Chapter 16 Notes

CHAPTER 16 NOTES PRICE HAS MANY STRATEGY DIMENSIONS • The price equation: price equals something of value PRICE--the amount of money that is charged for "something" of value. OBJECTIVES SHOULD GUIDE PRICING STRATEGY PROFIT-ORIENTED OBJECTIVES TARGET RETURN OBJECTIVE--specific level of profit. PROFIT MAXIMIZATION OBJECTIVE--get as much profit as possible. SALES-ORIENTED OBJECTIVE--get some level of unit sales, dollar sales, or share of market--without referring to profit. • Sales growth doesn't necessarily mean big profits • Market share objectives are popular STATUS QUO OBJECTIVES--"don't-rock-the-pricing-boat" objectives. NONPRICE COMPETITION--focus one of the Ps other than Price. MOST FIRMS SET SPECIFIC PRICING POLICIES ADMINISTERED PRICES--consciously set prices aimed at reaching the firm's objectives. ONE-PRICE POLICY--offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities. FLEXIBLE-PRICE POLICY--offering the same product and quantities to different customers at different prices. • Pricing databases make flexible pricing easier • Salespeople can adjust prices to the situation • Too much price cutting erodes profits PRICE LEVEL POLICIES--OVER THE PRODUCT LIFE CYCLE SKIMMING PRICE POLICY--selling the top of the demand curve--at a high price before aiming competing on price • Skimming has critics PENETRATION PRICING POLICY--sell the whole market.. INTRODUCTORY PRICE DEALING--temporary price cuts to speed new products into a market and get customers to try them. MOST PRICE STRUCTURES ARE BUILT AROUND LIST PRICES BASIC LIST PRICES-- prices final customers are asked to pay. DISCOUNTS--reductions given to buyers who provide functions themselves. QUANTITY DISCOUNTS--encourage buying in larger amounts. CUMULATIVE QUANTITY DISCOUNTS--reductions in price for larger purchases over a given period, such as a year. • NONCUMULATIVE QUANTITY DISCOUNTS—immediate reductions in price when a customer purchases larger quantity. SEASONAL DISCOUNTS--encourage buyers to buy earlier than present demand requires. • Payment terms and cash discounts set payment dates NET-- invoice term that means that face value payment due now. CASH DISCOUNTS-- encourage buyers to pay their bills quickly. 2/10, NET 30-- 2 percent discount allowed if the invoice is paid within 10 days. TRADE (FUNCTIONAL) DISCOUNT--a list price reduction given to channel members for the job they are going to do. SALE PRICE--a temporary discount from the list price. EVERYDAY LOW PRICING--setting a low list price rather than relying on frequent sales, discounts, or allowances. ALLOWANCE POLICIES--OFF LIST PRICES ALLOWANCES--reductions in price given to final consumers, customers, or channel members for doing something or accepting less of something. • Advertising allowances--something for something ADVERTISING ALLOWANCES--price reductions to firms in the channel to encourage them to advertise or otherwise promote the firm's products locally. • Stocking allowances--get attention and shelf space STOCKING ALLOWANCES--allowances given to middlemen to get shelf space for a product--sometimes called slotting allowances. • Are stocking allowances ethical? • PMs--push for cash PUSH MONEY (OR PRIZE MONEY) ALLOWANCES-allowances (sometimes called "PMs" or "spiffs") given to retailers by manufacturers or wholesalers to pass on to the retailers' salesclerks for aggressively selling certain items. • Bring in the old, ring up the new--with trade-ins TRADE-IN ALLOWANCE--a price reduction given for used products when similar new products are bought. SOME CUSTOMERS GET SOMETHING EXTRA • Clipping coupons--more for less • Cash rebates when you buy REBATES--refunds paid to consumers after a purchase. LIST PRICE MAY DEPEND ON GEOGRAPHIC PRICING POLICIES Overhead 190 "Geographic Pricing Policies" • F.O.B. pricing is easy F.O.B.--a transportation term meaning free on board some vehicle at some place. • Zone pricing smooths delivered prices ZONE PRICING--making an average freight charge to all buyers within specific geographic areas. • Uniform delivered pricing--one price to all UNIFORM DELIVERED PRICING--making an average freight charge to all buyers. • Freight-absorption pricing--competing on equal grounds in another territory FREIGHT ABSORPTION PRICING--absorbing freight cost so that a firm's delivered price meets the nearest competitor's. PRICING POLICIES COMBINE TO IMPACT CUSTOMER VALUE Overhead 191 "Pricing Policies Combine to Impact Customer Value" • Look at Price from the customer's viewpoint • Value pricing leads to superior customer value VALUE PRICING--setting a fair price level for a marketing mix that really gives the target market superior customer value. • There are Price choices in most markets • Value pricers define the target market and the competition • Meeting competitors' prices may be necessary • Value pricing fits with market-oriented strategy planning LEGALITY OF PRICING POLICIES • Minimum prices are sometimes controlled UNFAIR TRADE PRACTICE ACTS--put a lower limit on prices, especially at the wholesale and retail levels. DUMPING--pricing a product sold in a foreign market below the cost of producing it or at a price lower than in its domestic market. • Even very high prices may be OK • You can't lie about prices PHONY LIST PRICES--misleading prices that customers are shown to suggest that the price they are to pay has been discounted from list. WHEELER LEA AMENDMENT--law that bans unfair or deceptive acts in commerce. • Price fixing is illegal--you can go to jail PRICE FIXING--competitors illegally getting together to raise, lower, or stabilize prices. • U.S. antimonopoly laws ban price discrimination unless... ROBINSON-PATMAN ACT--a 1936 law that makes illegal any price discrimination if it injures competition. Overhead 192 "Robinson-Patman Act" PRICE DISCRIMINATION--injuring competition by selling the same products to different buyers at different prices. • What does "like grade and quality" mean? • Can cost analysis justify price differences? • Can you legally meet price cuts? • Special promotion allowances might not be allowed • How to avoid discriminating