BASIC MARKETING

Chapter 17
Pricing
Objectives and
Policies

For use only with Perreault/Cannon/ McCarthy texts, 2011 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin
 At the end of this presentation, you should
be able to:
1. Understand how pricing objectives should guide
strategy planning for pricing decisions.
2. Understand choices marketing managers 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.
 At the end of this presentation, you should
be able to:
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 important new terms.
Marketing Strategy Planning Process
 Strategy Planning and Pricing Objectives
and Policies (Exhibit 17-1)

CH 17: Pricing
CH 18: Price Setting
Objectives and
in the Business World
Policies

Pricing Pricing Pricing and Legal issues and

objectives policies customer value pricing policies
 Price Has Many Strategy Dimensions

Price
Price Levels
Levels Over
Over
Price
Price Flexibility
Flexibility Product
Product Life
Life Cycle
Cycle

Key
Key
Pricing
Pricing
Policies
Policies

Transportation
Transportation Discounts
Discounts &&
Costs
Costs Who
Who Pays
Pays Allowances
Allowances To
To
&& How
How Whom
Whom && When
When
Shaping Customer Value

2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 Price Exchanged for Something of Value
View of Consumer or User (Exhibit 17-2)

Something
Something of
of
Price
Price Value
Value
List Price Product
Less: discounts Physical good
Quantity Service
Seasonal Exchange Assurance of quality
Exchange
Cash Repair facilities
Temporary sales Packaging
Less: allowances Credit Warranty
Trade-ins Place of delivery or when
Damaged goods available
Less: rebate and coupon value
Plus: transportation and taxes
 Price Exchanged for Something of Value
View of Channel Members (Exhibit 17-3)

Something
Something of
of
Price
Price Value
Value
List Price Product
Less: discounts Branded well known
Quantity Guaranteed & warranted
Seasonal Exchange Service repair facilities
Exchange
Cash Convenient packaging
Trade or functional Place
Temporary deals Availability when/where
Less: allowances Promotion
Damaged goods Promotion aimed at end-
Advertising user customers
Push money Price
Stocking fees Price-level guarantee
Plus: transportation, taxes, Sufficient margin &
tariffs, and costs of handling inventory turns to allow for
or disposal profit
Objectives Should Guide Strategy Planning
for Price (Exhibit 17-4)
Objectives Should Guide Strategy Planning
for Price (Exhibit 17-4)
Objectives Should Guide Strategy Planning
for Price (Exhibit 17-4)
 Checking Your Knowledge

An industry-leading high technology company just announced

that it was cutting its prices and would price its products at
whatever level was necessary to protect its market share. This
is evidence of a ____________ pricing objective:

A. target return
B. status quo-oriented
C. profit maximization
D. sales-oriented
E. non-price competition
Most Firms Set Specific Pricing Policies to
Reach Objectives

One-Price
One-Price Flexible
Flexible Price
Price
Policy
Policy Policy
Policy
The same for Different customers,
everyone different prices
Frequently Databases make it
purchased items OR easier
Convenient Salespeople can
Low cost adjust prices
Maintains goodwill Too much cutting
can hurt profits
 Too Much Price-Cutting Erodes Profits
(Exhibit 17-5)

$100 list price

$100 10% price cut

new price = $90

Cost per unit = $80

50% profit
margin cut
$60

$40
Profit
$20
$20 $10
 Price-Level
Policies Over
the Product
Life Cycle
Skimming vs. Penetration (Exhibit 17-6)
 Other Price-
Level Policies
Discount Policies: Reductions from List
Prices

Quantity
Quantity Seasonal
Seasonal

From
From
List
List Price
Price
Sale
Sale Cash
Cash

Trade
Trade
 Allowance Policies Off List Prices

Advertising
Advertising Stocking
Stocking

Common
Common
Types
Types of
of
Allowances
Allowances

Trade-Ins
Trade-Ins Push
Push Money
Money
 Checking Your Knowledge

A construction company is considering purchasing a new crane

from a distributor of such equipment. The distributor offers to
provide the construction company with a few thousand dollars
worth of credit on an old crane that the company would like to
replace. This credit offered by the distributor is a:

A. trade-in allowance.
B. sale price.
C. seasonal discount.
D. trade discount.
E. cash discount.
 Some
Customers Get
Something
Extra
Coupon Distribution

2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

 List Price May Depend on Geographic
Pricing Policies
F.O.B.
F.O.B. (free
(free on
on broad
broad
seller
seller pays
pays to to have
have Zone
Zone ((delivered
delivered prices
prices
product
product loaded
loaded on on aa apply
apply the
the average
average freight
freight
transportation
transportation vehicle
vehicle at at charge
charge to
to all
all customers
customers in
in
which
which time
time the
the title
title is
is same
same specified
specified geographic
geographic
transferred
transferred to to buyer,
buyer, area)
area)
who
who payspays shipping
shipping and and
is
Common
Common
is responsible
responsible forfor the
the
product
product atat that
that point)
point) Geographic
Geographic
Policies
Policies

Freight
Freight Absorption
Absorption Uniform
Uniform Delivered
Delivered
(pays
(pays cost
cost of
of (one
(one price
price to
to all
all
shipping)
shipping) buyers)
buyers)
 Checking Your Knowledge

Janet Eckerd wants to buy a new Volvo. She lives in Richmond, Virginia, but cant
find the exact color and model she wants at her local Volvo dealers. She searches
the Web and discovers that a dealership 90 minutes away, in Alexandria, Virginia,
has the car she wants. She called the dealer and found that the price of the vehicle
is the same as it would be in Richmond, although the Alexandria dealer wants to
charge Janet an additional $150 to have someone drive the car from Alexandria to
Janets home in Richmond. As Janet was about to reject the offer and hang up the
phone, the dealer offered to waive the extra shipping charge and make the price
exactly equal to the price in Richmond. This geographic pricing tactic by the
Alexandria dealer is a form of:

A. F.O.B. pricing.
B. zone pricing.
C. uniform delivered pricing.
D. intermediary pricing.
E. freight absorption pricing.
 Checking Your Knowledge

The simplest geographic pricing policy for a seller to

administer is:

A. uniform delivered pricing.

B. F.O.B. pricing.
C. zone pricing.
D. freight absorption pricing.
E. life cycle pricing.
Pricing Policies Combine to Impact
Customer Value

Look
Look at
at Customers
Customers
Viewpoint
Viewpoint

Value
Value Pricing
Pricing ==
Customer
Customer Value
Value

Define
Define Target
Target Market
Market
and
and Competition
Competition

Value
Value Pricing
Pricing Fits
Fits with
with
Market-Oriented
Market-Oriented Strategy
Strategy
Interactive Exercise: Pricing Policies &
Discounts
 Legality of Pricing Policies
Unfair
Unfair Trade
Trade Dumping
Dumping ((pricing
pricing aa
product
product sold
sold in
in aa foreign
Practice
Practice Acts
Acts market
foreign
market below
below the
the cost
cost of
of
(puts
(puts aa lower
lower limit
limit producing
producing itit in
in its
its
on
on prices)
prices) domestic market))
domestic market

Key
Key
Issues
Issues

Price
Price Fixing
Fixing Phony
Phony List
List Prices
Prices
(competitors
(competitors getting
getting (suggest
(suggest that
that the
the
together
together to
to raise,
raise, price
price has
has been
been
lower,
lower, or
or stabilize
stabilize discounted
discounted from
from list)
list)
prices)
prices)
 Price Discrimination

Robinson-
Robinson- Like
Like Grade
Grade &&
Patman
Patman Act
Act Quality
Quality

Key
Key
Issues
Issues
Proportionately
Proportionately Cost
Cost
Equal
Equal Basis
Basis Differences
Differences

Meeting
Meeting
Competition
Competition
 Study Question 1
_____ is what a customer must give up
to get the benefits offered by the rest of
a firm's marketing mix.

A. Promotion
B. Price
C. Product
D. Past
E. Profit
 Study Question 2
A manufacturer spends a large amount of money on
research and development leading to the introduction of
a product that is likely to present the firm with a
breakthrough opportunity. The manufacturer prices the
product with the goal of achieving a 20 percent return on
its investment. Which of the following types of pricing
objectives is the company using?

A. Target return.
B. Profit maximization.
C. Non-price competition.
D. Meeting competition.
E. Dollar or unit sales growth.
 Study Question 3
A firm that is very concerned about
increases in market share should adopt a
______________ pricing objective.

A. profit-oriented
B. sales-oriented
C. non-price competition
D. status quo
E. target return
 Study Question 4
Pro-Edge Tech, a leading technology firm,
has bluntly stated its pricing objective as:
"Charge all the traffic will bear." This is an
example of a

A. profit maximization objective.

B. unit sales growth objective.
C. growth in market share objective.
D. target return objective.
E. non price competition objective.
 Study Question 5
Godiva, a maker of expensive European chocolates,
does not mention price in its magazine advertising.
Instead, the ad copy mentions the quality of the
ingredients, the fine packaging, and the luxurious
boutiques where Godiva chocolates are sold. Godiva
seems to be pursuing a pricing objective of:

A. Meeting competition.
B. Non-price competition.
C. Target return.
D. Growth in market share.
E. None of the above.