Principles of marketing: Lecture 26

MGT301
Principles of Marketing
Lecture­26


Summary
of  
Lecture­25


Setting Pricing Policy


General Pricing Approaches




Cost­based Pricing
Value­based Pricing
Competition­based Pricing


New Product Pricing Strategies



Market Skimming
Market Penetration 

Product 
Mix
 Pricing 
Strategies
Product
Product
Mix
Mix
Pricing
Pricing
Strategies
Strategies

Product Line Pricing
Product Line Pricing

Optional­Product Pricing
Optional­Product Pricing

Captive­Product Pricing
Captive­Product Pricing

By­Product Pricing
By­Product Pricing

Product­Bundle Pricing
Product­Bundle Pricing


Today’s Topics

Price




Often the only marketing mix variable allowing for 
immediate competitive response



Important part of product positioning



Long term effects of pricing decisions­­your decisions 
may come back to haunt you!


Price ­ Quality Strategies
Price
Higher

Quality

Higher

Lower

Lower

Premium
Strategy

Good-Value
Good-Value
Strategy
Strategy

Overcharging
Overcharging
Strategy
Strategy

Economy
Economy
Strategy
Strategy


Price­Adjustment Strategies 







Discount and Allowance Pricing
Segmented Pricing
Psychological Pricing

Promotional Pricing
Geographical Pricing
International Pricing


Discount and Allowance Pricing
A d ju s tin g B a s ic P ric e to R e w a rd C u s to m e rs
F o r C e rta in R e s p o n s e s
C a s h D is c o u n t

S e a s o n a l D is c o u n t

Q u a n tity D is c o u n t

T r a d e -In A llo w a n c e

F u n c tio n a l D is c o u n t

P r o m o tio n a l A llo w a n c e


Discounts
Discounts
Quantity
Quantity

Discount
Pricing

Quantity discounts reward  bigger buyers

Quantity
Quantity

Seasonal
Seasonal

Discount
Pricing

Seasonal discounts encourage purchases 
earlier than demand


Quantity

Seasonal

Discount
Discount
Pricing
Pricing
Cash

Cash discounts encourage customers to pay 
invoices earlier


Quantity

Seasonal

Discount
Discount
Pricing
Pricing
Trade discounts 
reflect jobs done by 
middlemen … and 
usually are pretty 
much standardized 
by expected margins

Cash

Trade


Quantity

Seasonal

Discount
Discount
Pricing
Pricing
Sale

Cash

Temporary price cuts
to shift demand 
(rebates, trade deals, 
etc.)

Trade


Allowances
Allowances
Advertising
Allowance
Common
Common
Kinds
Kinds of
of
Allowances
Allowances
Advertising or promotion allowance is a reduction from amount 
due to compensate middleman for promotion expenses, often as a 
percentage of total sales


Advertising
Allowance

Stocking
Allowance

Common
Common
Kinds
Kinds of
of
Allowances
Allowances

Stocking allowances (also known as slotting fees) are 
payments to wholesalers or retailers to stock unproven new 
products (I.e., “rent” for shelf space)


Advertising
Allowance

Stocking
Allowance
Common
Common
Kinds
Kinds of
of
Allowances
Allowances

Trade­in allowances are relatively 
uncommon but in some business 
markets are critical
Brokers often develop to get rid of 

used products

Trade-In
Allowance


Advertising
Allowance

Stocking
Allowance
Common
Common
Kinds
Kinds of
of
Allowances
Allowances

Push Money
Allowance

Trade-In
Allowance

Push money is an allowance that is usually passed on to 
salespeople for pushing a particular product


Segmented Pricing

S e llin g P ro d u c ts A t D iffe re n t P ric e s E v e n
T h o u g h T h e re is N o D iffe re n c e in C o s t
C u s to m e r - S e g m e n t

L o c a tio n P r ic in g

P ro d u c t - F o rm

T im e P r ic in g


Psychological Pricing

Valu
e $2
2.00
Sale
   $1
4.99




Considers the psychology of prices and not simply 
the economics.



Customers use price less when they can judge 

quality of a product.



Price becomes an important quality signal when 
customers can’t judge quality; price is used to say 
something about a product. 


Odd/Even Pricing­­Does It have an 
Impact?

Sale
   $1
4.99




Theory:  $3.00 is rounded to $3.00 while $2.99 is 
rounded to “$2.00 plus change”



Reality:  Studies in U.S. have found some impact; no 
impact found in Germany



Note that odd pricing may signal receiving a bargain, 

which may or may not be compatible with the desired 
product image