MKT 205 - Ch. 11

the Federal Trade Commission's "Guides against Deceptive Pricing" warn sellers not to advertise

(1) a price reduction unless it is a savings from the usual retail price, (2) "factory" or "wholesale" prices unless such prices are what they are claimed to be, and (3) comparable value prices on imperfect goods

buyer reactions to price changes

**Higher prices - Better quality - Company is gouging you **Lower Prices - Reduced quality - Getting a bargain

price adjustment tactics

- Discounts - Bundling - Dynamic Pricing

Pricing strategies

-price changes -cuts increases

Price adjustment strategies

1. Discount and allowance pricing 2. Segmented pricing 3. Psychological pricing 4. Promotional pricing 5. Geographical pricing 6. Dynamic pricing 7. International pricing

conditions for market penetration

1. market must bee highly price sensitive so low price produces growth 2. production and distrib costs must decrease as salees volume increasees 3. Low pricee must heelp keep out competiton

2 broad nw product pricing strategies

1. market skimming pricing 2. market-penetration pricing

Certain conditions where price skimming works

1. product's quality and image must support the price and enough buyers 2. costs of producing is smaller volumne 3. competitors shouldnt bee able to enter market easily and undercut price

scanner fraud

A deliberate action that involves overcharging customers, usually for smaller goods, with the expectation that the customer will not notice or fuss about it.

Product bundle pricing

PRICING BUNDLES OF PRODUCTS SOLD TOGETHER Microsoft Office is sold as a bundle of computer software, including Word, Excel, PowerPoint, and Outlook.

Optional product pricing

PRICING OPTIONAL OR ACCESSORY PRODUCTS SOLD WITH MAIN PRODUCT a car buyer may choose to order a navigation system and premium entertainment system. Refrigerators come with optional ice makers.

captive-product pricing

PRICING PRODUCTS THAT MUST BEE USED WITH THE MAIN PRODUCT. Examples of captive products are razor blade cartridges, video games, printer cartridges, single-serve coffee pods, and e-books. Called two-part pricing broken up into a fixed fee plus a variable usage rate

zone pricing

Pricing in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price

By-product pricing

Setting a price for by products to help offset the costs of disposing of them and make help the main product's price more competitive PRICING LOW VALUEE BY PRODUCTS TO GET RID OR MAKE MONEY ON THEM In Tennessee, distilleries sell off potato juice, a by-product of vodka distillation.

pricing structure

The planned selling price of products calculated to generate a desired profit. Changes over time as products move thru life cycle

Competitor Reactions to Price Changes

Why did the competitor change the price? Is the price cut permanent or temporary? Is the company trying to grab market share? Is the company doing poorly and trying to increase sales? Is it a signal to decrease industry prices to stimulate demand?

location-based pricing

a company charges different prices for different locations, even though the cost of offering each location is the same. For instance, state universities charge higher tuition for out-of-state students, and theaters vary their seat prices because of audience preferences for certain locations.

time-based pricing

a firm varies its price by the season, the month, the day, and even the hour. For example, movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts.

seasonal discount

a price reduction to buyers who buy merchandise or services out of season.

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations Services ranging from retailers, airlines, and hotels to sports teams change prices on the fly according to changes in demand, costs, or competitor pricing, adjusting what they charge for specific items on a daily, hourly, or even continuous basis

International Pricing

adjusting prices for international markets factors: economic conditions, competitive situations, laws and regulations, nature of the wholesaling and retailing system. costs

discount

cash discount; a straight reduction in price on purchases during a stated period time or larger quant.

product form pricing

different versions of the product are priced differently but not according to differences in their costs a round-trip economy seat on a flight from New York to London might cost $1,100, whereas a business-class seat on the same flight might cost $3,400 or more.

functional discount (trade discount)

offered by the seller to trade-channel members who perform certain functions, such as selling, storing, and record keeping

Promotional allowances

payments or price reductions that reward dealers for participating in advertising and sales-support programs.

Price Fixing and Predatory Pricing

potentially damaging pricing practices within a given level of the channel

quantity discount

price reduction to buyers who buy large volumes

trade-in allowances

price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the automobile industry

reference prices

prices that buyers carry in their minds and refer to when they look at a given product For example, a grocery retailer might place its store brand of bran flakes and raisins cereal priced at $2.49 next to Kellogg's Raisin Bran priced at $3.79.

FOB origin pricing (free on board)

pricing in which goods are placed free on board a carrier, the customer pays the freights from the factory to the destination

uniform-delivered pricing

pricing in which the company charges the same price plus freight to all customers, regardless of their location

freight-absorption pricing

pricing in which the seller absorbs all or part of the freight charges in order to get the desired business

basing-point pricing

pricing in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer

psychological pricing

pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product For instance, who's the better lawyer, one who charges $50 per hour or one who charges $500 per hour? You'd have to do a lot of digging into the respective lawyers' credentials to answer this question objectively

discount and allowance pricing

reducing prices to reward customer responses such as paying early or promoting the product

channels

retail price maintenance, discriminatory pricing, and deceptive pricing

predatory pricing

selling a product below cost to drive competitors out of the market

segmented pricing

selling a product or service at two or more prices, where the difference in prices is not based on differences in costs -customers that are 55 and over or 16 and under

Market-skimming pricing (price skimming)

setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales

market penetration pricing

setting a low price for a new product in order to attract a large number of buyers and a large market share - companiees set an inital low price to penetrate the markeet quickly

geographical pricing

setting prices for customers located in different parts of the country or world A company also must decide how to price its products for customers located in different parts of the United States or the world.

new product pricing

setting the price for new products is one of the most fundamental decisions in the marketing mix

product line pricing

setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices SETTING PRICES ACROSS AN ENTIRE PRODUCT LINE Quicken offers an entire line of financial management software, including Starter, Deluxe, Premier, Home & Business, and Rental Property Manager versions

Promotional Pricing

temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales - discounts -special event pricing -limiteed time offers -flash sales -cash rebates -low-interest financing longer warranties free maintenance

federal legislation on price fixing

that sellers must set prices without talking to competitors or else price collusion occurs

price discrimination

the business practice of selling the same good at different prices to different customers For example, every retailer is entitled to the same price terms from a given manufacturer, whether the retailer is REI or a local bicycle shop. However, price discrimination is allowed if the seller can prove that its costs are different when selling to different retailers—for example, that it costs less per unit to sell a large volume of bicycles to REI than to sell a few bicycles to the local dealer.

product mix pricing

the firm searches for a set of prices that maximizes profits on the total mix

price escalation

the pricing disparity in which goods are priced higher in a foreign market than in the home market; caused by the added costs involved in exporting products from one country to another

allowances

type of reduction from the list price

Retail (or resale) price maintenance

when a manufacturer requires a dealer to charge a specific retail price for its product, which is prohibited by law For example, the Florida attorney general's office investigated Nike for allegedly fixing the retail price of its shoes and clothing. It was concerned that Nike might be withholding items from retailers who were not selling its most expensive shoes at prices the company considered suitable.

Deceptive pricing

when a seller states prices or price savings that mislead consumers or are not actually available to consumers For example, luxury apparel and accessories retailer Michael Kors recently settled a class action lawsuit alleging that it used deceptive pricing at its outlet stores. The retailer was charged with tagging products with false "manufacturer's suggested retail prices" to make its supposed discounted prices more appealing when, in fact, the products were sold only in the outlet stores. Such artificial comparison pricing is widespread in retailing.