Chapter 16:
Pricing Objectives
and Policies
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Chapter 16 Objectives
When you finish this chapter, you should
1. Understand how pricing objectives 5. Understand the value pricing
should guide strategy planning for
concept and its role in
pricing decisions.
obtaining a competitive
advantage and offering target
2. Understand choices the marketing
customers superior value.
manager must make about price
flexibility.
6. Understand the legality of price
level and price flexibility
3. Know what a marketing manager
policies.
should consider when setting the
price level for a product in the
7. Understand the important new
early stages of the product life
terms.
cycle.
4. Understand the many possible
variations of a price structure
including discounts, allowances,
and who pays transportation
costs.
16-2
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Strategy Planning for Price
Target
Market
Product
Place
Promotion
Price
Pricing
objectives
Price
flexibility
Price levels
over product
life cycle
Discounts and
allowances—
to whom and
when
Geographic
term —
who pays
transportation
and how
Exhibit 16-1
16-3
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Pricing Objectives
Profit
Oriented
Pricing
Objectives
Sales
Oriented
Status Quo
Oriented
Target
Return
Maximize
Profits
Dollar or Unit
Sales Growth
Growth in
Market Share
Meeting
Competition
Nonprice
Competition
Exhibit 16-4
16-4
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
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

Exchange rate changes may make this difficult in international
markets
 Flexible pricing (e.g., in channels, business
markets, expensive consumer shopping products)
 Issues:





16-5
Use is increasing because of impact of information technology,
customer databases, scanners, etc.
Selling costs may be higher if prices are negotiated
“Signals” to competitors
Customer dissatisfaction may be a problem
“Gray channels” and cross-shipping
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Price Level Policies
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 16-5A
16-6
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Price Level Policies
Penetration Pricing
Price
Penetration pricing
involves selling the
whole market at
one low price.
Whole
market price
Quantity
Exhibit 16-5B
16-7
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Discount Pricing
Quantity
Seasonal
Discount
Pricing
Sale
Cash
Trade
16-8
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Allowances
Advertising
Allowance
Common Kinds
of
Allowances
Stocking
Allowance
Push Money
Allowance
Trade-In
Allowance
16-9
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Geographic Pricing Policies
F.O.B.
Common
Geographic
Pricing
Policies
Zone
Uniform
Delivered
Freight
Absorption
16-10
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Value Pricing
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$
16-11
Focus on Customer
Requirements
Target Market and
Competition
Fits with Strategy
Planning
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
Key Terms
Price
Target Return
Objective
Profit Maximization
Objective
Sales-Oriented
Objective
Status Quo Objectives
Nonprice Competition
Administered Price
One-Price Policy
Flexible-Price Policy
Skimming Price Policy
Penetration Pricing
Policy
Introductory Price
Dealing
Basic List Prices
16-12
Discounts
Quantity
Cumulative
Noncumulative
Seasonal
Net
Cash Discounts
2/10 Net 30
Trade (Functional)
Discounts
Sale Price
Everyday Low Pricing
Allowances
Advertising
Stocking
Push Money
Trade-in
Coupons
Rebates
F.O.B.
Zone Pricing
Uniform Delivered
Freight Absorption
Value Pricing
Unfair Trade Practices
Act
Dumping
Phony List Prices
Wheeler Lea Act
Price Fixing
Robinson-Patman Act
Price Discrimination
For use only with Perreault and McCarthy texts.
© The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill