Copyright © 2001 by Harcourt, Inc. All rights reserved CHAPTER NINETEEN MANAGING THE PRICING FUNCTION (Part 2 of 2) Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans

Copyright © 2001 by Harcourt, Inc. All rights reserved Pricing Policies Pricing policy: general guidelines based on pricing objectives and intended for use in specific pricing decisions © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Pricing Policies 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 Psychological

Copyright © 2001 by Harcourt, Inc. All rights reserved Pricing Policies Odd pricing: pricing policy based on the belief that a price ending with and odd number just below a round number is more appealing For example, $9.97 rather than $10.00 Psychological

Copyright © 2001 by Harcourt, Inc. All rights reserved John Deere At $1,999 for This Tractor, Deere Is Practicing Odd Pricing Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-6 Pricing Policies 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 Psychological

Copyright © 2001 by Harcourt, Inc. All rights reserved Pricing Policies Price Flexibility: pricing policy that permits variable prices for goods and services Car dealerships traditionally employ a flexible pricing strategy Psychological Flexibility

Copyright © 2001 by Harcourt, Inc. All rights reserved Telephone Service Providers Such as AT&T Have Traditionally Practiced a Flexible Pricing Strategy Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-9 Pricing Policies Product-line pricing: practice of marketing different lines of merchandise at a limited number of prices For example, a coat manufacturer may produced four lines of coats, each priced at $99, $150, $225, or $300 Psychological Flexibility Product-Line

Copyright © 2001 by Harcourt, Inc. All rights reserved Hallmark Hallmark Has Different Prices for its Card Lines Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-11 Delta, Like Most Other Airlines, Practice Product-Line Pricing With First, Business, and Economy Class Seating Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-12 Pricing Policies 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 Psychological Flexibility Product-Line Promotional

Copyright © 2001 by Harcourt, Inc. All rights reserved Verlo Mattress Factory Stores Example of Promotional Pricing Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-14 Columbia House Often Uses Promotional Pricing Strategies, Such as “Get 12 CDs For Free” Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-15 BMG Music Club: Another Example of a Firm Using Promotional Pricing Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-16 Pricing Policies 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 Psychological Flexibility Product-Line Promotional

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Example of a Brand for Which Many Consumers are Willing to Pay a Higher Price Due to a High Price-Quality Relationship Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-19 Figure 19.9: TravelScape.com – Guaranteed Low Prices

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Negotiated Prices Online Buyers and sellers can communicate and negotiate prices online. Examples of negotiated prices include: Priceline.com Travelscope.com Tickets.com

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 19.10: Online Auctions – Purest Forms of Negotiated Pricing

Copyright © 2001 by Harcourt, Inc. All rights reserved Tickets.com Auctions Tickets to Sporting Events and Concerts Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-24 Priceline.com: Example of a Firm that Facilitates Negotiating Prices Online Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-25 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Figure 19.11: Transfer Pricing to Escape Taxation

Copyright © 2001 by Harcourt, Inc. All rights reserved 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 © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Traditional Global Pricing Strategies Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets Standard Worldwide Standard Worldwide © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Traditional Global Pricing Strategies Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each Standard Worldwide Dual Pricing Dual Pricing © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Traditional Global Pricing Strategies Flexible pricing strategy that sets prices according to local marketplace and economic conditions Standard Worldwide Dual Pricing Market Differentiated Market Differentiated © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Characteristics Of Online Pricing Cannibalization: Securing additional sales through lower prices that take sales away from the marketer’s other products © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved Barnes & Noble’s Web-site Cannibalizes Sales From It’s Traditional Retail Stores by Offering Lower Prices on the Same Merchandise Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-33 Books-A-Million.com Sells Top 20 Best-Sellers at 40% Below List. On It’s Web Site, It Uses a Defensive Strategy and a Discount of 55% -- Cannibalizing Sales from it’s Retail Stores Copyright © 2001 by Harcourt, Inc. All rights reserved.

19-34 Characteristics Of Online Pricing Bundle pricing: Offering two or more complementary products and selling them for a single price © PhotoDisc

Copyright © 2001 by Harcourt, Inc. All rights reserved STRATEGIC IMPLICATIONS To avoid money-losing price wars, many marketers are developing strategies that involve non-price competition Expansion of the Internet will bring competitive prices to even the most geographically isolated homes and offices Customer ability to find the lowest prices on the market, and to negotiate their own prices, will continue to improve What marketers must continue to do to remain successful in the 21 st Century is to offer value © PhotoDisc