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19-1
Copyright © 2001 by Harcourt, Inc. All rights reserved.
CHAPTER NINETEENCHAPTER NINETEEN
MANAGING THE PRICING MANAGING THE PRICING FUNCTIONFUNCTION
(Part 2 of 2)(Part 2 of 2)
Text by Profs. Gene Boone & David KurtzText by Profs. Gene Boone & David KurtzMultimedia Presentation byMultimedia Presentation byProf. Milton PressleyProf. Milton PressleyThe University of New OrleansThe University of New Orleans
19-2
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies• Pricing policy: general
guidelines based on pricing objectives and intended for use in specific pricing decisions
© PhotoDisc
19-3
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Psychological pricing: pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers
Psychological
19-4
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Odd pricing: pricing policy based on the belief that a price ending with and odd number just below a round number is more appealing
• For example, $9.97 rather than $10.00
Psychological
19-5
Copyright © 2001 by Harcourt, Inc. All rights reserved.
John DeereJohn Deere
At $1,999 for This At $1,999 for This Tractor, Deere Is Tractor, Deere Is Practicing Odd PricingPracticing Odd Pricing
John DeereJohn Deere
At $1,999 for This At $1,999 for This Tractor, Deere Is Tractor, Deere Is Practicing Odd PricingPracticing Odd Pricing
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-6
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Unit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count
• For example, a gallon of milk, or one dozen eggs
Psychological
19-7
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Price Flexibility: pricing policy that permits variable prices for goods and services
• Car dealerships traditionally employ a flexible pricing strategy
PsychologicalPsychological
Flexibility
19-8
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Telephone Service Providers Such as AT&T Have Telephone Service Providers Such as AT&T Have Traditionally Practiced a Flexible Pricing StrategyTraditionally Practiced a Flexible Pricing StrategyTelephone Service Providers Such as AT&T Have Telephone Service Providers Such as AT&T Have Traditionally Practiced a Flexible Pricing StrategyTraditionally Practiced a Flexible Pricing Strategy
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-9
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Product-line pricing: practice of marketing different lines of merchandise at a limited number of prices
• For example, a coat manufacturer may produced four lines of coats, each priced at $99, $150, $225, or $300
PsychologicalPsychological
FlexibilityFlexibility
Product-Line
19-10
Copyright © 2001 by Harcourt, Inc. All rights reserved.
HallmarkHallmark
Hallmark Has Different Hallmark Has Different Prices for its Card Prices for its Card LinesLines
HallmarkHallmark
Hallmark Has Different Hallmark Has Different Prices for its Card Prices for its Card LinesLines
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-11
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Delta, Like Most Other Airlines, Practice Product-Line Delta, Like Most Other Airlines, Practice Product-Line Pricing With First, Business, and Economy Class SeatingPricing With First, Business, and Economy Class Seating
Delta, Like Most Other Airlines, Practice Product-Line Delta, Like Most Other Airlines, Practice Product-Line Pricing With First, Business, and Economy Class SeatingPricing With First, Business, and Economy Class Seating
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-12
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Promotional pricing: pricing policy in which a lower than normal price is used as a temporary ingredient in the marketing strategy
• “Buy one, get one free” is a common pricing promotion
PsychologicalPsychological
FlexibilityFlexibility
Product-LineProduct-Line
Promotional
19-13
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Verlo Verlo Mattress Factory Mattress Factory StoresStores
Example of Example of Promotional PricingPromotional Pricing
Verlo Verlo Mattress Factory Mattress Factory StoresStores
Example of Example of Promotional PricingPromotional Pricing
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-14
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Columbia House Often Uses Promotional Pricing Columbia House Often Uses Promotional Pricing Strategies, Such as “Get 12 CDs For Free”Strategies, Such as “Get 12 CDs For Free”
Columbia House Often Uses Promotional Pricing Columbia House Often Uses Promotional Pricing Strategies, Such as “Get 12 CDs For Free”Strategies, Such as “Get 12 CDs For Free”
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-15
Copyright © 2001 by Harcourt, Inc. All rights reserved.
BMG Music Club: Another Example of a BMG Music Club: Another Example of a Firm Using Promotional PricingFirm Using Promotional Pricing
BMG Music Club: Another Example of a BMG Music Club: Another Example of a Firm Using Promotional PricingFirm Using Promotional Pricing
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-16
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Pricing PoliciesPricing PoliciesPricing PoliciesPricing Policies
• Loss leader: product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices
PsychologicalPsychological
FlexibilityFlexibility
Product-LineProduct-Line
Promotional
19-17
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Price-Quality RelationshipsPrice-Quality RelationshipsPrice-Quality RelationshipsPrice-Quality Relationships• Without other cues, price serves as
an important indicator of a product’s quality to buyers
• Customers often view price as an indicator of a product’s overall quality
© PhotoDisc
19-18
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Example of a Brand for Which Many Consumers are Willing to Example of a Brand for Which Many Consumers are Willing to Pay a Higher Price Due to a High Price-Quality RelationshipPay a Higher Price Due to a High Price-Quality RelationshipExample of a Brand for Which Many Consumers are Willing to Example of a Brand for Which Many Consumers are Willing to Pay a Higher Price Due to a High Price-Quality RelationshipPay a Higher Price Due to a High Price-Quality Relationship
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-19
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Figure 19.9: Figure 19.9: TravelScape.com – TravelScape.com – Guaranteed Low Guaranteed Low PricesPrices
Figure 19.9: Figure 19.9: TravelScape.com – TravelScape.com – Guaranteed Low Guaranteed Low PricesPrices
19-20
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Competitive Bidding And Competitive Bidding And Negotiated Prices Negotiated Prices Competitive Bidding And Competitive Bidding And Negotiated Prices Negotiated Prices • Many purchases are made through
competitive bidding, a process in which potential suppliers and manufacturers are invited to quote prices on proposed purchases or contracts
© PhotoDisc
19-21
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Negotiated Prices OnlineNegotiated Prices OnlineNegotiated Prices OnlineNegotiated Prices Online• Buyers and sellers can communicate
and negotiate prices online.• Examples of negotiated prices
include:• Priceline.com• Travelscope.com• Tickets.com
19-22
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Figure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated PricingFigure 19.10: Online Auctions – Purest Forms of Negotiated Pricing
19-23
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Tickets.com Auctions Tickets to Tickets.com Auctions Tickets to Sporting Events and ConcertsSporting Events and Concerts
Tickets.com Auctions Tickets to Tickets.com Auctions Tickets to Sporting Events and ConcertsSporting Events and Concerts
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-24
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Priceline.com: Example of a Firm that Priceline.com: Example of a Firm that Facilitates Negotiating Prices OnlineFacilitates Negotiating Prices Online
Priceline.com: Example of a Firm that Priceline.com: Example of a Firm that Facilitates Negotiating Prices OnlineFacilitates Negotiating Prices Online
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-25
Copyright © 2001 by Harcourt, Inc. All rights reserved.
The Transfer Price DilemmaThe Transfer Price DilemmaThe Transfer Price DilemmaThe Transfer Price Dilemma• Transfer price: cost assessed when a
product is moved from one profit center to another
• Profit center: any part of an organization to which revenue and controllable costs can be assigned
© PhotoDisc
19-26
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Figure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape TaxationFigure 19.11: Transfer Pricing to Escape Taxation
19-27
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Global Considerations And Global Considerations And Online PricingOnline PricingGlobal Considerations And Global Considerations And Online PricingOnline Pricing• International markets are subject to external
influences such as regulatory limitations, trade restrictions, competitor’s actions, economic events, and the global status of the industry
© PhotoDisc
19-28
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Traditional Global Pricing Traditional Global Pricing StrategiesStrategiesTraditional Global Pricing Traditional Global Pricing StrategiesStrategies
• Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets
StandardWorldwide
StandardWorldwide
© PhotoDisc
19-29
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Traditional Global Pricing Traditional Global Pricing StrategiesStrategiesTraditional Global Pricing Traditional Global Pricing StrategiesStrategies
• Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each
StandardWorldwide
DualPricing
DualPricing
© PhotoDisc
19-30
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Traditional Global Pricing Traditional Global Pricing StrategiesStrategiesTraditional Global Pricing Traditional Global Pricing StrategiesStrategies
• Flexible pricing strategy that sets prices according to local marketplace and economic conditions
StandardWorldwide
DualPricing
MarketDifferentiated
MarketDifferentiated
© PhotoDisc
19-31
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Characteristics Of Online Characteristics Of Online PricingPricingCharacteristics Of Online Characteristics Of Online PricingPricing• Cannibalization: Securing additional
sales through lower prices that take sales away from the marketer’s other products
© PhotoDisc
19-32
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Barnes & Noble’s Web-site Cannibalizes Sales From Barnes & Noble’s Web-site Cannibalizes Sales From It’s Traditional Retail Stores by Offering Lower It’s Traditional Retail Stores by Offering Lower
Prices on the Same MerchandisePrices on the Same Merchandise
Barnes & Noble’s Web-site Cannibalizes Sales From Barnes & Noble’s Web-site Cannibalizes Sales From It’s Traditional Retail Stores by Offering Lower It’s Traditional Retail Stores by Offering Lower
Prices on the Same MerchandisePrices on the Same Merchandise
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-33
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Books-A-Million.com Sells Top 20 Best-Sellers at 40% Books-A-Million.com Sells Top 20 Best-Sellers at 40% Below List. On It’s Web Site, It Uses a Defensive Below List. On It’s Web Site, It Uses a Defensive
Strategy and a Discount of 55% -- Cannibalizing Sales Strategy and a Discount of 55% -- Cannibalizing Sales from it’s Retail Storesfrom it’s Retail Stores
Books-A-Million.com Sells Top 20 Best-Sellers at 40% Books-A-Million.com Sells Top 20 Best-Sellers at 40% Below List. On It’s Web Site, It Uses a Defensive Below List. On It’s Web Site, It Uses a Defensive
Strategy and a Discount of 55% -- Cannibalizing Sales Strategy and a Discount of 55% -- Cannibalizing Sales from it’s Retail Storesfrom it’s Retail Stores
Copyright © 2001 by Harcourt, Inc. All rights reserved.
19-34
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Characteristics Of Online Characteristics Of Online PricingPricingCharacteristics Of Online Characteristics Of Online PricingPricing• Bundle pricing: Offering two or more
complementary products and selling them for a single price
© PhotoDisc
19-35
Copyright © 2001 by Harcourt, Inc. All rights reserved.
STRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONSSTRATEGIC IMPLICATIONS• To avoid money-losing price wars, many
marketers are developing strategies that involve non-price competition
• Expansion of the Internet will bring competitive prices to even the most geographically isolated homes and offices
• Customer ability to find the lowest prices on the market, and to negotiate their own prices, will continue to improve
• What marketers must continue to do to remain successful in the 21st Century is to offer value
© PhotoDisc