MGT301 Principles of Marketing Lecture-26

Summary of Lecture-25

Setting Pricing Policy

General Pricing Approaches Cost-based Pricing Value-based Pricing Competition-based Pricing

New Product Pricing Strategies Market Skimming Market Penetration

Product Mix Pricing Strategies Product Line Pricing Optional-Product Pricing Captive-Product Pricing Product Mix Pricing Strategies By-Product Pricing Product Mix Pricing Strategies Product-Bundle Pricing

Today’s Topics Price

Often the only marketing mix variable allowing for immediate competitive response Important part of product positioning Long term effects of pricing decisions--your decisions may come back to haunt you!

Price - Quality Strategies Higher Lower Premium Strategy Good-Value Strategy Higher Overcharging Strategy Economy Strategy Quality Lower

Price-Adjustment Strategies Discount and Allowance Pricing Segmented Pricing Psychological Pricing Promotional Pricing Geographical Pricing International Pricing

Discount and Allowance Pricing

Quantity discounts reward bigger buyers Pricing Quantity discounts reward bigger buyers

Seasonal discounts encourage purchases earlier than demand Quantity Seasonal Discount Pricing Seasonal discounts encourage purchases earlier than demand

Cash discounts encourage customers to pay invoices earlier Quantity Seasonal Discount Pricing Cash Cash discounts encourage customers to pay invoices earlier

Discount Pricing Quantity Seasonal Cash Trade Trade discounts reflect jobs done by middlemen … and usually are pretty much standardized by expected margins Trade

Discount Pricing Quantity Seasonal Sale Cash Trade Temporary price cuts to shift demand (rebates, trade deals, etc.)

Allowances Advertising Allowance Common Kinds of Allowances Advertising or promotion allowance is a reduction from amount due to compensate middleman for promotion expenses, often as a percentage of total sales

Stocking Allowance Advertising Allowance Common Kinds of Allowances Stocking allowances (also known as slotting fees) are payments to wholesalers or retailers to stock unproven new products (I.e., “rent” for shelf space)

Advertising Allowance Stocking Allowance Common Kinds of Allowances Trade-In Allowance Trade-in allowances are relatively uncommon but in some business markets are critical Brokers often develop to get rid of used products

Advertising Allowance Stocking Allowance Common Kinds of Allowances Push Money Allowance Trade-In Allowance Push money is an allowance that is usually passed on to salespeople for pushing a particular product

Segmented Pricing

Psychological Pricing Value $22.00 Sale $14.99

Considers the psychology of prices and not simply the economics. Customers use price less when they can judge quality of a product. Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product.

Odd/Even Pricing--Does It have an Impact? Sale $14.99

Theory: $3. 00 is rounded to $3. 00 while $2. 99 is rounded to “$2 Theory: $3.00 is rounded to $3.00 while $2.99 is rounded to “$2.00 plus change” Reality: Studies in U.S. have found some impact; no impact found in Germany Note that odd pricing may signal receiving a bargain, which may or may not be compatible with the desired product image

Promotional Pricing

Special-Event Pricing Cash Rebates Low-Interest Financing Longer Warranties Free Merchandise Discounts Loss Leaders Temporarily Pricing Products Below List Price to Increase Short-Term Sales Through

Geographical Pricing F.O.B. Common Geographic Pricing Policies F.O.B. means “free on board” (e.g., at some place such as a factory, warehouse, destination,etc.) Customer pay the freight and take risk of shipping product

Zone F.O.B. Common Geographic Pricing Policies Zone pricing sets some “average” price that is used anywhere within a specific geographic zone (I.e., may be a whole country or region), but prices differ between zones

F.O.B. Zone Uniform Delivered Common Geographic Pricing Policies Making an average freight charge to all customers, usually used when transportation costs are low or for simplicity.

F.O.B. Zone Uniform Freight Delivered Absorption Common Geographic Pricing Policies Freight Absorption Uniform Delivered Seller absorbs all or part of the freight costs to meet the prices of the nearest competitor … amounts to price cutting to appeal to distant customers.

Basing-point pricing A geographical pricing strategy in which the seller designate some city as a basing point and charges all customers the freight cost from that city to the customers.

FOB Origin Uniform Delivered Pricing Tactics Based on Geography Zone Pricing Freight-Absorption Basing-Point

International Pricing Adjusting prices for customers in different counties. Price depends on costs, consumers, economic conditions, competitive situations, & other factors.

Enough for today. . .

Price - Quality Strategies Summary Price - Quality Strategies

Higher Quality Lower Price Higher Lower Premium Strategy Good-Value Overcharging Strategy Economy Strategy Quality Lower

Price-Adjustment Strategies Discount and Allowance Pricing Segmented Pricing Psychological Pricing Promotional Pricing Geographical Pricing International Pricing

Next…. Price Changes

MGT301 Principles of Marketing Lecture-26