![Page 1: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/1.jpg)
www.mhhe.com/fourps
For use only with Perreault and McCarthy texts.© 2006 McGraw-Hill Companies, Inc.McGraw-Hill/Irwin
CHAPTER SIXTEENCHAPTER SIXTEEN
Pricing Objectives and Policies
![Page 2: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/2.jpg)
1. Understand how pricing objectives should guide strategy planning for pricing decisions.
2. Understand choices the marketing manager must make about price flexibility.
3. Know what a marketing manager should consider when setting the price level for a product in the early stages of the product life cycle.
4. Understand the many possible variations of a price structure including discounts, allowances, and who pays transportation costs.
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
When we finish this lecture you should
![Page 3: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/3.jpg)
5. Understand the value pricing concept and its role in obtaining a competitive advantage and offering target customers superior value.
6. Understand the legality of price level and price flexibility policies.
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
When we finish this lecture you should
![Page 4: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/4.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Price Has Many Strategy Dimensions
+
![Page 5: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/5.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Shaping Customer Value
![Page 6: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/6.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Strategy Planning for PriceExhibit 16-1
![Page 7: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/7.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
The Price Equation: Price Equals Something of ValueExhibit 16-2
![Page 8: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/8.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Price as Seen by Channel MembersExhibit 16-3
![Page 9: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/9.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Objectives Should Guide Strategy Planning for PriceExhibit 16-4
![Page 10: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/10.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Objectives Should Guide Strategy Planning for PriceExhibit 16-4
![Page 11: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/11.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Objectives Should Guide Strategy Planning for PriceExhibit 16-4
![Page 12: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/12.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Most Firms Set Specific Pricing Policies to Reach Objectives
OR
One-Price Policy
• The same for everyone
• Frequently purchased items
• Convenient• Low cost• Maintains goodwill
Flexible-Price Policy
• Different customers, different prices
• Databases make it easier
• Salespeople can adjust prices
• Too much cutting can hurt profits
![Page 13: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/13.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Price-Level Policies over the Product Life Cycle
+
![Page 14: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/14.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Skimming vs. PenetrationExhibit 16-5
![Page 15: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/15.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Other Price-Level Policies
+
![Page 16: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/16.jpg)
TradeTrade
CashCash
SeasonalSeasonalQuantityQuantity
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Discount Policies: Reductions from List Prices
FromList Price
Sale
![Page 17: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/17.jpg)
Push MoneyPush Money
StockingStockingAdvertising
CommonTypes of
Allowances
Advertising
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Allowance Policies – Off List Prices
Trade-Ins
![Page 18: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/18.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Some Customers Get Something Extra
+
![Page 19: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/19.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Coupon Distribution
![Page 20: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/20.jpg)
Uniform DeliveredUniform
Delivered
ZoneZoneF.O.B.F.O.B.
CommonGeographic
Policies
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
List Price May Depend on Geographic Pricing Policies
Freight Absorption
![Page 21: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/21.jpg)
Define Target Market and Competition
Define Target Market and Competition
Value Pricing = Customer ValueValue Pricing = Customer Value
Look at Customer’s Viewpoint
Look at Customer’s Viewpoint
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Pricing Policies Combine to Impact Customer Value
Value Pricing Fits with Market-Oriented Strategy
![Page 22: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/22.jpg)
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Interactive Exercise: Pricing Policies & Discounts
![Page 23: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/23.jpg)
Phony List Prices
Phony List Prices
DumpingDumpingUnfair Trade Practice ActsUnfair Trade Practice Acts
KeyIssues
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Legality of Pricing Policies
Price Fixing
![Page 24: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/24.jpg)
Meeting Competition
Meeting Competition
Cost Differences
Cost Differences
“Like Grade & Quality”
“Like Grade & Quality”
Robinson-Patman ActRobinson-
Patman Act
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Price Discrimination
KeyIssues
“Proportionately Equal” Basis
![Page 25: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/25.jpg)
• Price• Target return
objective• Profit maximization
objective• Sales-oriented
objective• Status quo objectives• Nonprice competition• Administered prices• One-price policy• Flexible-price policy
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Key Terms
• Skimming price policy
• Penetration price policy
• Introductory price dealing
• Basic list prices• Discounts• Quantity discounts• Cumulative quantity
discounts• Noncumulative
quantity discounts
![Page 26: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/26.jpg)
• Seasonal discounts• Net• Cash discounts• 2/10, net 30• Trade (functional)
discount• Sale price• Everyday low pricing• Allowances• Advertising
allowances• Stocking allowances
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Key Terms
• Push money (or prize money) allowances
• Trade-in allowance• Rebates• F. O. B.• Zone pricing• Uniform delivered
pricing• Freight absorption
pricing• Value pricing
![Page 27: Www.mhhe.com/fourps For use only with Perreault and McCarthy texts. © 2006 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin CHAPTER SIXTEEN CHAPTER SIXTEEN](https://reader036.vdocuments.site/reader036/viewer/2022062905/5a4d1ad07f8b9ab059971450/html5/thumbnails/27.jpg)
• Unfair trade practice acts
• Dumping• Phony list prices• Wheeler-Lea
Amendment• Price fixing• Robinson-Patman Act• Price discrimination
© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Key Terms