Chapter 11

Functional discount

(trade discount) - to trade-channel members who perform certain functions, such as selling, storing, and record keeping.

7 Price Adjustment Strategies

1.Discount and allowance pricing 2.Segmented pricing 3.Psychological pricing 4.Promotional pricing 5.Geographical pricing 6.Dynamic and personalized pricing 7.International pricing 8.International pricing 7 ang naa sa docs title pero 8 naka encode

Promotional pricing takes several forms:

1.Discounts 2.Special-event pricing 3.Limited-time offers 4.Cash rebates

Five Geographical Pricing

1.FOB-origin pricing 2.Uniform-delivered pricing 3.Zone pricing\ 4.Basing-point pricing 5.Freight-absorption pricing

Product Mix Pricing

1.Product line pricing 2.Optional-product pricing 3.Captive-product pricing 4.By-product pricing 5.Product bundle pricing

"For segmented pricing to be an effective strategy, certain conditions must exis

1.The market must be segmentable 2.Segments must show different degrees of demand 3.Cost of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference. 4.Segmented pricing must also be legal.

Discount

A straight reduction in price on purchases during a stated period of time or of larger quantities.

International pricing

Adjusting prices for international markets. For example, a pair of Levi`s 501 selling for $54 in LA might go for $118 in Paris.

Geographical pricing

Adjusting prices to account for the geographic location of customers.

Segmented pricing

Adjusting prices to allow for differences in customers, products, or locations.

Product bundle pricing

Combining several products and offering the bundle at a reduced price. / Pricing bundles of products sold together. For example, fast-food restaurants bundle a burger, fries, and a soft-drink at a "combo" price. Microsoft Office 365 subscriptions are sold as a bundle of software products. Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

Discuss how companies adjust their prices to take into account different types of customers and situations.

Companies apply a variety of price adjustment strategies to account for differences in consumer segments and situations. One is discount and allowance pricing, whereby the company establishes cash, quantity, functional, or seasonal discounts, or varying types of allowances. A second strategy is segmented pricing, where the company sells a product at two or more prices to accommodate different customers, product forms, locations, or times. Sometimes companies consider more than economics in their pricing decisions, using psychological pricing to better communicate a product`s intended position. In promotional pricing, a company offers discounts or temporarily sells a product below list price as a special event, sometimes even selling below cost as a loss leader. Another approach is geographical pricing, whereby the company decides how to price to near or distant customers. In dynamic and personalized pricing, companies adjust prices continually to meet the characteristics and needs of individual customers and situations. Finally, international pricing means that the company adjusts its price to meet different conditions and expectations in different world markets.

Initiating Price Increases:

Factors in Price increase: Cost inflation - rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Over demand - when a company cannot supply all that its customers need, it may raise its prices, ration products to customers, or both.

Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions.

Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Marketers must heed federal, state, and local laws govern pricing. In addition, companies must consider broader societal pricing concerns. The major public policy issues in pricing include potentially damaging pricing

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.

Describe the major strategies for pricing new products

Pricing is a dynamic process. Companies design a pricing structure that covers all their products. They change this structure over time and adjust it to account for different customers and situations. Pricing strategies usually change as a product passes through its life cycle. In pricing innovative new products, a company can use market-skimming pricing by initially setting a high prices to "skim" the maximum amount of revenue from various segments of the market. Or it can use market-penetrating pricing by setting a low initial price to penetrate the market deeply and win a large market share.

By-product pricing

Pricing low-value-by-products to get rid of or make money on them

Optional-product pricing

Pricing optional or accessory products sold with the main product. For example, refrigerators come with optional ice makers. Or, car buyer may choose to order a remote engine start system and premium sound system.

Captive-product pricing

Pricing products that must be used with the main product.

Psychological pricing

Pricing that considers the psychology of prices and not simply the economics; the price is use to say something about the price. / Adjusting prices for psychological effect. When buyers lack the information or experience of the product, they judge the quality of product using the price.

Allowance

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer`s products in some way. For example, trade-in allowances are price reductions given for turning in an old item when buying a new one.

Discount and allowance pricing

Reducing prices to reward customers for certain responses, such as paying bills early, volume purchases, off-season buying or promoting the product.

Market-Skimming Pricing

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. For example, Apple iPhone, iPad or MacBook laptop, new models start at a high price then work their way down as newer models are introduced. Market-skimming makes sense only under certain conditions. First, the product`s quality and image must support its higher price, and enough buyers must want the product at that price. Second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Finally, competitors should not be able to enter the market easily and undercut the high price.

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. Or a firm use market-penetration pricing to win customers initially and then turn them into loyal long-term customers.

Product line pricing

Setting prices across an entire product line

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.

Initiating Price Cuts:

Situations that may lead a firm to consider cutting its price: Excess capacity Falling demand in the face of strong price competition or a weakened economy The firm may aggressively cut prices to boost sales and market share. A drive to dominate the market through lower costs. For example, AGIT Global used low prices to quickly build demand for its Wavestorms surfboards. To make surfing more accessible, AGIT began mass-producing good-quality soft-foam surfboards and selling them through big-box stores at very low prices.

Promotional pricing

Temporarily reducing prices to spur short-run sales.

Explain how companies find a set of prices that maximizes the profits from the total product mix.

When the product is part of a product mix, the firm searches for a set of prices that will maximize the profits from the total mix. In product line pricing, the company decides on price steps for the entire set of products it offers. In addition, the company must set prices for optional products (optional or accessory products included with the main product), captive products (products that are required for use of the main product), by-products (waste or residual products produced when making the main product), and product bundles (combinations of products at a reduced price).

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, month, the day and even the hour. (resorts give weekend and seasonal discount; happy hour in pubs)

Quantity discount

a price reduction to buyers who buy large volumes.

Seasonal discount

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

Discounts

a seller may simply offer discounts from normal prices to increase sales and reduce inventories.

Shrinkflation

a way to meet higher cost or demand without raising prices. By shrinking the product or substituting less expensive ingredients instead of raising the price.

Dynamic Pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Personalized Pricing

adjusting prices in real time to fit individual customer needs, situations, locations, and buying behaviors. For example, online sellers such as Amazon or Apple can mine their databases to gauge a specific shopper`s desires, measure his or her means, check out competitor`s prices, and instantaneously personalized prices and offers to fit individual shopper`s situations.

Promotional allowances

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

Dynamic Online Pricing

benefits both sellers and buyers. Consumers armed with instant access to product and price comparisons can often negotiate better in-store prices.

Customer-segment pricing

different customers pay different prices for the same product or service. For example, museums, movie theaters, and retail stores may charge lower prices for students, and senior citizens. Microsoft, Apple, Samsung have launch dedicated online stores for military members, veterans, and their families with discounts of 10 percent or more on the wide range of products.

Product form pricing

different versions of the product are priced differently but not according to differences in their costs. For instance, a round-trip economy seat on a flight from NY to London might cost $500, whereas a business class eat on the same flight cost $6,000 or more.

FOB-origin pricing

means that the goods are placed free on board a carrier. Because each customer picks up its own cost, supporters of FOB pricing feel that this is the fairest way to assess freight charges.

Cash rebates

offered by manufacturers to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer.

Another aspect of psychological pricing is

reference prices

Special-event pricing

seller sets prices in certain seasons to draw more customers.

Limited-time offers

such as online flash sales, can create buying urgency and make buyers feel lucky to have gotten in on the deal.

Uniform-delivered pricing

the opposite for FOB pricing. The company charges the same price plus freight to all customers, regardless of their location.

Freight-absorption pricing

the seller absorbs all or part of the actual freight charges to get the desired business. Freight-absorption pricing is used for market penetration and to hold on to increasingly competitive markets.

Basing-point pricing

the seller selects a given city as a "basing-point" and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped.