Page 386 - Foundations of Marketing

Pricing Concepts and Management | Chapter 12 353

Price leaders are products priced below the usual markup, Geographic pricing involves reductions for transpor-
near cost, or below cost. Special-event pricing involves adver- tation costs or other costs associated with the physical
tised sales or price cutting linked to a holiday, season, or event. distance between buyer and seller. With an F.O.B. fac-
Marketers that use a comparison discounting strategy price a tory price, the buyer pays for shipping from the factory.
product at a specific level and compare it with a higher price. An F.O.B. destination price means the producer pays for
shipping.
8. Understand the selection of a specific price. Transfer pricing occurs when a unit in an organization
A pricing strategy will yield a certain price or range of prices, sells products to another unit in the organization. Methods
which is the final step in the pricing process. However, used for transfer pricing include actual full cost, standard full
marketers may need to refine this price in order to make it cost, cost plus investment, and market-based cost.
consistent with circumstances, such as a sluggish economy, Discounts include trade, quantity, cash, seasonal, and
and with pricing practices in a particular market or industry. allowance. A trade discount is a price reduction for perform-
Pricing strategies should help a firm in setting a final price. ing such functions as storing, transporting, final processing,
or providing credit services. If an intermediary purchases in
9. Explore the pricing of business products. large enough quantities, the producer gives a quantity dis-
Setting prices for business products can be different from set- count, which can be either cumulative or noncumulative. A
ting prices for consumer products, owing to several factors cash discount is a price reduction for prompt payment or
such as size of purchases, transportation considerations, and payment in cash. Buyers who purchase goods or services
geographic issues. The three main types of pricing associated out of season may be granted a seasonal discount. An allow-
with business products are geographic pricing, transfer pric- ance, such as a trade-in allowance, is a concession in price to
ing, and discounting. achieve a desired goal.

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Key Concepts

price competition 328 marginal cost (MC) 336 differential pricing 344 customary pricing 347
non-price competition 328 marginal revenue (MR) 337 negotiated pricing 345 captive pricing 347
pricing objectives 329 break-even point 339 secondary-market premium pricing 348
demand curve 333 cost-based pricing 341 pricing 345 price lining 348
price elasticity of cost-plus pricing 342 periodic discounting 345 price leaders 348
demand 334 markup pricing 342 random discounting 345 special-event pricing 349
fixed costs 336 demand-based odd-number pricing 346 comparison
average fixed cost 336 pricing 342 multiple-unit pricing 346 discounting 349
variable costs 336 competition-based reference pricing 346 geographic pricing 350
average variable cost 336 pricing 343 bundle pricing 346 transfer pricing 350
total cost 336 price skimming 344 everyday low prices discount 350
average total cost 336 penetration pricing 344 (EDLPs) 347

Issues for Discussion and Review

1. Identify the eight stages in the process of establishing 3. Why must marketing objectives and pricing objectives
prices. be considered when making pricing decisions?
2. How does a return on an investment pricing 4. Why should a marketer be aware of competitors’ prices?
objective differ from an objective of increasing 5. Why do most demand curves demonstrate an inverse
market share? relationship between price and quantity?

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