For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN Pricing Objectives and Policies

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. © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin When we finish this lecture you should

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. © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin When we finish this lecture you should

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Price Has Many Strategy Dimensions +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Shaping Customer Value

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Strategy Planning for Price Exhibit 16-1

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The Price Equation: Price Equals Something of Value Exhibit 16-2

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Price as Seen by Channel Members Exhibit 16-3

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Objectives Should Guide Strategy Planning for Price Exhibit 16-4

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Objectives Should Guide Strategy Planning for Price Exhibit 16-4

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Objectives Should Guide Strategy Planning for Price Exhibit 16-4

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Most Firms Set Specific Pricing Policies to Reach Objectives OR One-Price Policy The same for everyone Frequently purchased items Convenient Low cost Maintains goodwill Flexible-Price Policy Different customers, different prices Databases make it easier Salespeople can adjust prices Too much cutting can hurt profits

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Price-Level Policies over the Product Life Cycle +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Skimming vs. Penetration Exhibit 16-5

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Other Price-Level Policies +

Trade Cash Seasonal Quantity © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Discount Policies: Reductions from List Prices From List Price From List Price Sale

Push Money Stocking Advertising Common Types of Allowances Advertising © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Allowance Policies – Off List Prices Trade-Ins

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Some Customers Get Something Extra +

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Coupon Distribution

Uniform Delivered Uniform Delivered Uniform Delivered Uniform Delivered Zone F.O.B. Common Geographic Policies © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin List Price May Depend on Geographic Pricing Policies Freight Absorption Freight Absorption

Define Target Market and Competition Value Pricing = Customer Value Look at Customer’s Viewpoint © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Pricing Policies Combine to Impact Customer Value Value Pricing Fits with Market-Oriented Strategy

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Interactive Exercise: Pricing Policies & Discounts

Phony List Prices Phony List Prices Phony List Prices Phony List Prices Dumping Unfair Trade Practice Acts Unfair Trade Practice Acts Unfair Trade Practice Acts Unfair Trade Practice Acts Key Issues © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Legality of Pricing Policies Price Fixing

Meeting Competition Meeting Competition Meeting Competition Meeting Competition Cost Differences Cost Differences Cost Differences Cost Differences “Like Grade & Quality” “Like Grade & Quality” “Like Grade & Quality” “Like Grade & Quality” Robinson- Patman Act Robinson- Patman Act Robinson- Patman Act Robinson- Patman Act © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Price Discrimination Key Issues “Proportionately Equal” Basis “Proportionately Equal” Basis

Price Target return objective Profit maximization objective Sales-oriented objective Status quo objectives Nonprice competition Administered prices One-price policy Flexible-price policy © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Terms Skimming price policy Penetration price policy Introductory price dealing Basic list prices Discounts Quantity discounts Cumulative quantity discounts Noncumulative quantity discounts

Seasonal discounts Net Cash discounts 2/10, net 30 Trade (functional) discount Sale price Everyday low pricing Allowances Advertising allowances Stocking allowances © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Terms Push money (or prize money) allowances Trade-in allowance Rebates F. O. B. Zone pricing Uniform delivered pricing Freight absorption pricing Value pricing

Unfair trade practice acts Dumping Phony list prices Wheeler-Lea Amendment Price fixing Robinson-Patman Act Price discrimination © 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Key Terms