Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price. Several techniques enable marketing managers to adjust prices within a general range in response to changes in competition, government regulation, consumer demand, and promotional and positioning goals. Techniques for fine-tuning a price can be divided into three main categories:
discounts, allowances, rebates, and value-based pricing; geographic pricing; and other pricing tactics. The first type of tactic gives lower prices to those that pay promptly, order a large quantity, or perform some function for the manufacturer. Value-based pricing starts with the customer, considers the competition and costs, and then determines a price. Additional tactics in this category include seasonal discounts, promotion allowances, rebates (cash refunds), zero percent financing, and markdown money Geographic pricing tactics-such as FOB origin pricing, uniform delivered pricing, zone pricing, freight absorption pricing, and basing-point pricing-are ways of moderating the impact of shipping costs on distant customers.
A variety of "other" pricing tactics stimulate demand for certain products, increase store patronage, and offer more merchandise at specific prices. More and more customers are paying price penalties, which are extra fees for violating the terms of a purchase contract. The perceived fairness or unfairness of a penalty may affect some consumers' willingness to patronize a business in the future.
1. You are contemplating a price change for an established product sold by your firm. Write a memo analyzing the factors you need to consider in your decision.
2. Columnist Dave Barry jokes that federal law requires this message under the sticker price of new cars: "Warning to stupid people: Do not pay this amount." Discuss why the sticker price is generally higher than the actual selling price of a car. Tell how you think car dealers set the actual prices of the cars they sell.
3. Divide into teams of four persons. Each team should choose one of the following topics: skimming, penetration pricing, status quo pricing, price fixing, geographic pricing, adopting a single-price tactic, flexible pricing, or professional services pricing. Each team should then pick a retailer that it feels most closely follows the team's chosen pricing strategy. Go to the store and write down examples of the strategy. Interview the store manager and get his or her views on the advantages and disadvantages of the strategy. Each team should then make an oral report in class.
4. The U.S. Postal Service regularly raises the price of a first-class stamp but continues to operate in the red year after year. Is uniform delivered pricing the best choice for first-class mail? Explain your reasoning.
5. How is the "information age" changing the nature of pricing?
6. Have you ever paid a price penalty? How did it affect your attitude toward that company? 3
7. Imagine that you are a marketing manager for a mid-sized amusement park. You have attended an industry-wide meeting where a colleague gave a talk about new pricing strategies for amusement parks. You were very motivated by the seminar. On your return to work, write a memo to your boss outlining the pros and cons of the new pricing strategy. End your memo with a recommendation either for or against à la carte pricing of attractions (pricing each attraction separately rather than charging a single high entrance fee).