Professional Documents
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Chapter 11
Chapter 11
Chapter 11
Pricing Strategies
Additional Considerations
PEARSON
Objective Outline
New-Product Pricing Strategies
1
Objective Outline
Price-Adjustment Strategies
Discuss how companies adjust their prices to take into
account different types of customers and situations.
Price Changes
4
Objective Outline
Market-Skimming Pricing
Market-skimming pricing (or price skimming)
set a high price for a new product to skim maxim
um revenues layer by layer from the segments wi
lling to pay the high price; the company makes fe
wer but more profitable sales.
Market-Penetration Pricing
Market-penetration pricing sets a low price for
a new product in order to attract a large number o
f buyers and a large market share.
By-Product Pricing
Using by-product pricing, the company seeks a
market for these by-products to help offset the co
sts of disposing of them and help make the price
of the main product more competitive.
The by-products themselves can even turn to be p
rofitable turning trash into cash.
Functional Discount
(Trade
Discount)
reduction
in price
on purch
Discount is a straight
ases
during
a stated
in larger
qu to tradeA price
reduction
to buyers
whoperiod
pay ofAtime
sellersor
offers
a discount
their bills
promptly.
antities.
channel members who perform
Discount has many forms. certain functions, such as selling,
storing, and record keeping.
Quantity Discount
Seasonal Discount
Allowance
acturers to retailers in return for an agreement to f
A price reduction given for turning in an old
eature
manufacturers
products in some way.
item
whenthe
buying
a new one.
Its
in the automobile industry
It most
has common
two types.
Promotional allowance
Customer-segment
Customer-segment pricing
pricing
Segmented
Pricing
Different customers pay different prices for the same product or
A
Acompany
company charges
charges different
different prices
prices for
for different
different locations,
locations, even
even
though
though the
the cost
cost of
of offering
offering each
each location
location isis the
the same.
same.
Time
Time pricing
pricing
A
Afirm
firm varies
varies its
its price
price by
by the
the season,
season, the
the month,
month, the
the day,
day, and
and
even
even the
the hour.
hour.
Psychological Pricing
In using psychological pricing, sellers consider the psyc
hology of prices, not simply the economics.
Another aspect of psychological pricing is reference pric
es prices that buyers carry in their minds and refer to w
hen looking at a given product.
The reference price might be formed by noting current pri
ces, remembering past prices, or assessing the buying situ
ation.
Promotional Pricing
With promotional pricing, companies will temporarily price their
products below list price and sometimes even below cost to
create buying excitement and urgency.
Promotional pricing takes several forms.
A seller may simply offer discounts from normal prices to
increase sales and reduce inventories.
Sellers also use special-event pricing in certain seasons to draw
more customers.
Manufacturers sometimes offer cash rebates to consumers who
buy the product from dealers within a specified time; the
manufacturer sends the rebate directly to the customer.
Some manufacturers offer low-interest financing, longer
warranties, or free maintenance to reduce the consumers price.
Geographical Pricing
Using
strategy,
seller absorbs
Geographical pricing
setsthis
prices
forthe
customers
l all
It falls between
or part ofFOB-origin
the actual freight
pricingcharges
and to get
This
practice
means
that
the
goods
are
placed
ocated in different
parts
of the business.
country or
world.
Using
pricing,
the seller
the
desiredbasing-point
uniform-delivered
pricing.
free on board a carrier.
selects
given
city
asthat
astrategi
basing
At
The
seller
reason
if it canpoint
get
company
setsamight
up
two
or more
We
look
atofThe
five
geographical
pricing
Itswill
the
opposite
FOB
pricing.
that
point
the title
and
responsibility
pass
andbusiness,
charges
allplus
customers
thewill
freight
more
its
average
costs
zones.
Here,
the
company
charges
the
same
price
es
for
the
following
hypothetical
situation.
to the customer, who pays the freight from the
cost within
from
that
city
to
the pay
customerfor its
All customers
decrease
and
more
than
compensate
a given
zone
freight
to all
customers,
regardless
of their
location.
factory
to the
destination.
location,
of the the
city from
freight
cost.
The freight chargea is
single
price; regardless
the
more cost.
distant
set extra
attotal
the
average
freight
which the
the price.
goods are actually shipped.
zone, the higher
FOBorigin
pricing
Uniformdelivered
pricing
Zone
pricing
Basingpoint
pricing
Freightabsorption
pricing
International Pricing
Companies that market their products internationally mus
t decide what prices to charge in different countries.
The price that a company should charge in a specific cou
ntry depends on many factors, including economic condit
ions, competitive situations, laws and regulations, and the
nature of the wholesaling and retailing system.
Price Changes
After developing their pricing structures and strat
egies, companies often face situations in which th
ey must initiate price changes or respond to price
changes by competitors.
Third
Fourth
The End