Chapter 17:

Pricing Objectives
and Policies

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Strategy Planning for Price

Target
Market

Product

Place

Promotion

Price
Pricing
objectives

Price
flexibility

Exhibit 17-1
17-3

Price levels
over product
life cycle

Discounts and
allowances
to whom and
when

Geographic
term
who pays
transportation
and how

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Price
Price - the amount of money that is charged
for something of value.
Price = list price - discounts - allowances rebates/coupons + taxes

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Pricing Objectives
Profit
Oriented

Pricing
Objectives

Sales
Oriented

Status Quo
Oriented
Exhibit 17-4
17-4

Target
Return
Maximize
Profits
Dollar or Unit
Sales Growth
Growth in
Market Share
Meeting
Competition
Nonprice
Competition
For use only with Perreault and McCarthy texts.
The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Price Flexibility Policies

One-price policy
The same price to all customers who purchase products

under essentially the same conditions and quantities.

Various

exchange rates may make this difficult in international

markets.

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

markets, expensive consumer shopping products)
Issues:
Use

is increasing because of impact of information technology,

customer databases, scanners, etc.
Selling costs may be higher if prices are negotiated.
Customer dissatisfaction may be a problem.

17-5

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Price Level Policies Over the PLC

Skimming Pricing
Price
Initial
skimming
price

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

Second
price
Final
price

Skim the cream

pricing involves
selling at a high
price to those who
are willing to pay
before aiming at
more price-sensitive
consumers.

Quantity

Exhibit 17-5A
17-6

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Price Level Policies Over the PLC

Penetration Pricing
Price

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

Whole
market price

Quantity

Exhibit 17-5B
17-7

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Price Level Policies Over the PLC

Introductory price dealing temporary price cuts to speed new

product into a market.

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Discount Pricing
Quantity

Seasonal

cumulative
vs noncumulative

Discount
Pricing
Sale

Cash

Trade
17-8

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Allowances
Advertising
Allowance

Common Kinds
of
Allowances

Stocking
Allowance
Push Money
Allowance
Trade-In
Allowance

17-9

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Geographic Pricing Policies

F.O.B.

Common
Geographic
Pricing
Policies

Zone

Uniform
Delivered
Freight
Absorption

17-10

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Value Pricing

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????
????
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????

17-11

Focus
Focus on
on Customer
Customer
Requirements
Requirements

Target
Target Market
Market and
and
Competition
Competition

Fits
Fits with
with Strategy
Strategy
Planning
Planning

For use only with Perreault and McCarthy texts.

The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill

Pricing and the Law

Unfair trade practice acts - put a lower limit on prices,
especially at the wholesale and retail levels.
Antidumping laws - make it illegal to sell in a foreign market
below the cost of producing the product or at a price lower
than in its domestic market.
Wheeler Lea Amendment - bans unfair or deceptive acts in
commerce.
Price fixing - competitors getting together to raise, lower or
stabilize prices.
Price discrimination - selling the same product to different
buyers at different prices - if it injures competition.
Must offer promotional allowances to customers on
proportionately equal terms.
For use only with Perreault and McCarthy texts.
The McGraw-Hill Companies, Inc., 1999
Irwin/McGraw-Hill