1. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Chapter 16: Pricing Objectives and Policies

2. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill When you finish this chapter, you should 16-2 Chapter 16 Objectives 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.

3. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Strategy Planning for Price Exhibit 16-1 Pricing objectives Target Market PricePromotionPlaceProduct Geographic term — who pays transportation and how Discounts and allowances— to whom and when Price levels over product life cycle Price flexibility 16-3

4. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Pricing Objectives Exhibit 16-4 16-4 Dollar or Unit Sales Growth Growth in Market Share Target Return Maximize Profits Meeting Competition Nonprice Competition Pricing Objectives Sales Oriented Profit Oriented Status Quo Oriented

5. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill 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. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Exhibit 16-5A 16-6 Price Level Policies “Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. Price Quantity Initial skimming price Second price Final price Skimming Pricing Sell at high price before reducing to next price level and repeat

7. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Price Quantity Penetration Pricing Whole market price Penetration pricing involves selling the whole market at one low price. Exhibit 16-5B 16-7 Price Level Policies

8. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Trade Quantity Seasonal Discount Pricing Sale Cash 16-8 Discount Pricing

9. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Allowances Common Kinds of Allowances Advertising Allowance Push Money Allowance Trade-In Allowance Stocking Allowance 16-9

10. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Geographic Pricing Policies Common Geographic Pricing Policies F.O.B. Uniform Delivered Freight Absorption Zone 16-10

11. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill 16-11 Value Pricing Fits with Strategy Planning Fits with Strategy Planning Target Market and Competition Target Market and Competition Focus on Customer Requirements Focus on Customer Requirements $ $

12. For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill 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 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 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 Key Terms