1. MGT301 Principles of Marketing
Lecture-26

2. Summary of Lecture-25

3. Setting Pricing Policy

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

5. New Product Pricing Strategies
Market Skimming
Market Penetration

6. 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

7. Today’s Topics
Price

8. 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!

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

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

11. Discount and Allowance Pricing

12. Quantity discounts reward bigger buyers
Pricing
Quantity discounts reward bigger buyers

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

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

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

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

17. 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

18. 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)

19. 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

20. 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

21. Segmented Pricing

22. Psychological Pricing
Value $22.00
Sale $14.99

23. 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.

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

25. 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

26. Promotional Pricing

27. 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

28. 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

29. 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

30. 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.

31. 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.

32. 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.

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

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

35. Enough for today. . .

36. Price - Quality Strategies
Summary
Price - Quality Strategies

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

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

39. Next….
Price Changes

40. MGT301 Principles of Marketing
Lecture-26