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Chapter 14Chapter 14

Managing the Pricing Function

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What kind of pricing decisions do you think went into the introduction of the product shown in this commercial?

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Pricing StrategiesPricing Strategies

Skimming pricing strategySkimming pricing strategyOften used by marketers of high-end productsAlso by firms introducing a distinctive product

with little or no competitionAllows firms to control demand during the

introductory stages

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WeberDistinctive Grills Marketed through a Skimming

Pricing Strategy

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Lincoln NavigatorMaintaining a High Price in Periods of High Demand

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Price Reductions to Increase Market Share

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What pricing recommendation would you have for Ruffles if they had a strategic goal of acquiring a greater market share.

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Penetration pricing Penetration pricing strategystrategyDesigned to

generate many trial purchases

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Everyday low Everyday low pricing (EDLPpricing (EDLPWal-Mart has

successfully utilized an EDLP strategy

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Southwest Airlines Often enters new markets with low penetration prices and maintains market share with everyday low pricing strategy

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Competitive Pricing Competitive Pricing StrategyStrategyFirms focus their

own marketing efforts on the product, distribution and promotion elements of the marketing mix

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Lendingtree.Com Practices a Competitive Pricing Strategy

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Class Discussion

Does Cartier Use a Skimming, Penetration, or Competitive Pricing Strategy?

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Price QuotationsPrice Quotations List pricesList prices: Established prices normally quoted

to potential buyersThe take on a $25 T-Shirt

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Market priceMarket price: Price that an intermediary or final consumer pays for a product after subtracting any discounts, rebates, or allowances from the list priceKraft offering a

rebate promotion

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Reductions from List PriceReductions from List Price

Cash discountCash discount: price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill 2/10 net 30

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Quantity discountQuantity discount: price reduction granted for a large-volume purchaseLarge orders reduce selling expenses,

storage, and transportation costsCumulative quantity discountsNon-cumulative quantity discounts

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AllowancesAllowancesTrade-inPromotional

RebatesRebates: refund for a portion of the purchase price, usually granted by the product’s manufacturer

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Geographic ConsiderationsGeographic Considerations

FOB (free on board) plant or FOB originFOB (free on board) plant or FOB origin Freight absorptionFreight absorption Uniform-delivered priceUniform-delivered price Zone pricingZone pricing

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Pricing PoliciesPricing Policies

Pricing policyPricing policy

Psychological pricingPsychological pricing

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Odd pricingOdd pricingFor example,

this John Deere at $1,999 instead of $2000

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Unit pricingUnit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count

Nextel Seeks to Gain a Competitive Advantage by Using Seconds Instead of Minutes in It’s Unit Pricing Policy

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Price FlexibilityPrice Flexibility: pricing policy that permits variable prices for goods and services

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Product-line pricingProduct-line pricingHallmark has

different prices for its card lines

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Purina Puppy Chow is Only One of Purina’s Product Lines – Each of Which is Priced Differently

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Shell Oil Practices Product Line Pricing by Offering Several Different Gasoline Products and Price Ranges

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Promotional pricingPromotional pricing“Buy one, get one

free” is a common pricing promotion

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Loss leaderLoss leader

Freeinternet.Com’s Price (Free) Is a Loss Leader. This Price Is Meant to Attract Customers in the Hope That They Will Buy Merchandise From the Many Firm’s on the Site

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Price-Quality RelationshipsPrice-Quality RelationshipsWithout other cues, price serves as an

important indicator of a product’s quality to buyers

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Competitive Bidding and Negotiated PricesCompetitive Bidding and Negotiated Prices

Many purchases are made through competitive bidding, a process in which potential suppliers and manufacturers are invited to quote prices on proposed purchases or contracts

Negotiated Prices OnlineNegotiated Prices Online

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RealEstate.Com Is an Example of Negotiated Prices Online

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Online Auctions: Purest form of negotiated pricing

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Traditional Global Pricing StrategiesTraditional Global Pricing Strategies

Standard Worldwide

Dual Pricing

Market Differentiated

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Characteristics Of Online PricingCharacteristics Of Online PricingCannibalizationShopping Bots

Bundle pricing