Chapter 14
Demand, cost, profit, and competition influence the initial consideration of the
approximate price level for a product or service. Demand-oriented pricing approaches
stress consumer demand and revenue implications of pricing and include eight types:
skimming, penetration, prestige, price lining, odd-even, target, bundle, and yield
management. Cost-oriented pricing approaches emphasize the cost aspects of pricing
and include three types: standard markup, cost-plus, and experience curve pricing.
Profit-oriented pricing approaches focus on a balance between revenues and costs to
set a price and include three types: target profit, target return-on-sales, and target
return-on- investment pricing. And finally, competition-oriented pricing approaches
stress what competitors or the marketplace are doing and include three types:
customary; above-, at-, or below-market; and loss-leader pricing. Although these
approaches are described separately, some of them overlap, and an effective marketing
manager will consider several in searching for an approximate price level.
Given an approximate price level for a product or service, a manager sets a list or
quoted price by considering three additional factors. First, a manager must decide
whether to follow a one-price versus a flexible-price policy. Second, the manager should
consider the effects of the proposed price on the company, customer, and competitors.
Finally, consideration should be given to balancing incremental costs and revenues,
particularly when price and cost changes are planned.
Numerous adjustments can be made to the approximate price level. Discounts are
reductions from the list or quoted price that a seller gives a buyer as a reward for some
activity of the buyer that is favorable to the seller. These include quantity, seasonal,
trade (functional), and cash discounts. Allowances offered to buyers also reduce list or
quoted prices. Trade-in allowances and promotional allowances are most common.
Finally, geographical adjustments are made to list or quoted prices to reflect
transportation costs from sellers to buyers. The two general methods for quoting prices
related to transportation costs are FOB origin pricing and uniform delivered pricing.
There are four principal laws that affect six major pricing practices. The Sherman Act
specifically prohibits horizontal price fixing and predatory pricing. The Consumer Goods
Pricing Act makes it illegal for companies to engage in vertical price fixing or resale
Chapter 14
price maintenance agreements. The Federal Trade Commission Act outlaws deceptive
pricing. Provisions in this act also address aspects of predatory pricing and
geographical pricing. Finally, the Robinson-Patman Act prohibits price discrimination for
goods of like grade and quality, covers the use of promotional allowances, and
addresses certain aspects of geographical pricing.
Marketing
By Kerin, Hartley, Rudelius
McGraw Hill Copyright Protected
ISBN: 978-0-07-352993-6
10th Edition