MARKETING CH. 17

push money (or prize money) allowances

(sometimes called PMs or spiffs) given to retailers by manufacturers or wholesalers to pass on to the retailers' sales clerks for aggressively selling certain items.

stocking allowances

(sometimes called slotting allowances) - are given to an intermediary to get shelf space for a product. For example, a producer might offer a retailer cash or free merchandise to stock a new item.

F.O.B.

A commonly used transportation term is F.O.B. which means "free on board" some vehicle at some point. F.O.B. shipping point: buyer has responsibility as soon as the product is loaded onto a vehicle at the seller's point of shipment. The buyer then pays the shipping costs. F.O.B. destination: title does not pass to the buyer until the product is delivered (seller is responsible for shipping costs)

trade (functional) discount

a price list reduction given to channel members for the job they are going to do. Ex. a manufacturer might allow a retailer a 30% trade discount from the suggested retail list price to cover cost of carrying inventory and providing knowledgeable salespeople to demonstrate the product.

trade-in allowance

a price reduction given for used products when similar new products are bought. Trade-ins give the marketing manager an easy way to lower the effective price without reducing the list price.

nonprice competition

a status quo pricing objective may be part of an aggressive overall marketing strategy focusing on nonprice competition - aggressive action on one or more of the P's other than price. Ex. Zappos.com offers free shipping and guarantees that it will meet local shoe store prices. BUT it wins customers with enormous selection of shoes and make it easy for customers to find products with excellent customer service.

sale price

a temporary discount from the list price. Sale price discounts encourage immediate buying.

noncumulative quantity discounts

apply only to individual orders. Such discounts encourage larger orders but do not tie a buyer to the seller after that one purchase.

cumulative quantity discounts

apply to purchases over a given period - such as a year - and the discount usually increases as the amount purchased increases. encourages repeat buying - reduces customer's cost for additional purchases.

2/10, net 30

buyer can take a 2% discount off the face value of the invoice if the invoice is paid fully within 10 days. Otherwise, the full face value is due within 30 days or an interest charge will be applied after that period.

price fixing

competitors getting together to raise, lower, or stabilize prices - its common and relatively easy - but also illegal. Considered conspiracy under the Sherman Act and the Federal Trade Commission Act.

seasonal discounts

discounts offered to encourage buyers to buy earlier than present demand requires. For manufacturers, this tends to shift storing function further along in the channel and even out sales over the year. Common for service firms that face irregular demand or excess capacity. Ex. Low ski rates when attendance would otherwise be down.

quantity discounts

discounts offered to encourage customers to buy in larger amounts. This lets a seller get more of a buyer's business, or shifts some of the story function to the buyer, or reduces shipping and selling costs - or all of these. Two kinds of quantity discounts (1) cumulative (2) noncumulative.

price objectives

guided by the company's objectives, marketing managers develop specific pricing objectives that drive decisions about key pricing policies: (1) how flexible prices will be (2) the level of prices over the product life cycle (3) to whom and when discounts and allowances will be given (4) how transportation costs will be handled.

wheeler lea amendment

in the US, the FTC tries to stop phony list pricing using the Wheeler Lea Amendment, which bans "unfair or deceptive acts in commerce".

allowances

like discounts, are given to final consumers, business consumers, or channel members for doing something or accepting less of something.

Robinson-Patman Act (of 1936)

makes illegal any price discrimination - if it injures competition. The law does permit some price differences - but they must be based on (1) cost differences, or (2) the need to meet competition. (both buyers and sellers considered guilty if they are aware they are entering into a discriminatory agreement.

status quo objectives

managers satisfied with their current market share and profits sometimes adopt status quo objectives - "don't-rock-the-pricing-boat objectives". Managers may say they want to stabilize prices, or meet competition, or even avoid competition. This is common when the total market is not growing.

freight absorption pricing

means absorbing freight cost so that a firm's delivered price meets that of the nearest competitor. This amounts to cutting list price to appeal to new market segments.

zone pricing

means making an average charge to all buyer within specific geographic areas. The seller pays the actual freight charges and bills each customer for an average charge.

uniform delivered pricing

means making an average freight charge to all buyers. It is a kind of zone pricing - an entire country may be considered one zone - that includes the average cost of delivery in the price. Usually used when transportation costs are relatively low and seller wishes to sell in all geographic areas at one price.

one-price policy

means offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities. Majority of US firms use a one-price policy - mainly for administrative convenience and to maintain goodwill among customers.

flexible-price policy

means offering the same product and quantities to different customers at different prices.

Net

means that payment for the face value of the invoice is due immediately. (But Net 10 means due in 10 days).

Dynamic Pricing

offers products at a price that changes according to the level of demand, the type of customer, or the state of the weather. Ex. sports teams and airlines.

price discrimination

price level and price flexibility policies can lead to price discrimination - selling the same products to different buyers at different prices.

administered price

price policies usually lead to administered prices - consciously set prices. Instead of letting daily market forces (or auctions) decide their prices, most firms set their own prices.

advertising allowances

price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier's products locally. Ex. Sony might give an allowance (3 percent of sales) to its retailers. They in turn are expected to spend the allowance on local advertising.

phony list prices

prices customers are shown to suggest that the price has been discounted from list. Some customers seem more interested in the supposed discount than in the actual price.

unfair trade practice acts

put a lower limit on prices, especially at the wholesale and retail levels. Passed in more than half of states in US - selling below cost in these states is illegal. Wholesalers and retailers are usually required to take a certain minimum percentage markup over their merchandise-plus-transportation costs.

discounts

reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves.

Cash discounts

reductions in price to encourage buyers to pay their bills quickly. Terms for cash discount usually modify the net terms.

sales-oriented objective

seeks some level of unit sales, dollar sales, or share of market - without referring to profit. (Some managers are more concerned about sales growth than profits).

profit maximization objective

seeks to get as much profit as possible. It might be stated as a desire to earn a rapid return on investment.

target return objective

sets a specific level of profit as an objective. Often this amount is stated as a percentage of sales or of capital investment.

value pricing

setting a fair price level for a marketing mix that really gives the target market superior customer value. The focus is on the customer's requirements and how the whole marketing mix meets those needs. Ex. Honda car prices or Wendy's dollar menu.

rebates

some firms offer rebates - refunds paid to consumers after a purchase.

everyday low pricing

some firms that sell consumer convenience products offer everyday low pricing - setting a low list price rather than relying on frequent sales, discounts, or allowances. Some supermarkets use this approach.

introductory price dealing

temporary price cuts to speed new products into a market and get customers to try them. Plan to raise price after introductory offer is over - once customers decide the product is worth buying again.

dumping

the US and most other countries control the minimum price of imported products with anti-dumping laws - Dumping is pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market. Designed to protect the country's domestic producers and jobs.

price

the amount of money that is charged for "something" of value.

basic list prices

the prices final customers or users are normally asked to pay for products.

penetration pricing policy

tries to sell the whole market at one low price. This approach might be wise when the elite market - those willing to pay a higher price - is small. Also wise if firm expects strong competition very soon after introduction. This is the case when the demand curve is fully elastic. Penetration policy is attractive if selling large quantities results in lower costs because of economies of scale.

skimming price policy

tries to sell to the top of a market - the top of the demand curve - at a high price before aiming at more price-sensitive customers. Skimming may maximize profits in the market introduction phase for an innovation, especially if there are few substitutes or if some customers are not price sensitive. Skimming is also useful when you don't know the shape of the demand curve - easier to set high price then drop it than vice versa.