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Chapter 19. Pricing Strategies. Chapter Objectives. Compare the alternative pricing strategies and explain when each strategy is most appropriate. Describe how prices are quoted . Identify the various pricing policy decisions that marketers must make.

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chapter 19

Chapter 19

Pricing Strategies

chapter objectives
Chapter Objectives
  • Compare the alternative pricing strategies and explain when each strategy is most appropriate.
  • Describe how prices are quoted.
  • Identify the various pricing policy decisions that marketers must make.
  • Relate price to consumer perceptions of quality.
  • Contrast competitive bidding and negotiated prices.
  • Explain the importance of transfer pricing.
  • Compare the three alternative global pricing strategies.
  • Relate the concepts of cannibalization, bundlepricing, and bots to online pricing strategies.
pricing strategies
Pricing Strategies
  • Skimming pricing strategy [Gouge pricing strategy]: involves the use of a high price relative to competitive offerings
    • Often used by marketers of high-end products
    • Also by firms introducing a distinctive good with little or no competition
    • Allows firms to control demand during the introductory stages of a products life cycle
    • Can be used as a tool for segmenting a product’s market on a price basis
slide4
Figure 19.1
    • Distinctive Flat-Screen TVs Marketed with a Skimming Pricing Strategy
slide5
Weber
    • Distinctive Grills Marketed through a Skimming Pricing Strategy
slide6
Lincoln Navigator
    • Maintaining a High Price in Periods of High Demand
slide7
Figure 19.3

Price Reductions to Increase Market Share

slide8
Penetration pricing strategy: involves the use of a relatively low entry price as compared with competitive offerings; based on the theory that this initial low price will help secure market acceptance
    • Designed to generate many trial purchases
slide9
Figure 19.4
    • Credit-Card Offers: Penetration Pricing
slide10
Everyday low pricing (EDLP): Pricing strategy of continuously offering low prices rather than relying on such short term price cuts as cents-off coupons, rebates, and special sales
    • Wal-Mart
slide11
Southwest Airlines, Known for It’s Low Prices, Often Enters New Markets with Incredibly Low Penetration Prices and Then Maintains Market Share With Everyday Low Pricing Strategy
slide12
Competitive Pricing Strategy: reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors
    • Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix
slide13
Figure 19.6
    • American Airlines: Reducing the Emphasis on Price Competition
price quotations
Price Quotations
  • List prices: Established prices normally quoted to potential buyers
    • Gasoline Prices: Where the Money Goes
slide15
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
slide16
Reductions from List Price
    • 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, a common cash discount notation, allows consumers to subtract 2 percent from the amount due if payment is made within 10 days
slide17
Trade Discounts: payment to a channel member or buyer for performing marketing functions; also known as a functional discount
slide18
Quantity discount: price reduction granted for a large-volume purchase
    • Justified on the grounds that large orders reduce selling expenses, storage, and transportation costs
    • Cumulative quantity discounts reduce prices in amounts determined by purchases over stated time periods
    • Non-cumulative quantity discounts provide one-time reductions in the list price
slide19
Allowances
    • Trade-in: credit allowance given for a used item when a new item is purchased
    • Promotional allowance: advertising or promotional funds provided by a manufacturer to other channel members in an attempt to integrate the promotional strategy within the channel
  • Rebates: refund for a portion of the purchase price, usually granted by the product’s manufacturer
slide20
Figure 19.9
    • Rebates for Computer-Related Goods
slide21
Geographic Considerations
    • FOB (free on board) plant or FOB origin: Price quotation that does not include shipping charges. Buyer pays all freight charges to transport the product from the manufacturer
    • Freight absorption: system for handling transportation costs under which the buyer may deduct shipping expenses from the costs of goods
slide22
Uniform-delivered price: system for handling transportation costs under which all buyers are quoted with the same price, including transportation expenses
  • Zone pricing: system for handling transportation costs under which the market is divided into geographic regions and a different price is set in each region
  • Basing-point system: system for handling transportation costs in which the buyer’s costs included the factory price plus freight charges from the basing-point city nearest the buyer. Seeks to equalize competition between distant marketers.
pricing policies
Pricing Policies
  • Pricing policy: general guidelines based on pricing objectives and intended for use in specific pricing decisions
  • Psychological pricing: pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers
slide24
Odd pricing: pricing policy based on the belief that a price ending with and odd number just below a round number is more appealing
    • John Deere at $1,999 instead of $2000
slide25
Unit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count
    • For example, a gallon of milk, or one dozen eggs
slide26
Price Flexibility: pricing policy that permits variable prices for goods and services
    • Car dealerships traditionally employ a flexible pricing strategy
slide27
Figure 19.10
    • Fractional Ownership of a Personal Jet: Example of Variable Pricing
slide28
Product-line pricing: practice of marketing different lines of merchandise at a limited number of prices
    • Hallmark has different prices for its card lines
slide29
Promotional pricing: pricing policy in which a lower than normal price is used as a temporary ingredient in the marketing strategy
    • “Buy one, get one free” is a common pricing promotion
slide30
Loss leader: product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices
  • What are some loss leaders in a grocery store?
slide31
Price-Quality Relationships
    • Without other cues, price serves as an important indicator of a product’s quality to buyers
    • Customers often view price as an indicator of a product’s overall quality and may be willing to pay a higher price
slide32
Figure 19.11
    • Rolex Cellini Cellissima Watch: Example of the Price-Quality Relationship
competitive bidding and negotiated prices
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
    • Buyers and sellers can communicate and negotiate prices online
the transfer price dilemma
The Transfer Price Dilemma
  • Transfer price: cost assessed when a product is moved from one profit center to another
  • Profit center: any part of an organization to which revenue and controllable costs can be assigned
global considerations and online pricing
Global Considerations and Online Pricing
  • International markets are subject to external influences such as regulatory limitations, trade restrictions, competitor’s actions, economic events, and the global status of the industry
  • The effect the exchange rate can have on international trade can be significant. It is important that pricing of products take exchange rates into account.
slide37
Traditional Global Pricing Strategies
    • Standard Worldwide: Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets
    • Dual Pricing: Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each
    • Market Differentiated: Flexible pricing strategy that sets prices according to local marketplace and economic conditions
slide38
Characteristics Of Online Pricing
    • Cannibalization: Loss of sales of an existing product due to competition from a new product in the same line
    • Shopping Bots: Search engines which act as comparison shopping agents
  • Bundle pricing: Offering two or more complementary products and selling them for a single price
slide39
Figure 19.14
    • Cable TV Companies and Bundle Pricing