1. Chapter 9: Pricing Objectives and Policies

2. Pricing Chapter objective What is price? Strategic dimensions
Legal issues affecting pricing policies

3. 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

4. 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

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

6. 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

7. Profit-oriented objectives
Target return sets a specific level of profit as an objective.
Profit maximization: to get as much profit as possible.

8. 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).

9. 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.

10. 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.

11. 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)

12. Factors influencing price levels
Demand
Costs
Competition

13. 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.

14. 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

15. 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

16. 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.

17. 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.

18. 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.

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

20. 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.

21. Legal issues affecting pricing policies (p552)
Price fixing is illegal
Price discrimination
Predatory pricing
Resale price maintenance
The End