chapter16-Pricing Objectives-Test 1a

Chapter 16:

Chapter 16 Pricing Objectives and Policies www.mhhe.com/fourps

At the end of this presentation, you should be able to::

Understand how pricing objectives should guide strategy planning for pricing decisions. Understand choices marketing managers must make about price flexibility. Know what a marketing manager should consider when setting the price level for a product in the early stages of the product life cycle. 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:

At the end of this presentation, you should be able to::

Understand the value pricing concept and its role in obtaining a competitive advantage and offering target customers superior value. Understand the legality of price level and price flexibility policies. At the end of this presentation, you should be able to:

Price Decisions and the Marketing Strategy Planning Process:

Price Decisions and the Marketing Strategy Planning Process

Strategy Planning and Pricing Objectives and Policies (Exhibit 16-1):

CH 17: Price Setting in the Business World CH 16: Pricing Objectives and Policies Pricing objectives Pricing policies Pricing and customer value Legal issues and pricing policies Strategy Planning and Pricing Objectives and Policies (Exhibit 16-1)

Price Has Many Strategy Dimensions:

Discounts & Allowances – To Whom & When Price Levels Over Product Life Cycle Price Flexibility Key Pricing Policies Transportation Costs – Who Pays & How Price Has Many Strategy Dimensions

Shaping Customer Value:

Shaping Customer Value © 2010 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Price Exchanged for Something of Value – View of Consumer or User (Exhibit 16-2):

Price Exchanged for Something of Value – View of Consumer or User (Exhibit 16-2) Exchange Price List Price Less: discounts Quantity Seasonal Cash Temporary sales Less: allowances Trade-ins Damaged goods Less: rebate and coupon value Plus: transportation and taxes Something of Value Product Physical good Service Assurance of quality Repair facilities Packaging Credit Warranty Place of delivery or when available

Price Exchanged for Something of Value – View of Channel Members (Exhibit 16-3):

Price Exchanged for Something of Value – View of Channel Members (Exhibit 16-3) Exchange Price List Price Less: discounts Quantity Seasonal Cash Trade or functional Temporary “deals” Less: allowances Damaged goods Advertising Push money Stocking fees Plus: transportation, taxes, tariffs, and costs of handling or disposal Something of Value Product Branded – well known Guaranteed & warranted Service – repair facilities Convenient packaging Place Availability – when/where Promotion Promotion aimed at end-user customers Price Price-level guarantee Sufficient margin & inventory turns to allow for profit

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4):

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4)

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4):

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4)

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4):

Objectives Should Guide Strategy Planning for Price (Exhibit 16-4)

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 : target return status quo-oriented profit maximization sales-oriented non-price competition Checking Your Knowledge

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 Most Firms Set Specific Pricing Policies to Reach Objectives Flexible Price Policy Different customers, different prices Databases make it easier Salespeople can adjust prices Too much cutting can hurt profits

Too Much Price-Cutting Erodes Profits (Exhibit 16-5):

Too Much Price-Cutting Erodes Profits (Exhibit 16-5) $10 $20 Profit $100 $60 $40 $20 Cost per unit = $80 $100 list price 10% price cut  new price = $90 50% profit margin cut

Price-Level Policies Over the Product Life Cycle:

Price-Level Policies Over the Product Life Cycle

Skimming vs. Penetration (Exhibit 16-6):

Skimming vs. Penetration (Exhibit 16-6)

Other Price-Level Policies:

Other Price-Level Policies

Discount Policies: Reductions from List Prices:

Seasonal Cash Trade Quantity From List Price Sale Discount Policies: Reductions from List Prices

Allowance Policies – Off List Prices:

Push Money Stocking Advertising Common Types of Allowances Trade-Ins Allowance Policies – Off List Prices

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: trade-in allowance. sale price. seasonal discount. trade discount. cash discount. Checking Your Knowledge

Some Customers Get Something Extra:

Some Customers Get Something Extra

Coupon Distribution:

Coupon Distribution © 2010 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

List Price May Depend on Geographic Pricing Policies:

Uniform Delivered Zone F.O.B. Common Geographic Policies Freight Absorption List Price May Depend on Geographic Pricing Policies

Checking Your Knowledge:

Janet Eckerd wants to buy a new Volvo. She lives in Richmond, Virginia, but can’t 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 Janet’s 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: F.O.B. pricing. zone pricing. uniform delivered pricing. intermediary pricing. freight absorption pricing. Checking Your Knowledge

Checking Your Knowledge:

The simplest geographic pricing policy for a seller to administer is: uniform delivered pricing. F.O.B. pricing. zone pricing. freight absorption pricing. life cycle pricing. Checking Your Knowledge

Pricing Policies Combine to Impact Customer Value:

Define Target Market and Competition Value Pricing = Customer Value Look at Customer’s Viewpoint Value Pricing Fits with Market-Oriented Strategy Pricing Policies Combine to Impact Customer Value

Interactive Exercise: Pricing Policies & Discounts:

Interactive Exercise: Pricing Policies & Discounts

Legality of Pricing Policies:

Phony List Prices Dumping Unfair Trade Practice Acts Key Issues Price Fixing Legality of Pricing Policies

Price Discrimination:

Meeting Competition Cost Differences “Like Grade & Quality” Robinson-Patman Act Key Issues “Proportionately Equal” Basis Price Discrimination

You should now be able to::

Understand how pricing objectives should guide strategy planning for pricing decisions. Understand choices marketing managers must make about price flexibility. Know what a marketing manager should consider when setting the price level for a product in the early stages of the product life cycle. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs. You should now be able to:

You should now be able to::

Understand the value pricing concept and its role in obtaining a competitive advantage and offering target customers superior value. Understand the legality of price level and price flexibility policies. You should now be able to:

Key Terms:

Price Target return objective Profit maximization objective Sales-oriented objective Status quo objectives Nonprice competition Administered prices One-price policy Flexible-price policy Skimming price policy Penetration pricing policy Introductory price dealing Basic list prices Discounts Quantity discounts Cumulative quantity discounts Noncumulative quantity discounts Key Terms

Key Terms:

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

Key Terms:

Unfair trade practice acts Dumping Phony list prices Wheeler-Lea Amendment Price fixing Robinson-Patman Act Price discrimination Key Terms