Chapter 17:      Pricing Objectives and Policies

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Strategic Planning for Price

Target Market

Product

Place

Promotion

Price

Pricing objectives

Price flexibility

Price levels over product life cycle

Discounts and allowances— to whom and when

Geographic terms— who pays transportation and how

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Exhibit 17­1 17­2

Pricing Objectives

Target Return

Profit Oriented

Maximize Profits

Dollar or Unit Sales Growth

Pricing Objectives

Sales Oriented

Growth in Market Share

Meeting Competition

Status Quo Oriented

Nonprice Competition

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Exhibit 17­4 17­3

Price Flexibility Policies

One­price policy

 The same price to all customers who purchase products  under essentially the same conditions and quantities Exchange rate changes may make this difficult in international

markets

 Flexible pricing (e.g., in channels, business

markets, expensive consumer shopping products) Issues:

customer databases, scanners, etc.

Use is increasing because of impact of information technology,

17­4

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Selling costs may be higher if prices are negotiated “Signals” to competitors  Customer dissatisfaction may be a problem  “Gray channels” and cross­shipping

Price Level Policies

Skimming Pricing

Price

Sell at high price before reducing to next price level and repeat Initial skimming price

“Skim the cream”  pricing involves   selling at a high  price to those who  are willing to pay  before aiming at  more price­sensitive  consumers.

Second price

Final price

17­5

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Quantity

Price Level Policies

Penetration Pricing

Price

Penetration pricing  involves selling the  whole market at  one low price.

Whole market price

17­6

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Quantity

Discount Pricing

Quantity

Seasonal

Discount Pricing

Sale

Cash

Trade

17­7

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Allowances

Advertising Allowance

Stocking Allowance

Common Kinds of Allowances

Push Money Allowance

Trade-In Allowance

17­8

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Geographic Pricing Policies

F.O.B.

Zone

Common Geographic Pricing Policies

Uniform Delivered

Freight Absorption

17­9

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.

Value Pricing

Focus on Customer Focus on Customer Requirements Requirements

Target Market and Target Market and Competition Competition

$

Fits with Strategy Fits with Strategy Planning Planning

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17­10

For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited.