Chapter 16: Pricing Objectives and Policies

1. Chapter 16: Pricing Objectives and Policies

2. 1. Understand how pricing objectives should guide strategy planning for pricing decisions. 2. Understand choices the marketing manager must make about price flexibility. 3. Know what a marketing manager should consider when setting the price level for a product in the early stages of the product life cycle. 4. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs. 5. Understand the value pricing concept and its role in obtaining a competitive advantage and offering target customers superior value. 6. Understand the legality of price level and price flexibility policies. 7. Understand the important new terms. Chapter 16 Objectives When you finish this chapter, you should 16-2

3. Target Market Product Place Promotion Price Strategy Planning for Price Pricing objectives Price flexibility Price levels over product life cycle Discounts and allowances— to whom and when Geographic term — who pays transportation and how Exhibit 16-1 16-3

4. Target Return Maximize Profits Profit Oriented Dollar or Unit Sales Growth Growth in Market Share Pricing Objectives Sales Oriented Meeting Competition Nonprice Competition Status Quo Oriented Pricing Objectives Exhibit 16-4 16-4

5. Price Flexibility Policies • One-price 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, 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 cross-shipping 16-5

6. Skimming Pricing Sell at high price before reducing to next price level and repeat Price “Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. Initial skimming price Second price Final price Quantity Price Level Policies Exhibit 16-5A 16-6

7. Penetration Pricing Price Penetration pricing involves selling the whole market at one low price. Whole market price Quantity Price Level Policies Exhibit 16-5B 16-7

8. Quantity Seasonal Discount Pricing Sale Cash Trade Discount Pricing 16-8

9. Advertising Allowance Stocking Allowance Common Kinds of Allowances Push Money Allowance Trade-In Allowance Allowances 16-9

10. F.O.B. Zone Common Geographic Pricing Policies Uniform Delivered Freight Absorption Geographic Pricing Policies 16-10

11. Focus on Customer Requirements ???? ???? ???? ???? ???? $ Target Market and Competition Fits with Strategy Planning Value Pricing 16-11

12. 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 Introductory Price Dealing Basic List Prices 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 16-12