1. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–1 Part 3: The marketing mix Chapter 12: Pricing objectives and policies Step 5: Design the marketing strategy

2. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–2 When we finish this lecture you should Understand the role of pricing within the overall marketing mix Understand how pricing objectives and policies guide strategy planning for pricing decisions Understand the decisions a marketing manager must make about price flexibility Know what a marketing manager should consider when setting the price level for a product in the various stages of the product life cycle Recognise the possible variations of a price structure, including discounts, allowances and responsibility for transportation costs Understand the value pricing concept and its role in obtaining a competitive advantage and the ability to offer target customers superior value Be aware of the legality of policies regarding price flexibility and price levels Recognise special pricing issues in international marketing

3. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–3 Strategic pricing Marketing managers develop pricing objectives and policies guided by corporate objectives—they explain – How flexible prices will be – The levels of prices over the product life cycle – To whom and when discounts and allowances are given – How transportation costs are handled

4. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–4 Figure 12.1 Strategy planning for price

5. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–5 Figure 12.2 Price as seen by consumers or users

6. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–6 Figure 12.3 Price as seen by channel members

7. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–7 Figure 12.4 Possible pricing objectives

8. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–8 Administered prices Administered prices are consciously set prices aimed at reaching the company’s objectives

9. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–9 Price flexibility Fixed-price policy—Offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities Flexible-price policy—Offering the same product and quantities to different customers at different prices

10. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–10 Pricing and the product life cycle Price skimming—Selling to the top of the market at a high price, before aiming at more price sensitive customers Penetration pricing—Attempting to sell to the whole market at one low price Competitive pricing—Setting prices relative to the competition

11. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–11 Figure 12.5 Alternative introductory pricing policies

12. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–12 Exhibit 12.3 Introductory price offers can help accelerate acceptance of new products into a market.

13. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–13 There may be significantly different pricing practices in different countries The prices of goods sold in overseas markets are influenced by environmental factors, such as – Competition – Economy – Politics Intra-company pricing—Transfer pricing, the pricing of products sold between affiliated companies based in different countries International aspects of pricing policies

14. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–14 Discounts are reductions from list prices that are given by sellers to buyers who either give up some marketing function or provide the function themselves – Quantity discounts—Offered to encourage trade members and other customers to buy in larger quantities  Cumulative quantity discounts encourage repeat purchasing to create customer loyalty, and reductions in price for larger purchases over a given period  Non-cumulative quantity discounts encourage large orders, and reductions in price for purchasing a larger quantity in a single order – Seasonal discounts—Offered to encourage buyers to purchase earlier than current demand requires—smoothing out demand Discounts and allowances

15. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–15 – Payment terms and cash discounts—Reductions in the price to encourage early payment of accounts – Consumer credit—Seller agrees to delay full payment with/without adding interest – Trade (functional) discounts—Price reduction given to channel members for the tasks they undertake – Sale prices—Temporary discount from the list price  Everyday low pricing—Setting a low list price without relying on discounts and allowances – Coupons—Upon presentation consumer receives a discount on a list price – Cash rebates—Refunds to consumers after a purchase has been made Discounts and allowances (continued)

16. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–16 Allowances—Reductions in price given to buyers for doing something or accepting less of something – Advertising allowance—Price reductions given to intermediaries to encourage them to promote the supplier’s products locally – Stocking allowances—Price reduction given to an intermediary to obtain shelf space for a product or product line – Trade-in allowances—Price reductions for used products when similar new products are bought Discounts and allowances (continued)

17. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–17 Geographic pricing ‘Free on board’ pricing (F.O.B.)—Free on board some vehicle at some place—for example, F.O.B. seller's factory, F.O.B. delivered, F.O.B. factory— freight prepaid Regional/zone pricing—An average freight charge to all buyers within specific geographic areas Uniform delivered pricing—The same (average) freight charge to all buyers Freight absorption pricing—Seller pays freight cost so delivered price matches that of the competition

18. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–18 Legal aspects of pricing Price fixing – Price fixing—Competitors illegally getting together to raise or stabilise prices – Misleading list prices—Suggesting that the prices customers are being asked to pay have been discounted Resale price maintenance—Producer or wholesaler specifies a minimum price below which goods may not be resold Bait pricing—Setting very low prices to attract customers, but trying to sell more expensive models/brands once customers are in the store

19. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–19 Price discrimination—Selling the same products to different buyers at different prices if this substantially lessens competition – Trade Practices Act (Section 49) regulates price discrimination—note this section does not cover prices charged to the final customer – The law does permit some price differences, but these must be based on cost differences and the need to meet competition Legal aspects of pricing (continued)

20. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing 4/e by Quester, McGuiggan, Perreault and McCarthy 12–20 What we will be doing in the next chapter In the following chapter we will be discussing setting prices for goods and services including – Mark-ups – Break-even analysis – Marginal analysis – Demand-oriented approaches – Full-line pricing – Tendering and negotiated pricing