Table of Contents
Learning Objectives
After working through this chapter and the study guide, you should be able to:
1. Summarize the major categories of pricing objectives.
2. Identify the steps in the pricing process.
3. Describe pricing strategies for new and existing products and for product lines.
4. Outline the basic methods of discounting.
5. Explain how marketers use psychological pricing.
6. Define techniques for adjusting prices to reflect cost differences of serving buyers in
different locations.
7. Discuss how marketers adjust prices to serve international markets.
8. Explain how marketers evaluate and control pricing strategy.
Chapter Summary
This is the second chapter on pricing. Whereas the basics of pricing were introduced in chapter 12, specific pricing strategies are discussed here. It is evident that pricing objectives and strategies should follow and support the marketing objectives and strategies as developed in planning sessions. Normal pricing objectives should include:
There are certain distinct pricing strategies that a firm can follow. In doing so the firm needs to adhere to the pricing process which includes: 1) set pricing objectives, 2) evaluate customer response and other pricing constraints, 3) analyze profit potential, 4) set initial price levels, and 5) make price adjustments as needed.
Pricing objectives for new products include penetration pricing (setting low prices to attract the target market) and skimming pricing (set high initial prices to recover costs before competition moves in). Pricing of existing products is somewhat different than from new products. There are a number of variables/characteristics that must be evaluated. These include the product’s perishability, its distinctiveness, and the product life cycle it is in. Another pricing objective revolves around product lines instead of individual products. Product line pricing objectives can include price lining and uniform pricing.
Having set the initial price, the marketing manager must also consider how to adjust prices. There are a number of alternatives available including:
The process of setting pricing objectives becomes more complicated in the global marketplace because customers may perceive value differently country by country. Additionally, marketing managers must take into account the country’s economic environment, the political and legal environment, the costs of doing business overseas, and expectations of foreign or international channel members.
If the above mentioned topics are not enough to worry about, the marketing manager must also be able to evaluate and control pricing. To accomplish this, competitor and customer responses must be followed and evaluated. Additionally, the marketing manager must be able to control pricing levels by knowing when prices must be changed and ensuring that the changes do not lead to price discrimination.
Key Terms
List price Promotional discount
Penetration pricing Loss leader pricing
Skimming pricing Every-day low prices (EDLP)
Price lining Psychological pricing
Uniform pricing Prestige pricing
Discount Odd-even pricing
Market price Bundle pricing
Rebate Geographic pricing
Quantity discount FOB origin pricing
Seasonal discount Uniform delivered pricing
Trade discount FOB with freight allowed
Cash discount Basing point pricing
Trade-in allowance Countertrade
Promotional allowance Price war
Technology Implications
One of the most attractive features of the WWW is its ability to assist a company in uncovering new sources of revenue from new and existing customers. One way organizations enhance their revenue stream is by boosting the visibility of the company and its products or services on a global scale. In the instance of a digital product such as software, music the organization may create a payment mechanism and allow an electronic download.
Organizations have recognized this and have established elaborate internet sites to cater to the Web based segment of their target markets. Besides an attractive Web site, many organizations have developed attractive pricing strategies to develop this market segment. The elimination of middlemen and a lower overhead has facilitated this trend. It is estimated that 15% of new-car buyers do their research on the WWW with 2% making their purchases from dealers located on the WWW (Bank 1997).
It has become increasingly visible that manufacturers have began to allocate more of their sales promotion dollars to the WWW. There is a growing proliferation of contests, sweepstakes, coupons, and even premiums on the WWW. From the marketers perspective this is an efficient and effective means of delivering the stimuli in a resource crunched environment. From the consumers perspective, the stimuli is self-selected hence non-intrusive and therefore relevant.