. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-6 Price Reductions to Increase Market Share

7. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-7 What pricing recommendation would you have for Ruffles if they had a strategic goal of acquiring a greater market share.

8. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-8 Penetration pricing strategy Penetration pricing strategy Designed to generate many trial purchases

9. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-9 Everyday low pricing (EDLP Everyday low pricing (EDLP Wal-Mart has successfully utilized an EDLP strategy

10. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-10 Southwest Airlines Often enters new markets with low penetration prices and maintains market share with everyday low pricing strategy

11. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-11 Competitive Pricing Strategy Competitive Pricing Strategy Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix

12. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-12 Lendingtree.Com Practices a Competitive Pricing Strategy

13. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-13 Class Discussion Does Cartier Use a Skimming, Penetration, or Competitive Pricing Strategy?

14. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-14 Price Quotations List prices List prices: Established prices normally quoted to potential buyers The take on a $25 T-Shirt

15. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-15 Market price 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

16. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-16 Reductions from List Price Cash discount 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

17. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-17 Quantity discount 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

18. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-18 Allowances Allowances Trade-in Promotional Rebates Rebates: refund for a portion of the purchase price, usually granted by the product’s manufacturer

19. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-19 Geographic Considerations FOB (free on board) plant or FOB origin FOB (free on board) plant or FOB origin Freight absorption Freight absorption Uniform-delivered price Uniform-delivered price Zone pricing Zone pricing

20. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-20 Pricing Policies Pricing policy Pricing policy Psychological pricing Psychological pricing

21. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-21 Odd pricing Odd pricing For example, this John Deere at $1,999 instead of $2000

22. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-22 Unit pricing 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

23. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-23 Price Flexibility Price Flexibility: pricing policy that permits variable prices for goods and services

24. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-24 Product-line pricing Product-line pricing Hallmark has different prices for its card lines

25. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-25 Purina Puppy Chow is Only One of Purina’s Product Lines – Each of Which is Priced Differently

26. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-26 Shell Oil Practices Product Line Pricing by Offering Several Different Gasoline Products and Price Ranges

27. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-27 Promotional pricing Promotional pricing “Buy one, get one free” is a common pricing promotion

28. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-28 Loss leader 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

29. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-29 Price-Quality Relationships Price-Quality Relationships Without other cues, price serves as an important indicator of a product’s quality to buyers

30. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-30 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 Negotiated Prices Online

31. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-31 RealEstate.Com Is an Example of Negotiated Prices Online

32. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-32 Online Auctions: Purest form of negotiated pricing

33. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-33 Traditional Global Pricing Strategies Traditional Global Pricing Strategies Standard Worldwide Dual Pricing Market Differentiated

34. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 14-34 Characteristics Of Online Pricing Characteristics Of Online Pricing Cannibalization Shopping Bots Bundle pricing