Assignments, Resources
Use Critical Thinking Exercise 11-6 here
Use Small Group Assignment 1 here
Troubleshooting Tip
The material from the price adjustment strategies and
price changes sections can be difficult for the student
who has not carefully read the material. The best way
to handle this is to give a brief vocabulary quiz at the
beginning of the material and then discuss the
material that has not been learned or has been
misapplied. Time constraints usually prevent detailed
analysis of this material, but it can be integrated into
future examples (when dealing with broader mix
situations) and can be reinforced in that way. The
only way to really learn pricing vocabulary is to use it
in a daily manner. Have students practice this. The
strategic options can also be better understood when
related to actual material. As students read
contemporary material from business magazines,
have them look for these techniques. BusinessWeek,
Fortune, or Newsweek make good sources for
examples.
p. 313
PPT 11-17
Psychological Pricing
Price says something about the product. For example, many
consumers use price to judge quality.
In using psychological pricing, sellers consider the
psychology of prices, not simply the economics.
Another aspect of psychological pricing is reference prices
—prices that buyers carry in their minds and reference when
looking at a given product.
The reference price might be formed by noting
current prices, remembering past prices, or assessing
the buying situation.
Sellers can influence or use these consumers’
reference prices when setting price.
For most purchases, consumers don’t have all the skill or
information they need to figure out whether they are paying a
good price. They may rely on certain cues that signal whether
a price is high or low.
Even small differences in price can signal product
p. 313
Key Terms:
Psychological pricing,
Reference pricing
p. 314
Photo: Psychological
pricing
Copyright 2018 Pearson Education
PPT 11-18
differences.
Promotional Pricing
With promotional pricing, companies will temporarily price
their products below list price and sometimes even below
cost to create buying excitement and urgency.
Promotional pricing takes several forms.
The seller may simply offer discounts from normal
prices to increase sales and reduce inventories.
Sellers will also use special-event pricing in certain
seasons to draw more customers.
Manufacturers sometimes offer cash rebates to
consumers who buy the product from dealers within a
specified time.
Some manufacturers offer low-interest financing,
longer warranties, or free maintenance to reduce the
consumer’s “price.”
Promotional pricing can have adverse effects.
Used too frequently and copied by competitors, price
promotions can create “deal-prone” customers who
wait until brands go on sale before buying them.
Constantly reduced prices can erode a brand’s value
in the eyes of customers.
Marketers sometimes use price promotions as a quick
fix instead of sweating through the difficult process of
developing effective longer-term strategies for
building their brands.
Promotional pricing can be an effective means of generating
sales in certain circumstances, but it can be damaging for
other companies or if taken as a steady diet.
p. 314
Key Term:
Promotional pricing
p. 314
Photo: Promotional
Pricing
Assignments, Resources
Use Discussion Question 11-3 here
Use Critical Thinking Exercise 11-8 here
Use Online, Mobile, and Social Media Marketing
here
Use Think-Pair-Share 2 here
p. 315
PPT 11-19
Geographical Pricing
A company also must decide how to price its products for
customers located in different parts of the country or world.
p. 315
Key Terms:
Geographical pricing,
FOB-origin pricing
Copyright 2018 Pearson Education
PPT 11-20
p. 315
PPT 11-21
PPT 11-22
p. 316
PPT 11-23
p. 318
PPT 11-24
1. FOB-origin pricing is a practice that means the
goods are placed free on board (hence, FOB) a
carrier. At that point the title and responsibility pass to
the customer, who pays the freight from the factory to
the destination.
2. Uniform-delivered pricing is the opposite of FOB
pricing. Here, the company charges the same price
plus freight to all customers, regardless of their
location. The freight charge is set at the average
freight cost.
3. Zone pricing falls between FOB-origin pricing and
uniform-delivered pricing. The company sets up two
or more zones. All customers within a given zone pay
a single total price; the more distant the zone, the
higher the price.
4. Using basing-point pricing, the seller selects a given
city as a “basing point” and charges all customers the
freight cost from that city to the customer location,
regardless of the city from which the goods are
actually shipped.
5. The seller who is anxious to do business with a
certain customer or geographical area might use
freight-absorption pricing. Using this strategy, the
seller absorbs all or part of the actual freight charges
in order to get the desired business.
Dynamic and Online Pricing
Dynamic pricing offers many advantages for marketers.
Internet sellers can mine their databases to gauge a specific
shopper’s desires, measure his or her means, instantaneously
tailor products to fit that shopper’s behavior, and price
products accordingly. Buyers also benefit from the Web and
dynamic pricing.
International Pricing
Companies that market their products internationally must
decide what prices to charge in the different countries in
which they operate.
In some cases, a company can set a uniform worldwide price.
However, most companies adjust their prices to reflect local
market conditions and cost considerations.
p. 315
Key Terms:
Uniform-delivered
pricing, Zone pricing,
Basing-point pricing,
Freight-absorption
pricing
p. 316
Key Term: Dynamic
pricing
p. 317
Photo: Amazon
p. 318
Photo: Dynamic
online pricing
p. 319
Photo: International
pricing
Copyright 2018 Pearson Education
p. 319
The price that a company should charge in a specific country
depends on many factors, including economic conditions,
competitive situations, laws and regulations, and
development of the wholesaling and retailing system.
Consumer perceptions and preferences also may vary from
country to country, calling for different prices. Or, the
company may have different marketing objectives in various
world markets that require changes in pricing strategy.
Costs play an important role in setting international prices.
Travelers abroad are often surprised to find that goods that
are relatively inexpensive at home may carry outrageously
higher price tags in other countries.
In some cases, such price escalation may result from
differences in selling strategies or market conditions.
In most instances, however, it is simply a result of the higher
costs of selling in another country—the additional costs of
product modifications, shipping and insurance, import tariffs
and taxes, exchange rate fluctuations, and physical
distribution.
Review Learning Objective 3: Discuss how companies
adjust their prices to take into account different types of
customers and situations.
Assignments, Resources
Use Real Marketing 11.1 here
Use Video Case here
Use Think-Pair-Share 3 and 4 here
p. 320
PPT 11-25
p. 320
PPT 11-26
Discuss the key issues related to initiating and responding
to price changes.
PRICE CHANGES
Companies often face situations in which they must initiate
price changes or respond to price changes by competitors.
Initiating Price Changes
Initiating Price Cuts
Several situations may lead a firm to consider cutting its
price.
Learning Objective 4
Copyright 2018 Pearson Education
p. 320
p. 320
PPT 11-27
p. 321
PPT 11-28
One such circumstance is excess capacity.
Another situation leading to price changes is falling
demand in the face of strong price competition or a
weakened economy.
A company may also cut prices in a drive to dominate
the market through lower costs. Either the company
starts with lower costs than its competitors, or it cuts
prices in the hope of gaining market share that will
further cut costs through larger volume.
Initiating Price Increases
A successful price increase can greatly increase profits.
A major factor in price increases is cost inflation.
Rising costs squeeze profit margins and lead
companies to pass cost increases along to customers.
Another factor leading to price increases is
overdemand. When a company cannot supply all that
its customers need, it can raise prices, ration products
to customers, or both.
In passing price increases on to customers, the company must
avoid being perceived as a price gouger.
Price increases should be supported by company communi–
cations telling customers why prices are being increased.
Whenever possible, the company should consider ways to
meet higher costs or demand without raising prices.
Buyer Reactions to Price Changes
Customers do not always interpret price changes in a
straightforward way.
A brand’s price and image are often closely linked. A price
change, especially a drop in price, can adversely affect how
consumers view the brand.
Competitor Reactions to Price Changes
Competitors are most likely to react when the number of
firms involved is small, when the product is uniform, and
when the buyers are well informed about products and prices.
The company must guess each competitor’s likely reaction. If
p. 320
Photo: Gas pricing
Copyright 2018 Pearson Education
p. 321
p. 322
PPT 11-29
PPT 11-30
all competitors behave alike, this amounts to analyzing only a
typical competitor. In contrast, if the competitors do not
behave alike, then separate analyses are necessary.
Responding to Price Changes
If a company decides that effective action can and should be
taken, it might make any of four responses.
1. It could reduce its price to match the competitor’s
price. The company should try to maintain its quality
as it cuts prices.
2. The company might maintain its price but raise the
perceived value of its offer. It could improve its
communications, stressing the relative quality of its
product over that of the lower-price competitor.
3. The company might improve quality and increase
price, moving its brand into a higher-price position.
The higher quality justifies the higher price that in
turn preserves the company’s higher margins.
4. The company might launch a low-price “fighter
brand”—adding a lower-price item to the line or
creating a separate lower-price brand. This is
necessary if the particular market segment being lost
is price sensitive and will not respond to arguments of
higher quality.
Review Learning Objective 4: Discuss the key issues
related to initiating and responding to price changes.
p. 321
Figure 11.1:
Responding to
Competitor Price
Changes
p. 322
Photo: Seattle’s Best
Coffee
Assignments, Resources
Use Discussion Question 11-4 here
Use Marketing Ethics here
Use Marketing by the Numbers here
Use Real Marketing 11.2 here
Use Company Case here
Use Think-Pair-Share 5 here
p. 322
PPT 11-31
PPT 11-32
Overview the social and legal issues that affect pricing
decisions.
PUBLIC POLICY AND PRICING
Price competition is a core element of our free-market
economy. In setting prices, companies are not usually free to
charge whatever prices they wish.
Many federal, state, and even local laws govern the rules of
Learning Objective 5
p. 323
Photo: Responsible
pharmaceutical
pricing
Copyright 2018 Pearson Education
p. 324
p. 325
PPT 11-33
PPT 11-34
PPT 11-35
p. 326
PPT 11-36
fair play in pricing. In addition, companies must consider
broader societal pricing concerns.
The most important pieces of legislation affecting pricing are
the Sherman, Clayton, and Robinson-Patman Acts,
initially adopted to curb the formation of monopolies and to
regulate business practices that might unfairly restrain trade.
Pricing within Channel Levels
Federal legislation on price-fixing states that sellers must set
prices without talking to competitors. Otherwise, price
collusion is suspected.
Sellers are also prohibited from using predatory pricing—
selling below cost with the intention of punishing a
competitor or gaining higher long-run profits by putting
competitors out of business. This protects small sellers from
larger ones who might sell items below cost temporarily or in
a specific locale to drive them out of business.
Pricing Across Channel Levels
The Robinson-Patman Act seeks to prevent unfair price
discrimination by ensuring that sellers offer the same price
terms to customers at a given level of trade.
Price discrimination is allowed if the seller can prove that its
costs are different when selling to different retailers. Or, the
seller can discriminate in its pricing if the seller manufactures
different qualities of the same product for different retailers.
The seller has to prove that these differences are
proportional.
Retail (or resale) price maintenance is prohibited—a
manufacturer cannot require dealers to charge a specified
retail price for its product. Although the seller can propose a
manufacturer’s suggested retail price to dealers, it cannot
refuse to sell to a dealer who takes independent pricing
action, nor can it punish the dealer by shipping late or
denying advertising allowances.
Deceptive pricing occurs when a seller states prices or price
savings that mislead consumers or are not actually available
to consumers. This might involve bogus reference or
comparison prices, as when a retailer sets artificially high
p. 324
Figure 11.2: Public
Policy Issues in
Pricing
p. 325
Photo: Amazon
Copyright 2018 Pearson Education
“regular” prices then announces “sale” prices close to its
previous everyday prices.
Deceptive pricing issues include scanner fraud and price
confusion. The widespread use of scanner-based computer
checkouts has led to increasing complaints of retailers
overcharging their customers.
Price confusion results when firms employ pricing methods
that make it difficult for consumers to understand just what
price they are really paying.
Treating customers fairly and making certain that they fully
understand prices and pricing terms is an important part of
building strong and lasting customer relationships.
Review Learning Objective 5: Overview the social and
legal issues that affect pricing decisions.
Assignments, Resources
Use Discussion Question 11-5 here
Use Critical Thinking Exercise 11-7 here
Use Small Group Assignment 2 here
Copyright 2018 Pearson Education