Chapter 17

Pricing Objectives
and Policies

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 At the end of this presentation, you
should be able to:
1. explain the dimensions of price and value.
2. understand how pricing objectives should guide
strategy planning for pricing decisions.
3. understand choices marketing managers must make
about price flexibility.
4. know what a marketing manager should consider
when setting the price level for a product in the early
stages of the product life cycle.
5. understand the many possible variations of a price
structure including discounts, allowances, and who
17-2 pays transportation costs.
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 At the end of this presentation, you
should be able to:
6. understand the value pricing concept and its role
in obtaining a competitive advantage by offering
target customers superior value.
7. understand the legality of price level and price
flexibility policies.
8. understand important new terms.

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17-3
 Strategy Planning and Pricing Objectives and Policies
(Exhibit 17-1)

CH 17: Pricing CH 18: Price Setting

Objectives and in the Business
Policies World

Pricing Pricing Pricing and Legal issues and

objectives policies customer value pricing policies

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 Starbury

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 Price Exchanged for Something of Value (As
Seen by Consumer or User) (Exhibit 17-2)

Something of
Price
Value
List Price Product
Less: Discounts • Physical good
• Quantity • Service
• Seasonal Exchange • Assurance of quality
• Cash • Repair facilities
• Temporary sales • Packaging
Less: Allowances • Credit
• Trade-ins • Warranty
• Damaged goods • Psychic benefit
Less: Rebate & coupon Place of delivery or when
Plus: Transportation and available
Taxes
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 Price Exchanged for Something of Value(As Seen by
Channel Members) (Exhibit 17-3)
Something of
Price
Value
List Price Product
Less: discounts • Branded—well known
• Quantity • Guaranteed & warranted
• Seasonal • Service/repair facilities
• Cash Exchange • Convenient packaging
• Trade or functional Place
• Temporary “deals” • Availability--when/where
Less: allowances Promotion
• Damaged goods • Promotion aimed at end-
• Advertising user customers
• Push money Price
• Stocking fees • Price-level guarantee
Plus: Transportation, taxes, • Sufficient margin &
tariffs, and costs of inventory turns to allow
handling or disposal for profit

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 Possible Pricing Objectives
(Exhibit 17-4), slide 1 of 3

Target return
Profit oriented
Maximize profits

Pricing
objectives

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 Possible Pricing Objectives
(Exhibit 17-4), slide 2 of 3
Target return
Profit oriented
Maximize profits

Dollar or unit
Pricing sales growth
Sales oriented
objectives
Growth in market
share

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 Possible Pricing Objectives
(Exhibit 17-4), slide 3 of 3
Target return
Profit oriented
Maximize profits

Dollar or unit
Pricing sales growth
Sales oriented
objectives
Growth in market
share

Meeting
Status quo competition
oriented Nonprice
competition
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 Checking Your Knowledge

An industry-leading high technology company just announced

that it was cutting its prices and would price its products at
whatever level was necessary to protect its market share. This
is evidence of a ____________ pricing objective.

A. target return
B. status quo-oriented
C. profit maximization
D. sales-oriented
E. non-price competition
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17-11
 Most Firms Set Specific Pricing
Policies to Reach Objectives
One-Price Flexible Price
Policy Policy
• The same for • Different
everyone customers,
• Frequently different prices
purchased items OR • Databases make it
• Convenient easier
• Low cost • Salespeople can
• Maintains goodwill adjust prices
• Too much cutting
can hurt profits

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 Too Much Price-Cutting Erodes
Profits (Exhibit 17-5)
$100 list price

$100 10% price cut

 new price = $90

Cost per unit = $80

50% profit
margin cut
$60

$40
$20
$20 $10

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 Price-Level Policies Over the
Product Life Cycle
Introductory Prices

Key
Considerations Product Life-Cycle
for Marketing
Managers
Prices Above, Below, or
Relative to the Market

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 Alternative Introductory Pricing
(Exhibit 17-6)
“Skim the Cream” Pricing Penetration Pricing
Firm starts with
Initial a high price to a Firm starts with
skimming limited market a low price to
price Over time sell immediately
price falls to the whole
Second market
& quantity
price
rises Initial
skimming
Final price
price

Quantity Quantity

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 Other Price-
Level Policies

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 Discount Policies: Reductions from
List Prices
Quantity Seasonal

Discounts From
List Price
Sale Cash

Trade
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 Allowance Policies—Off List Prices

Advertising Stocking

Common
Types of
Allowances

Trade-Ins Push Money

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 Checking Your Knowledge

A construction company is considering purchasing a new crane

from a distributor of such equipment. The distributor offers to
provide the construction company with a few thousand dollars
worth of credit on an old crane that the company would like to
replace. This credit offered by the distributor is a:

A. trade-in allowance.
B. sale price.
C. seasonal discount.
D. trade discount.
E. cash discount.
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17-19
 Some Customers Get Something Extra

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 List Price May Depend on
Geographic Pricing Policies

F.O.B. Zone

Common
Geographic
Policies

Freight Uniform
Absorption Delivered

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 Checking Your Knowledge

Janet Eckerd wants to buy a new Volvo. She lives in Richmond, Virginia, but can’t
find the exact color and model she wants at her local Volvo dealers. She searches
the Web and discovers that a dealership 90 minutes away, in Alexandria, Virginia,
has the car she wants. She called the dealer and found that the price of the vehicle is
the same as it would be in Richmond, although the Alexandria dealer wants to
charge Janet an additional $150 to have someone drive the car from Alexandria to
Janet’s home in Richmond. As Janet was about to reject the offer and hang up the
phone, the dealer offered to waive the extra “shipping charge” and make the price
exactly equal to the price in Richmond. This geographic pricing tactic by the
Alexandria dealer is a form of:

A. F.O.B. pricing.
B. zone pricing.
C. uniform delivered pricing.
D. intermediary pricing.
E. freight absorption
17-22 pricing.
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 Checking Your Knowledge

The simplest geographic pricing policy for a seller

to administer is:

A. uniform delivered pricing.

B. F.O.B. pricing.
C. zone pricing.
D. freight absorption pricing.
E. life cycle pricing.
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17-24
 Pricing Policies Combine to Impact
Customer Value
Look at Customer’s
Viewpoint

Value Pricing =
Customer Value

Define Target Market

and Competition

Value Pricing Fits with

Market-Oriented Strategy
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 Legality of Pricing Policies

Unfair Trade
Dumping
Practice Acts

Key
Issues

Phony List
Price Fixing
Prices

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 Price Discrimination

Robinson- “Like Grade &

Patman Act Quality”

Key
Issues
“Proportionately Cost
Equal” Basis Differences

Meeting
Competition
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 Key Terms

1. price 7. administered prices

2. target return objective 8. one-price policy
3. profit maximization 9. flexible-price policy
objective 10. skimming price policy
4. sales-oriented objective 11. penetration pricing
5. status quo objectives policy
6. nonprice competition 12. introductory price
dealing
13. basic list prices

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 Key Terms

14. discounts 22. trade (functional) discount

15. quantity discounts 23. sale price
16. cumulative quantity 24. everyday low pricing
discounts 25. allowances
17. noncumulative quantity 26. advertising allowances
discounts 27. stocking allowances
18. seasonal discount 28. push money (or prize
19. net money) allowances
20. cash discount 29. trade-in allowance
21. 2/10, net 30
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 Key Terms
30. rebates 37. dumping
31. F.O.B. 38. phony list prices
32. zone pricing 39. Wheeler Lea
33. uniform delivered Amendment
pricing 40. price fixing
34. freight-absorption 41. Robinson-Patman Act
pricing 42. price discrimination
35. value pricing
36. unfair trade practice acts

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