p. 335
PPT 11-11
PPT 11-12
p. 336
PPT 11-13
p. 336
p. 336
PPT 11-14
Discuss how companies adjust their prices to take into
account different types of customers and situations.
PRICE ADJUSTMENT STRATEGIES
Companies usually adjust their basic prices to account for
various customer differences and changing situations.
The seven price-adjustment strategies are summarized in
Table 11.2.
Discount and Allowance Pricing
Most companies adjust their basic price to reward customers
for certain responses, such as early payment of bills, volume
purchases, and off-season buying.
One form of discount is a cash discount, a price reduction to
buyers who pay their bills promptly. A typical example is
“2/10, net 30,” which means that although payment is due
within 30 days, the buyer can deduct 2 percent if the bill is
paid within 10 days.
A quantity discount is a price reduction to buyers who buy
large volumes.
A functional discount (trade discount) is offered by the seller
to trade-channel members who perform certain functions,
such as selling, storing, and record keeping.
A seasonal discount is a price reduction to buyers who buy
merchandise or services out of season.
Allowances are another type of reduction from the list price.
Trade-in allowances are price reductions given for turning in
an old item when buying a new one.
Promotional allowances are payments or price reductions to
reward dealers for participating in advertising and sales
support programs.
Segmented Pricing
Companies will often adjust their basic prices to allow for
differences in customers, products, and locations.
Learning Objective 3
p. 335
Key Term: Discount
p. 336
Table 11.2:
Price-Adjustment
Strategies
p. 336
Key Term: Allowance
p. 336
Key Term: Segmented
pricing
PPT 11-15
PPT 11-16
In segmented pricing, the company sells a product or service
at two or more prices, even though the difference in price is
not based on differences in costs.
Under customer-segment pricing, different customers pay
different prices for the same product or service.
Under product-form pricing, different versions of the product
are priced differently but not according to differences in their
costs.
Under location pricing, a company charges different prices
for different locations, even though the cost of offering each
location is the same.
Using time-based pricing, a firm varies its prices by the
season, the month, the day, and even the hour.
For segmented pricing to be an effective strategy, certain
conditions must exist:
•The market must be segmentable, and the segments
must show different degrees of demand.
•The costs of segmenting and watching the market
cannot exceed the extra revenue obtained from the
price difference.
•The segmented pricing must be legal.
•Segmented prices should reflect real differences in
customers’ perceived value.
p. 337
Ad: Walgreens
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. 337
PPT 11-17
PPT 11-18
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
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
p. 337
Key Terms:
Psychological pricing,
Reference pricing
p. 338
Photo: Psychological
pricing
p. 338
Key Term:
Promotional pricing
p. 338
Photo: Promotional
Pricing
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.
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. 339
PPT 11-19
PPT 11-20
p. 339
PPT 11-21
Geographical Pricing
A company also must decide how to price its products for
customers located in different parts of the country or world.
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
p. 339
Key Terms:
Geographical pricing,
FOB-origin pricing
p. 339
Key Terms:
Uniform-delivered
pricing, Zone pricing,
Basing-point pricing,
Freight-absorption
PPT 11-22
p. 340
PPT 11-23
p. 342
PPT 11-24
p. 343
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.
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.
pricing
p. 340
Key Term: Dynamic
pricing
p. 331
Photo: Amazon
p. 342
Photo: Dynamic
online pricing
p. 343
Photo: International
pricing
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. 344
PPT 11-25
p. 344
PPT 11-26
p. 344
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.
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.
Learning Objective 4
p. 344
Photo: Gas pricing
p. 344
PPT 11-27
p. 345
PPT 11-28
p. 345
p. 346
PPT 11-29
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
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
p. 345
Figure 11.1:
Responding to
Competitor Price
Changes
PPT 11-30
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. 346
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 11-55
PPT 11-56
p. 348
p. 349
PPT 11-33
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
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—
Learning Objective 5
p. 357
Photo: Responsible
pharmaceutical
pricing
p. 348
Figure 11.2: Public
Policy Issues in
Pricing
p. 349
Photo: Amazon
PPT 11-34
PPT 11-35
p. 350
PPT 11-36
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
“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