Download Chapter 19 Pricing Strategies

Principles of
Contemporary Marketing
Kurtz & Boone
Chapter 19
Pricing Strategies
CHAPTER 19 Pricing Strategies
Chapter Objectives
1.
Compare the alternative pricing strategies and explain when
each strategy is most appropriate.
2.
Describe how prices are quoted.
3.
Identify the various pricing policy decisions marketers must
make.
4.
Relate price to consumer perceptions of quality.
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CHAPTER 19 Pricing Strategies
Chapter Objectives
5.
Contrast competitive bidding and negotiated prices.
6.
Explain the importance of transfer pricing.
7.
Compare the three alternative global pricing strategies.
8.
Relate the concepts of cannibalization, bundle pricing, and
bots to online pricing strategies.
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CHAPTER 19 Pricing Strategies
Pricing Strategies
o Skimming pricing strategy - The use of a high price
relative to competitive offerings
o Penetration pricing strategy - The use of a relatively
low entry price compared with competitive offerings,
based on the theory that this initial low price will help
secure market acceptance
o Competitive pricing strategy - Designed to
deemphasize price as a competitive variable by pricing
a good or service at the level of comparable offerings
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CHAPTER 19 Pricing Strategies
Price Quotations
o List price - Established price normally quoted to
potential buyers
o Reductions from list price
o Market price - Price a consumer or marketing
intermediary actually pays for a product after
subtracting any discounts, allowances, or rebates from
the list price
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CHAPTER 19 Pricing Strategies
Reductions from List Price
o Cash discount
o Trade discount
o Quantity discount
o Allowances
o Rebates
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CHAPTER 19 Pricing Strategies
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CHAPTER 19 Pricing Strategies
Geographic Considerations
o FOB pricing
o Uniform-delivered pricing
o Zone pricing
o Basing-point pricing
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CHAPTER 19 Pricing Strategies
Psychological Pricing
o Pricing policy based on the belief that certain prices or
price ranges make a good or service more appealing
than others to buyers
o Includes prestige pricing
o Odd pricing - Setting prices at odd numbers just under
round numbers
o Unit pricing - Prices stated in terms of some
recognized unit of measurement or a standard
numerical count
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CHAPTER 19 Pricing Strategies
Price Flexibility
o Pricing policy permitting variable prices for goods and
services
o One-price policies suit mass-selling marketing
programs
o Variable pricing is more likely to be applied in
marketing programs based on individual bargaining
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CHAPTER 19 Pricing Strategies
Product-Line Pricing
o Practice of setting a limited number of prices for a
selection of merchandise and marketing different
product lines at each of these price levels
o Helps retailers differentiate product lines
o Allows customers to focus on desired prices ranges
o Retailers may have difficulty making price changes on
individual items as necessary
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CHAPTER 19 Pricing Strategies
Promotional Pricing
o Pricing policy in which a lower-than-normal price is
used as a temporary ingredient in a firm’s marketing
strategy
o Example: “Buy one pair, get the second pair for one
cent” sale
o Must be managed carefully because customers may
come to expect them and wait for them
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CHAPTER 19 Pricing Strategies
Loss Leaders and Leader Pricing
o Loss leader - Product offered to consumers at less than
cost to attract them to stores in the hope that they will
buy other merchandise at regular prices
o Leader pricing - Variant of loss-leader pricing in which
marketers offer prices slightly above cost to avoid
violating minimum-markup regulations and earn a
minimal return on promotional sales
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CHAPTER 19 Pricing Strategies
Price-Quality Relationships
o Price affects consumer perception of quality
o Customers often associate prestige with high prices
o Many consumers are willing to pay more for
ecofriendly products
o Consumers have maximum and minimum price limits
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CHAPTER 19 Pricing Strategies
Competitive Bidding and Negotiated prices
o Competitive bidding - Inviting potential suppliers to
quote prices on proposed purchases or contracts
o Negotiating prices online
o Online auctions are the purest form of online bidding
o Example: eBay
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CHAPTER 19 Pricing Strategies
The Transfer Pricing Dilemma
o Transfer price - The price for moving goods between
profit centers
o Profit centers - Any part of the organization to which
revenue and controllable costs can be assigned
o Governments monitor transfer pricing because it can
be used by companies to avoid paying taxes on profits
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CHAPTER 19 Pricing Strategies
Traditional Global Pricing Strategies
o Standard worldwide pricing - Can succeed if foreign
marketing costs remain low or if their prices reflect
average unit costs
o Dual pricing - Distinguishing prices for domestic and
export sales
o Market-differentiated pricing - Setting prices according
to local market conditions
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CHAPTER 19 Pricing Strategies
The Cannibalization Dilemma
o Cannibalization - Loss of sales of an existing product
due to competition from a new product in the same
line
o Example: Wal-Mart recently introduced a “Site to
Store” feature to its Web site
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CHAPTER 19 Pricing Strategies
Use of Shopbots
o Search programs that act as comparison shopping
agents; also called bots
o Force online marketers to keep prices low
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CHAPTER 19 Pricing Strategies
Bundle Pricing
o Offering two or more complementary products and
selling them for a single price
o Prevalent in the telecommunications industry
o Consumers may resist the practice of bundling
claiming they are being forced to pay for products they
don’t want
o Example: Cable television industry, which resists selling
channels individually
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