Marketing Chapter 13 Pricing Goods and Services Gilbert A. Churchill, Jr. Irwin/McGraw-Hill J. Paul Peter © The McGraw-Hill Companies, Inc., 1998 Slide 13-1 Table 13.1 Basic Value Positions Price Level Value Position Examples High relative to product class High value because of quality and prestige. Nike athletic shoes (such as Air Jordans); dental work by a widely respected specialist. Around average for product class High value because of good quality at a reasonable price. Keds tennis shoes; dental work by the neighborhood family dentist. Low relative to product class High value because of acceptable quality at a low price. Generic or private-label shoes at a drugstore or discount store; dental work by students being trained at a university clinic. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Slide 13-2 Figure 13.2 The Pricing Process Set Pricing Objectives Analyze Profit Potential Irwin/McGraw-Hill Evaluate Customer Response and other Pricing Constraints Set Initial Price Make Price Adjustments as Needed © The McGraw-Hill Companies, Inc., 1998 Slide 13-3 Penetration Pricing vs. Price Skimming New Product Pricing Strategies Price Skimming $ Penetration Pricing Irwin/McGraw-Hill Time © The McGraw-Hill Companies, Inc., 1998 Slide 13-4 Pricing Product Lines Price Lining Irwin/McGraw-Hill Uniform Pricing © The McGraw-Hill Companies, Inc., 1998 Slide 13-5a Table 13.2 Adjusting Prices Discount Quantity discount Definition Reduction in the price per unit for purchasing a larger quantity Seasonal discount Price reduction offered during times of slow demand Example A catalog for Gardener’s Supply Company offers 1 cedar planter for $32.95 and 2 or more for $30.00 each. A ski resort offers lower prices during the summer. Trade discount Percentage reduction from list price offered to resellers Cash discount Incentive for buyers to pay An organization receives quickly or a lower price for an invoice that reads, payment of cash “2/10 net 30.” Irwin/McGraw-Hill A publisher sells books to a chain of stores for a fraction of the retail price. © The McGraw-Hill Companies, Inc., 1998 Slide 13-5b Table 13.2 Adjusting Prices Discount Definition Example Trade-in allowance Discount for providing a product along with monetary payment A car dealer offers $1,000 off the list price in exchange for a buyer trading in her used car. Promotional allowance Price reduction in exchange for the reseller performing certain promotional activities A frozen-pizza maker gives a price break to a supermarket that promises to feature the product in its advertising. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Slide 13-5c Table 13.2 Adjusting Prices Discount Definition Example Product Promotional discount Short-term discount to stimulate sales or convince buyers to try a product A Jiffy Lube franchise passes out flyers offering $5 off on an oil change; the discount is good for 30 days. Loss leader pricing Setting prices near or below cost in order to attract customers to a store A supermarket features bananas at 20 cents a pound and Pampers diapers at 50 percent off; the price is below cost, but the store expects buyers to purchase additional items selling at a profit. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Slide 13-6 Table 13.3 Psychological Pricing TYPE Technique DESCRIPTION Pricing Definition EXAMPLE Example Product Prestige Pricing Setting a high price to image of high Tableconvey 13.3anmissing quality or exclusivity The Porsche 911 turbo coupe has a base price of $105,000. Odd-even pricing Setting prices a few dollars or cents below a round number Office Depot advertises a GE cellular phone for $39.99. Bundle pricing Offering several products as a package at a single price A hotel quotes a rate for an over-night stay that includes breakfast the next morning. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Slide 13-7 Geographic Pricing Geographic Pricing Pricing a good or service according to where it is delivered. FOB Origin Pricing Seller’s price is for the goods at point of shipment, where title passes from buyer to seller. Uniform Delivered Pricing Seller’s price includes shipping; title passes where buyer receives the goods. Single-zone Pricing Pricing in which all buyers pay the same price, including delivery. Multiple-zone pricing Pricing in which buyers in different zones pay different delivery prices. FOB with freight allowed Pricing in which the seller allows the buyer to deduct shipping costs from the quoted price of the product. Basing point pricing Pricing in which the seller charges the quoted price plus the cost of delivering from a basing point where the product is made. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998