CHAPTER 11: PRICE AND DELIVER THE VALUE OFFERING

A pricing tactic that entails relatively low, constant prices and minimal spending on promotional efforts.

(everyday low pricing) EDLP

Elements of Managing Pricing Decisions:

1. establish pricing objectives and related strategies 2. select pricing tactics 3. set the exact price 4. determine channel discounts and allowances 5. execute price changes 6. understand legal considerations in pricing

A percentage discount off invoice to elicit quicker/early payment by the customer. Ideally, result in financial advantage for both parties. ex. 2%/10, Net/40

cash discounts

A pricing tactic in which the price is expressed in whole-dollar increments. $2.00

even pricing

A pricing tactic in which the price is not expressed in whole dollar increments. $1.99

odd pricing

When a seller offers different prices to different customers without a substantive basis, such that competition is reduced.

price discrimination

Prices established to convey the differences in benefits offered as the customer moves up and down the product line.

price points

The desired or expected results associated with a pricing strategy that is consistent with other marketing-related objectives.

pricing objectives

A method of setting prices that occurs when marginal revenue equals marginal cost.

profit maximization

___ transactions utilize several types of discounts and allowances.

B2B

Buyer selects freight company, pays freight charges, and owns product during transit/takes title the moment the goods are placed on truck/transportation vehicle

FOB origin/factory

monitors and enforces deceptive pricing practices

FTC

A pricing tactic in which the price marked on a good is what it typically sells for

One-Price Strategy

A pricing strategy in which a firm's objective is to gain as much market share as possible.

Penetration pricing

___ is a Core Component of Value

Price

prohibits horizontal price-fixing, which could result in overall higher prices for consumers since various competitors are all pricing the same to maximize their profits

Sherman Act (price fixing)

A pricing strategy in which a firm attempts to find a neutral set point for price that is neither low enough to raise the ire of competition nor high enough to put the value proposition at risk with customers.

Stability pricing

A pricing strategy in which a firm attempts to take into account the role of price as it reflects the bundle of benefits sought by the customer.

Value pricing

A pricing tactic in which individuals competitively bid against each other and the purchase goes to the highest bidder.ev

Auction Pricing

Laws designed to allow manufacturers to establish artificially high prices by limiting the ability of wholesalers and retailers to offer reduced or discounted prices. (1970s OK, Target)

fair trade laws

In many parts of the world, ___ is expected. In the US, B2B, & the service sector often uses ___ pricing.

haggling, variable

occurs when companies that collude to set prices at a mutually beneficial high level

horizontal price-fixing

The percentage of total category sales accounted for by a firm.

market share

The addition to the price of an offering after costs have been considered.

markup on cost

Using the sales price as a basis for calculating the markup percentage.

markup on sales

Laws that require retailers to apply a certain percentage of markup to their products for sale.

minimum markup laws

A strategy to intentionally sell below cost to push a competitor out of a market, then raise prices to new highs. Illegal.

predatory pricing

the customer's perception of the offering's pricing—is a key determinant of perceived value.

price

A pricing tactic in which customers are given the opportunity to purchase a package deal at a reduced price compared to what the individual components of the package would cost separately.

price bundling

The measure of customers' price sensitivity, estimated by dividing relative changes in quantity sold by relative changes in price.

price elasticity of demand

A pricing strategy in which a firm enters a market at a relatively high price point, usually in an effort to create a strong price-quality relationship for the product.

price skimming

When a company purposefully makes pricing decisions to undercut one or more competitors and gain sales and net market share.

price war

When companies collude to set prices at a mutually beneficial high level.

price-fixing

A pricing tactic in which a firm affords the marketing manager an opportunity to develop a rational pricing approach across a complete line of related items. Different rooms offered by resort with lower floor limited view $$$ during peak season

product line pricing (price lining)

Sales promotions initiated by the manufacturer and carried out by the retailer, who is then compensated by the manufacturer. ex: retailer runs as for P&G like Crest toothpaste allowance is % of invoice or fixed dollar figure per dozen/case for ex

promotional allowances

Creating a perception about price merely from the image the numbers provide the customer. Key element of odd pricing.

psychological pricing

Discounts taken off an invoice price based on different levels of product purchased. order-by-order basis (noncumulative) or cumulative basis overtime to promote customer loyalty (legally, should be offered to all. customers on equal basis)

quantity discounts

A remittance of monies to the consumer after the purchase of the product.

allowances

A pricing decision made by identifying all costs associated with an offering to come up with what the average cost of a single unit might be.

average-cost pricing

Store brands on the shelf next to national brands. Used heavily in B2B price lists.

reference pricing

When a seller advertises a low price but has no intent to actually make the lower-priced item available for sale. Illegal. Deceptive pricing.

bait and switch

value is a ratio of the bundle of ___ a customer receives from an offering compared to the ___ incurred by the customer in acquiring that bundle of benefits.

benefits, costs

When sellers bid prices to buyers and the purchase typically goes to the lowest bidder.

reverse auctions

Discounts that reward the purchaser for shifting part of the inventory storage function away from the manufacturer.

seasonal discounts

A pricing tactic of gaining a commitment from a customer to a basic product or system that requires continual purchase of peripherals to operate. (HP ink cartridges; Gillette razors and multi-blade system)

captive pricing (complementary pricing)

A pricing decision made by considering fixed and variable costs and then demand forecasting to determine the price per unit.

target return pricing

Reference pricing gives the buyer a ___ price.

comparative

A marketing strategy in which a firm utilizes its core cost advantages to gain an advantage over competitors due to flexibility in pricing strategies as well as its ability to translate cost savings to the bottom line.

cost leadership

An incentive to a channel member for performing some function in the channel that benefits the seller. ex: stocking a seller's product/performing a service related to that product like installation/repair within the channel normally expressed as a % off the invoice

trade discounts (functional discounts)

Building a price by adding standardized markup on top of the costs associated with the offering.

cost-plus pricing

When the same delivery fee is charged to customers regardless of geographic location within a set area. (Amazon, Land's End)

uniform delivered pricing

a ratio of the bundle of benefits a customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits.

value

Knowingly stating prices in a manner that gives a false impression to customers.

deceptive pricing

automobiles and real estate use ___ pricing

variable

when independent members of a channel (for ex, manufacturers, distributors, retailers) collude to establish a minimum retail price, referred to as retail price maintenance

vertical price fixing

When shippers set up geographic pricing zones based on the distance from the shipping location. USPS is set up this way.

zone pricing

direct, immediate reductions in price provided to purchasers.

discounts

A pricing strategy in which a firm decides to price at some market average price in context with prices of competitors.

Competitor-based pricing

Determination of title transfer and freight payment based on shipping location.

FOB (free on board)

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer's location. Title doesn't change hands and freight charges are seller's responsibility. The greater the distance between shipper and customer, the higher the freight charges to the customer.

FOB destination

A pricing strategy in which the retailer offers frequent discounts, primarily through sales promotions, to stated regular prices.

High/Low Pricing

The amount of price increase that can be taken without impacting customer demand.

JND (Just noticeable difference)

Ending the price with certain numbers to influence buyers' perceptions of the price or product

Odd/Even Pricing

A pricing tactic that lends prestige to a product or brand by virtue of a price relatively higher than the competition. (e.g., Voss water).

Prestige Pricing

A pricing strategy in which a bottom-line profit is established first and then pricing is set to achieve that target.

ROI (target return on investment)

A pricing strategy in which a firm gives customers comparative prices when considering purchase of a product so they are not viewing a price in isolation from prices of other choices. (showing mfg suggested list price next to actual price; private-label products like Walgreens displayed next to national brand like Scope; B2B use a lot)

Reference pricing

prohibits giving, inducing, or receiving discriminatory prices except under certain specific conditions such as situations where proof exists that the costs of selling to one customer are higher than to another (such as making distributions to remote locations) or when temporary, defensive price reductions are necessary to meet competition in a specific local area. Prohibits price discrimination.

Robinson-Patman Act

A pricing tactic in which customers are allowed or encouraged to haggle about prices.

Variable Pricing

where a firm offers the same goods for sale at different prices in different market segments. More common around the world.

Variable pricing

Products sacrificed at prices below costs in an effort to attract shoppers to the retail location.

loss leader products