copyright © 2001 by harcourt, inc. all rights reserved. 19-1 chapter nineteen managing the pricing...

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Copyright © 2001 by Harcourt, Inc. All rights reserved.

CHAPTER NINETEENCHAPTER NINETEEN

MANAGING THE PRICING MANAGING THE PRICING FUNCTIONFUNCTION

(Part 2 of 2)(Part 2 of 2)

Text by Profs. Gene Boone & David KurtzText by Profs. Gene Boone & David KurtzMultimedia Presentation byMultimedia Presentation byProf. Milton PressleyProf. Milton PressleyThe University of New OrleansThe University of New Orleans

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Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies• Pricing policy: general

guidelines based on pricing objectives and intended for use in specific pricing decisions

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Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies

• Psychological pricing: pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers

Psychological

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• Odd pricing: pricing policy based on the belief that a price ending with and odd number just below a round number is more appealing

• For example, $9.97 rather than $10.00

Psychological

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John DeereJohn Deere

At $1,999 for This At $1,999 for This Tractor, Deere Is Tractor, Deere Is Practicing Odd PricingPracticing Odd Pricing

John DeereJohn Deere

At $1,999 for This At $1,999 for This Tractor, Deere Is Tractor, Deere Is Practicing Odd PricingPracticing Odd Pricing


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

• For example, a gallon of milk, or one dozen eggs

Psychological

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

• Car dealerships traditionally employ a flexible pricing strategy

PsychologicalPsychological

Flexibility

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Telephone Service Providers Such as AT&T Have Telephone Service Providers Such as AT&T Have Traditionally Practiced a Flexible Pricing StrategyTraditionally Practiced a Flexible Pricing StrategyTelephone Service Providers Such as AT&T Have Telephone Service Providers Such as AT&T Have Traditionally Practiced a Flexible Pricing StrategyTraditionally Practiced a Flexible Pricing Strategy


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• Product-line pricing: practice of marketing different lines of merchandise at a limited number of prices

• For example, a coat manufacturer may produced four lines of coats, each priced at $99, $150, $225, or $300


FlexibilityFlexibility

Product-Line

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HallmarkHallmark

Hallmark Has Different Hallmark Has Different Prices for its Card Prices for its Card LinesLines

HallmarkHallmark

Hallmark Has Different Hallmark Has Different Prices for its Card Prices for its Card LinesLines


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Delta, Like Most Other Airlines, Practice Product-Line Delta, Like Most Other Airlines, Practice Product-Line Pricing With First, Business, and Economy Class SeatingPricing With First, Business, and Economy Class Seating

Delta, Like Most Other Airlines, Practice Product-Line Delta, Like Most Other Airlines, Practice Product-Line Pricing With First, Business, and Economy Class SeatingPricing With First, Business, and Economy Class Seating


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• Promotional pricing: pricing policy in which a lower than normal price is used as a temporary ingredient in the marketing strategy

• “Buy one, get one free” is a common pricing promotion



Product-LineProduct-Line

Promotional

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Verlo Verlo Mattress Factory Mattress Factory StoresStores

Example of Example of Promotional PricingPromotional Pricing

Verlo Verlo Mattress Factory Mattress Factory StoresStores

Example of Example of Promotional PricingPromotional Pricing


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Columbia House Often Uses Promotional Pricing Columbia House Often Uses Promotional Pricing Strategies, Such as “Get 12 CDs For Free”Strategies, Such as “Get 12 CDs For Free”

Columbia House Often Uses Promotional Pricing Columbia House Often Uses Promotional Pricing Strategies, Such as “Get 12 CDs For Free”Strategies, Such as “Get 12 CDs For Free”


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BMG Music Club: Another Example of a BMG Music Club: Another Example of a Firm Using Promotional PricingFirm Using Promotional Pricing

BMG Music Club: Another Example of a BMG Music Club: Another Example of a Firm Using Promotional PricingFirm Using Promotional Pricing


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• 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



Product-LineProduct-Line

Promotional

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Price-Quality RelationshipsPrice-Quality RelationshipsPrice-Quality RelationshipsPrice-Quality Relationships• Without other cues, price serves as

an important indicator of a product’s quality to buyers

• Customers often view price as an indicator of a product’s overall quality

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Example of a Brand for Which Many Consumers are Willing to Example of a Brand for Which Many Consumers are Willing to Pay a Higher Price Due to a High Price-Quality RelationshipPay a Higher Price Due to a High Price-Quality RelationshipExample of a Brand for Which Many Consumers are Willing to Example of a Brand for Which Many Consumers are Willing to Pay a Higher Price Due to a High Price-Quality RelationshipPay a Higher Price Due to a High Price-Quality Relationship


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Figure 19.9: Figure 19.9: TravelScape.com – TravelScape.com – Guaranteed Low Guaranteed Low PricesPrices

Figure 19.9: Figure 19.9: TravelScape.com – TravelScape.com – Guaranteed Low Guaranteed Low PricesPrices

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Competitive Bidding And Competitive Bidding And Negotiated Prices Negotiated Prices Competitive Bidding And Competitive Bidding And Negotiated Prices 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

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Negotiated Prices OnlineNegotiated Prices OnlineNegotiated Prices OnlineNegotiated Prices Online• Buyers and sellers can communicate

and negotiate prices online.• Examples of negotiated prices

include:• Priceline.com• Travelscope.com• Tickets.com

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Figure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated Pricing

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Tickets.com Auctions Tickets to Tickets.com Auctions Tickets to Sporting Events and ConcertsSporting Events and Concerts

Tickets.com Auctions Tickets to Tickets.com Auctions Tickets to Sporting Events and ConcertsSporting Events and Concerts


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Priceline.com: Example of a Firm that Priceline.com: Example of a Firm that Facilitates Negotiating Prices OnlineFacilitates Negotiating Prices Online

Priceline.com: Example of a Firm that Priceline.com: Example of a Firm that Facilitates Negotiating Prices OnlineFacilitates Negotiating Prices Online


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The Transfer Price DilemmaThe Transfer Price DilemmaThe Transfer Price DilemmaThe Transfer Price Dilemma• Transfer price: cost assessed when a

product is moved from one profit center to another

• Profit center: any part of an organization to which revenue and controllable costs can be assigned

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Figure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape Taxation

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Global Considerations And Global Considerations And Online PricingOnline PricingGlobal Considerations And Global Considerations And Online PricingOnline Pricing• International markets are subject to external

influences such as regulatory limitations, trade restrictions, competitor’s actions, economic events, and the global status of the industry

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Traditional Global Pricing Traditional Global Pricing StrategiesStrategiesTraditional Global Pricing Traditional Global Pricing StrategiesStrategies

• Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets

StandardWorldwide

StandardWorldwide

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• Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each

StandardWorldwide

DualPricing

DualPricing

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• Flexible pricing strategy that sets prices according to local marketplace and economic conditions

StandardWorldwide

DualPricing

MarketDifferentiated

MarketDifferentiated

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Characteristics Of Online Characteristics Of Online PricingPricingCharacteristics Of Online Characteristics Of Online PricingPricing• Cannibalization: Securing additional

sales through lower prices that take sales away from the marketer’s other products

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Barnes & Noble’s Web-site Cannibalizes Sales From Barnes & Noble’s Web-site Cannibalizes Sales From It’s Traditional Retail Stores by Offering Lower It’s Traditional Retail Stores by Offering Lower

Prices on the Same MerchandisePrices on the Same Merchandise

Barnes & Noble’s Web-site Cannibalizes Sales From Barnes & Noble’s Web-site Cannibalizes Sales From It’s Traditional Retail Stores by Offering Lower It’s Traditional Retail Stores by Offering Lower

Prices on the Same MerchandisePrices on the Same Merchandise


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Books-A-Million.com Sells Top 20 Best-Sellers at 40% Books-A-Million.com Sells Top 20 Best-Sellers at 40% Below List. On It’s Web Site, It Uses a Defensive Below List. On It’s Web Site, It Uses a Defensive

Strategy and a Discount of 55% -- Cannibalizing Sales Strategy and a Discount of 55% -- Cannibalizing Sales from it’s Retail Storesfrom it’s Retail Stores

Books-A-Million.com Sells Top 20 Best-Sellers at 40% Books-A-Million.com Sells Top 20 Best-Sellers at 40% Below List. On It’s Web Site, It Uses a Defensive Below List. On It’s Web Site, It Uses a Defensive

Strategy and a Discount of 55% -- Cannibalizing Sales Strategy and a Discount of 55% -- Cannibalizing Sales from it’s Retail Storesfrom it’s Retail Stores


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Characteristics Of Online Characteristics Of Online PricingPricingCharacteristics Of Online Characteristics Of Online PricingPricing• Bundle pricing: Offering two or more

complementary products and selling them for a single price

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STRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONS• To avoid money-losing price wars, many

marketers are developing strategies that involve non-price competition

• Expansion of the Internet will bring competitive prices to even the most geographically isolated homes and offices

• Customer ability to find the lowest prices on the market, and to negotiate their own prices, will continue to improve

• What marketers must continue to do to remain successful in the 21st Century is to offer value

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copyright © 2001 by harcourt, inc. all rights reserved. 19-1 chapter nineteen managing the pricing...

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