When you finish this chapter, you should: Understand how pricing objectives should guide strategic planning for pricing decisions; 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, including discounts, allowances, and who pays transportation costs.
Chapter 17: Pricing Objectives and Policies For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Chapter 17 Objectives When you finish this chapter, you should 1. Understand how pricing objectives 5. Understand the value pricing should guide strategy planning for concept and its role in pricing decisions. obtaining a competitive advantage and offering target 2. Understand choices the marketing customers superior value manager must make about price flexibility 6. Understand the legality of price level and price flexibility 3. Know what a marketing manager policies. should consider when setting the price level for a product in the 7. Understand the important new early stages of the product life terms cycle 4. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs 172 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Strategy Planning for Price Target Market Product Place Promotion Price Pricing objectives Price flexibility Exhibit 171 173 Price levels over product life cycle Discounts and allowances— to whom and when Geographic term — who pays transportation and how For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Pricing Objectives Profit Oriented Pricing Objectives Sales Oriented Status Quo Oriented Exhibit 174 174 Target Return Maximize Profits Dollar or Unit Sales Growth Growth in Market Share Meeting Competition Nonprice Competition For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Flexibility Policies Oneprice policy The same price to all customers who purchase products under essentially the same conditions and quantities Exchange rate changes may make this difficult in international markets Flexible pricing (e.g., in channels, business markets, expensive consumer shopping products) Issues: Use is increasing because of impact of information technology, 175 customer databases, scanners, etc Selling costs may be higher if prices are negotiated “Signals” to competitors Customer dissatisfaction may be a problem “Gray channels” and crossshipping For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Level Policies Skimming Pricing Price Initial skimming price Sell at high price before reducing to next price level and repeat Second price Final price “Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more pricesensitive consumers Quantity Exhibit 175A 176 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Price Level Policies Penetration Pricing Price Penetration pricing involves selling the whole market at one low price Whole market price Quantity Exhibit 175B 177 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Discount Pricing Quantity Seasonal Discount Pricing Sale Cash Trade 178 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Allowances Advertising Allowance Common Kinds of Allowances Stocking Allowance Push Money Allowance Trade-In Allowance 179 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Geographic Pricing Policies F.O.B Common Geographic Pricing Policies Zone Uniform Delivered Freight Absorption 1710 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Value Pricing ???? ???? ???? ???? ???? $ 1711 Focus Focus on on Customer Customer Requirements Requirements Target Target Market Market and and Competition Competition Fits Fits with with Strategy Strategy Planning Planning For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Key Terms Price Target Return Objective Profit Maximization Objective Sales-Oriented Objective Status Quo Objectives Nonprice Competition Administered Price One-Price Policy Flexible-Price Policy Skimming Price Policy Penetration Pricing Policy ntroductory Price Dealing Basic List Prices 1712 Discounts Quantity Cumulative Noncumulative Seasonal Net Cash Discounts 2/10 Net 30 Trade (Functional) Discounts Sale Price Everyday Low Pricing Allowances Advertising Stocking Push Money Trade-in Coupons Rebates F.O.B Zone Pricing Uniform Delivered Freight Absorption Value Pricing Unfair Trade Practices Act Dumping Phony List Prices Wheeler Lea Act Price Fixing Robinson-Patman Act Price Discrimination For use only with Perreault and McCarthy texts © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill ... Irwin/McGraw-Hill Allowances Advertising Allowance Common Kinds of Allowances Stocking Allowance Push Money Allowance Trade-In Allowance 17 9 For use only with Perreault and McCarthy texts © The McGraw-Hill... McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Discount Pricing Quantity Seasonal Discount Pricing Sale Cash Trade 17 8 For use only with Perreault and McCarthy texts © The McGraw-Hill Companies,... 4. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs 17 2 For use only with Perreault and McCarthy texts © The McGraw-Hill