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MARKETING
Chapter
14
Managing the
Pricing
Function
Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Managing the Pricing Function
Chapter
14
Objectives
1. Understand the benefits of the marketing
approach to pricing.
2. Present a useful model for settling a price.
3. Explain the importance of establishing pricing
policies before individual prices are set.
4. Understand an apply skimming and
penetration pricing strategies.
5. Describe how prices are quoted.
14-1
Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Managing the Pricing Function
Chapter
14
Figure 14.1
A Pricing Decision Flow Chart
Consumer
analysis
Marketing
Strategy
Pricing
Objectives
Economic
analysis
Legal and
ethical
analysis
Discounts
Price
Range
Initial
Price
Cost
analysis
Competitive
analysis
Final
Price
Profit and
Marketing
Mix Analysis
Polices
14-2
Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Managing the Pricing Function
Figure 14.2
Chapter
14
The Role of Pricing Objectives in
Contemporary Marketing
1. Company
objectives
2. Marketing
objectives
3. Pricing
objectives
4. Pricing
policies and
procedures
Profitability
Volume
Meeting
competition
Prestige
14-3
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Managing the Pricing Function
Chapter
14
Price and Marketing Mix
Profit maximization
The point where the addition to total
revenue is just balanced by an increase
in total cost.
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Managing the Pricing Function
Chapter
14
Target Return Objectives
• Either short-run or long-run goals,
usually stated as a percentage of sales
or investments.
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Managing the Pricing Function
Chapter
14
Sales maximization
• The pricing philosophy analyzed by
economist William J. Beaumol.
Beaumol believes that many firms attempt to
maximize sales within a profit constraint.
Market share objective
• To control a specific portion of the
market for the firm’s product.
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Managing the Pricing Function
Chapter
14
Status Quo Objectives
• Objectives based on maintaining stable
prices.
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Managing the Pricing Function
Chapter
14
Prestige Objectives
• Establishing relatively high prices in
order to develop and maintain an image
of quality and exclusiveness.
14-8
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Managing the Pricing Function
Chapter
14
Pricing Policy and Price Structure
Pricing Policy
A general guideline based on pricing
objectives that is intended for use in
specific pricing decisions.
Price Structure
An outline of the selling price and the
various discounts offered to
intermediaries.
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Managing the Pricing Function
Chapter
14
New Product Pricing Policies
Pricing Policy
1. Skimming
2. Penetration
14-10
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Managing the Pricing Function
Chapter
14
Skimming Pricing
• Choosing a high entry price; to sell first
to consumers who are willing to pay the
highest price, and then reduce the price.
14-11
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Managing the Pricing Function
Chapter
14
Penetration Pricing
• An entry price for a product that is lower
than what is estimated to be the longterm price.
14-12
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Managing the Pricing Function
Chapter
14
Flexible Pricing
• A variable price policy.
14-13
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Managing the Pricing Function
Chapter
14
Pricing Practices
1.
2.
3.
4.
Price Lining
Promotional Prices
Psychological Pricing
Unit Pricing
14-14
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Managing the Pricing Function
Chapter
14
Price Lining and Promotional Price
Price Lining
The practice of marketing merchandise
at a limited number of prices.
Promotional Price
A lower-than-normal price used as an
ingredient in a firm’s selling strategy.
14-15
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Managing the Pricing Function
Chapter
14
Psychological Pricing and Unit
Pricing
Psychological Pricing
The use of prices to suggest values of a
product or attributes of a product/price
offering.
Unit Pricing
Stating prices in terms of some recognized
unit of measurement (such as grams and
litres) or a standard numerical count.
14-16
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Managing the Pricing Function
Chapter
14
Loss Leader
• Goods priced below cost to attract
customers.
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Managing the Pricing Function
Chapter
14
Odd Pricing
• Prices are set ending in some amount
just below the next rounded number.
14-18
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Managing the Pricing Function
Chapter
14
Price Limits
• Limits within which product quality
perception varies directly with price.
14-19
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Managing the Pricing Function
Chapter
14
Price Quotations
List price
The rate normal quoted to potential
buyers.
Market price
The amount that a consumer pays.
14-20
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Managing the Pricing Function
Chapter
14
Price Quotations
1. List price
2. Discounts
a) Cash
b) Trade
c) Quantity
3. Allowances
a) Trade-In
b) Promotional
4. Rebates
14-21
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Managing the Pricing Function
Chapter
14
Cash discount
Reduction in price that is given for prompt
payment of a bill.
Trade discount
Payment to channel members or buyers for
performing some marketing function normally
required of the manufacturer.
Quality discount
Price reduction granted for large purchases.
14-22
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Managing the Pricing Function
Chapter
14
Trade-in
• Deduction from an item’s price of an
amount for the customer’s old item that
is being replaced.
14-23
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Managing the Pricing Function
Chapter
14
Promotional Allowance
• Extra discount offered to retailers so that
they will advertise the manufacturer
along with the retailer.
14-24
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Managing the Pricing Function
Chapter
14
Rebate
• Refund by the seller of a portion of the
purchase price.
14-25
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Managing the Pricing Function
Chapter
14
Geographic Considerations and
Pricing
1.
2.
3.
4.
FOB Plant
Freight Absorption
Uniform Delivered Price
Zone Pricing
14-26
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Managing the Pricing Function
Chapter
14
FOB Plant
The buyer must pay all the freight.
Freight Absorption
The seller permits the buyer to subtract
transportation expenses from the bill.
14-27
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Managing the Pricing Function
Chapter
14
Uniform Delivered Price
The same price (including transportation
expenses) is quoted to all buyers.
Zone Pricing
The market is divided into different
zones and a price is established within
each.
14-28
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Managing the Pricing Function
Chapter
14
Figure 14.5
Zone Pricing for a Winnipeg Firm
14-29
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