PRICING OBJECTIVES

chpt 15 in the Sommers book  chpt 17 in the Shapiro book
 
 

Chapter 15 Pricing Objectives page 459   Chapter 17

. .. You can't just say "we want a low price to sell a lot" - if your price is too low you will not cover your costs and you will go out of business. There are several different "Objectives" a company may orient themselves towards in order to obtain a profitable business situation. WTGR .  .

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Chapter 15 Pricing Objectives page 459

Profit Oriented: Target Return - sometimes the vendor specifies a specific dollar amount or percentage amount that the price will be offered at in order to make a profit which has been calculated for a specific purpose. Usually this amount is part of a larger plan involving several product units in a product line Profit Oriented: Maximize Profits - if the Competitive Market is not intense you may charge the highest price the market will bear because sometimes you may have an advantage for reasons based on your geographic advantage special features not available on other competitors' products very very famous brand. etc.. Sales / Marketing Oriented: Increase Sales Volume Sales / Marketing Oriented: Increase Market Share Status Quo Goals: Just Meet the Competition - if the customer has many choices, and you barely have the resources to stay in the market, then just charge the same price. You don't have the resouces to survive a price war, and you don't have the ability to claim better quality to charge a higher price Prof. Allen says "Volume objectives include sales maximization and market-share goals, which are specified as a percentage of certain markets. In sales maximization, management sets an acceptable level of profitability and then tries to maximize sales.  This objective can lead to discounting or some other aggressive pricing strategy, such as rebates and sales. " http://ollie.dcccd.edu/mrkt2370/book/mrktbook.htm

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Chapter 15 Skimming page 472 Chapter 17 page 541

"Skim the cream” pricing involves  selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. This expression comes from the farming practice of milking cows - the cream rises to the top and you skim it off.   The advantage of using a Skimming price policy is that you can theoretically get the maximum profit from each level of customer.

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Chapter 15 Pricing Chapter 17 page 541

Skimming Pricing  "A Skimming policy is more attractive if demand is inelastic" says the Shapiro text - remember inelastic means there are no close substitutes - products that people will pay a high price for because there is nothing else they can buy the is close to the item   Prof. Allen says "A skimming pricing policy involves setting prices of products relatively high compared to those of similar products and then gradually lowering prices.  The skimming price is the highest price possible that buyers who most desire the product will pay (skim the cream off the top -- skim the innovators).  This market segment is more interested in quality, status, uniqueness, etc. This policy is effective in situations where a firm has a substantial lead over competition with a new product." http://ollie.dcccd.edu/mrkt2370/book/mrktbook.htm  . .. A great example of Skimming is DVD players in the late 1990's and early 2000's - in the late 1990's DVD players sold for $500 and $400 when they first came out, then the price dropped to less than $100 by 2001 by 2004 you can get them for $50 or $60 at many different types of stores. WTGR .

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Chapter 15 Pricing Chapter 17 page 542

Penetration Pricing  - to make it too intimidating for competition to follow,  - or to make sure you enter the market in a competitive environment - or as part of a brand building strategy   Prof. Allen says "A penetration pricing policy involves setting prices of products relatively low compared to those of similar products in the hope that they will secure wide market acceptance that will allow the company to later raise its prices.  Such a policy is often used when the firm expects competition from similar products within a short time and when large-scale production and marketing will produce substantial reductions in overall costs. The low price must help keep out the competition, and the company must maintain its low price position." http://ollie.dcccd.edu/mrkt2370/book/mrktbook.htm A variation of Penetration Pricing is Predatory Pricing  Prof. Allen explains Predatory pricing is the illegal practice of setting unreasonably low prices to force competitors out of business. Many countries have rules and regulations trying to catch people doing this and there can be stiff penalties if the company is caught.

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Chapter 15 Pricing Chapter 17 page 542

Discount Pricing  - can be seasonal - can be based on volume or amount bought - can be used to attract a form of payment eg, CA$H   Prof. Allen says "Discount and allowance pricing has the effect of reducing prices to reward customer responses such as paying early or promoting the product. A recent pricing issue is that of everyday low pricing, where the retailer charges a constant, lower price at all times, with no temporary price discounts. Wal-Mart has led the trend toward everyday low pricing." http://ollie.dcccd.edu/mrkt2370/book/mrktbook.htm Allowances - cutting customers a break due to their cost of advertising - if they put on an advertising campaign, you will lower your wholesale price to them because it helps your promotion too Trade-in allowance   Prof. Allen says "Trade in allowances  are price reductions granted for turning in a used item when purchasing a new one.  Promotional allowances are money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.  In promotional pricing, the company must decide on loss-leader pricing (product priced lower to attract customers to the store in hopes that they will buy other items at normal markup), special-event pricing, cash rebates, low interest financing, longer payment terms, warranties and service contracts and psychological discounting."

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Chapter 15 Pricing   Chapter 17 page 542

Geographic Pricing - F.O.B. - basically, this is the price out the door at our factory - you come and get it - C.I.F. - the cost at our factory + the insurance and freight to ship it to you - ZONE - if you live close, it is cheaper, if you live farther away, we add in shipping costs ZONE pricing used for everything from Pizza delivery to clothing to grain shipments - Basing-point pricing means that all customers are charged freight from a specified billing location.  - Freight-absorption pricing, the seller pays all shipping costs to get the desired business.   Prof. Allen says "Price is influenced by geography, where the company decides on how to price to distant customers.  Free On Board or FOB-origin pricing is a geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the actual freight from the factory to the destination.  Because the customer picks up its own cost, supporters believe that this method is the fairest way to assess freight charges. "

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In this unit we also used material from the website of Prof. Gemmy Allen,  Mountain View College, Dallas, Texas
 http://ollie.dcccd.edu/mrkt2370/Default.htm
- used with permission,  and copy of May 2001 email giving permission is in Witiger's Permissions Binder
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