Page 383 - Foundations of Marketing

350 Part 4 | Product and Price Decisions

LO 8 . Understand the selection DETERMINATION OF A SPECIFIC PRICE
of a specific price.
A pricing strategy will yield a certain price or range of prices, which is the final step in
the pricing process. However, marketers may need to refine this price in order to make it
consistent with circumstances, such as a sluggish economy, and with pricing practices in a
particular market or industry. Pricing strategies should help a firm in setting a final price. If
they are to do so, marketers must establish pricing objectives, have considerable knowledge
about target market customers, and determine demand, price elasticity, costs, and competi-
tive factors. Additionally, the way marketers use pricing in the marketing mix will affect the
final price.

LO 9 . Explore the pricing of PRICING FOR BUSINESS MARKETS
business products.
Many of the pricing issues discussed thus far in this chapter deal with pricing in general.
However, setting prices for business products can be quite different from setting prices for
consumer products, owing to several factors such as size of purchases, transportation consid-
erations, and geographic issues. In this section, we examine three types of pricing associated
with business products: geographic pricing, transfer pricing, and discounting.

Geographic Pricing

Geographic pricing strategies deal with delivery costs. F.O.B. origin pricing stands for “free
on board at the point of origin,” which means that the price does not include freight charges.
It requires the buyer to pay the delivery costs, which include transportation from the seller’s
warehouse to the buyer’s place of business. F.O.B. destination indicates that the product price
does include freight charges, and therefore the seller is responsible for these charges.

Transfer Pricing

When one unit in an organization sells a product to another unit, transfer pricing occurs. A
transfer price is determined by calculating the cost of the product, which can vary depending
on the types of costs included in the calculations. The choice of the costs to include when cal-
culating the transfer price depends on the company’s management strategy and the nature of
the units’ interaction. An organization also must ensure that transfer pricing is fair to all units
involved in the purchase.

Discounting

A discount is a deduction off the price of an item. Producers and sellers offer a wide variety
of discounts to their customers, including trade, quantity, cash, and seasonal discounts as
well as allowances. Trade discounts are taken off the list prices and are offered to marketing
intermediaries, or middlemen. Quantity discounts are given to customers who buy in large
geographic pricing Reductions
for transportation and other quantities. Quantity discounts are offered because the seller’s per-unit selling cost is usually
costs related to the physical lower for larger purchases. Cash discounts are incentives offered for prompt payment. A seller
distance between buyer and may offer a discount of “ 2 / 10 , net 30 ,” meaning that the buyer may take a 2 percent discount
seller if the bill is paid within ten days and that the bill must be paid in full within 30 days. A sea-
transfer pricing Prices sonal discount is a price reduction to buyers who purchase out of season. It helps the seller to
charged in sales between an maintain steadier production during the year. An allowance is a reduction in price to achieve
organization’s units a desired goal. Trade-in allowances, for example, are price reductions granted for turning in
discount A deduction from the used equipment, like aircraft, when purchasing new equipment. Table 12.3 describes some of
price of an item the reasons for using these discounting techniques, as well as some examples.

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