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Pricing Concepts and Management | Chapter 12 351

Table 12.3 Discounts Used for Business Markets

Type Reasons for Use Examples
Trade To attract and keep effective resellers by A college bookstore pays about one-third less for a
(functional) compensating them for performing certain functions, new textbook than the retail price a student pays.
such as transportation, warehousing, selling, and
providing credit.

Quantity To encourage customers to buy large quantities Numerous companies serving business markets
when making purchases and, in the case of allow a 2 percent discount if an account is paid
cumulative discounts, to encourage customer within ten days.
loyalty.

Seasonal To allow a marketer to use resources more Florida hotels provide companies holding national
efficiently by stimulating sales during off-peak and regional sales meetings with deeply discounted
periods. accommodations during the summer months.
Allowance In the case of a trade-in allowance, to assist the A farm equipment dealer takes a farmer’s used
buyer in making the purchase and potentially earn tractor as a trade-in on a new one. Nabisco pays a
a profi t on the resale of used equipment. In the promotional allowance to a supermarket for setting
case of a promotional allowance, to ensure that up and maintaining a large end-of-aisle display for a
dealers participate in advertising and sales support two-week period.
programs.
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Chapter Review

1. Explore issues related to developing share links market position to success. Other types of pricing
pricing objectives. objectives include cash flow, status quo, and product quality.
The stages in the process of setting prices are (1) developing 2. Understand the assessment of the target
pricing objectives, (2) assessing the target market’s evalua- market’s evaluation of price.
tion of price, (3) determining demand, (4) analyzing demand,
Assessing the target market’s evaluation of price tells the
cost, and profit relationships, (5) evaluating competitors’
marketer how much emphasis to place on price and may help
prices, (6) selecting a basis for pricing, (7) selecting a pricing
determine how far above the competition the firm can set its
strategy, and (8) determining a specific price.
prices. Understanding how important a product is to custom-
Setting pricing objectives is critical because pricing objec-
ers relative to other products, as well as customers’ expecta-
tives form the foundation upon which the decisions of all sub-
tions of quality, helps marketers assess the target market’s
sequent stages are based. Organizations may use numerous
evaluation of price.
pricing objectives, including short-term and long-term ones,
and objectives will vary for different products and market seg- 3. Understand demand and the price elasticity
ments. Pricing objectives are overall goals that describe the
role of price in a firm’s long-range plans. There are several of demand.
major types of pricing objectives. The most fundamental pric- An organization must determine the demand for its prod-
ing objective is the organization’s survival. Price usually can uct. The classic demand curve is a graph of the quantity of
be easily adjusted to increase sales volume or combat competi- products expected to be sold at various prices if other fac-
tion to help the organization stay alive. Profit objectives, which tors hold constant. It illustrates that as price falls, the quantity
are usually stated in terms of sales dollar volume or percentage demanded usually increases. However, for prestige prod-
change, are normally set at a satisfactory level rather than at a ucts there is a direct positive relationship between price and
level designed to maximize profits. A sales growth objective quantity demanded: demand increases as price increases.
focuses on increasing the profit base by raising sales volume. Price elasticity of demand, the percentage change in quan-
Pricing for return on investment (ROI) has a specified profit as tity demanded relative to a given percentage change in price,
its objective. A pricing objective to maintain or increase market must also be determined. If demand is elastic, a change in

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