Pricing: Policies and Procedures

227 Pages·1995·20.752 MB·English

by  Nessim Hanna, H. Robert Dodge (auth.)

PRICING
Also by Nessim Hanna
PRINCIPLESOFMARKETING
Also by H. RobertDodge
CASESINMARKETINGMANAGEMENT
INDUSTRIALMARKETING
MARKETINGRESEARCH
PROFESSIONALSELLING
SALESMANAGEMENT
Pricing
Policies and Procedures
Nessim Hanna
ProfessorofMarketing
NorthernlIIinois University
and
H.Robert Dodge
Head, DepartmentofMarketing
Eastern Michigan University
M
MACMILLAN
© Nessim Hanna and H. Robert Dodge 1995
Softcover reprint of the hardcover 1st edition 1995 978-0-333-61125-8
All rights reserved. No reproduction, copy or transmission
of this publication may be made without written permission.
No paragraph of the publication may be reproduced, copied or
transmitted save with written permission or in accordance with
the provisions of the Copyright, Designs and Patents Act 1988,
or under the terms of any licence permitting limited copying
issued by the Copyright Licensing Agency, 90 Tottenham Court
Road, London WIP9HE.
Any person who does any unauthorized act in relation to
this publication may be liable to criminal prosecution and
civil claims for damages.
First published 1995 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG2l 2XS
and London
Companies and representatives
throughout the world
ISBN 978-1-349-13449-6 ISBN 978-1-349-13447-2 (eBook)
DOI 10.1007/978-1-349-13447-2
A catalogue record for this book is available
from the British Library.
10 9 8 7 6 5 4 3 2 l
04 03 02 01 00 99 98 97 96 95
Contents
ListofTables viii
ListofFigures ix
Preface xi
1 TheNatureofthePricingProcess 1
Critical Factors inthePricing Decision 2
DefiningPrice 7
Price Structures 9
ConstraintsonPricing Practices 11
Ethics inPricing 12
2 MarketInterpretationsofPrice 14
Price asPart oftheMarketingMix 14
Price asPurchasingInformation 16
Price asaMarketingStimulus 19
ConsumerInterpretationsofPrice 19
Price-QualityRelationship 21
AcceptablePrice Levels andPriceRanges 24
Price Lines 26
ReferencePrices 28
Odd-EvenPricing 28
3 Pricingfrom theStandpointofEconomicTheory 30
Dynamics of theMarketplace 30
The Conceptof Demand 31
Supply 35
4 Role ofCostsin Pricing 39
ImpactofCosts onPricing 39
Cost StructurePricing 40
Cost Concepts 42
Structural Factors Influencing Costs 44
5 Cost-orientedPricing 51
Cost-orientedPricing 51
Weaknesses of theCost-orientedApproach 52
v
vi Contents
Why are Cost-orientedApproachesUsed? 57
HowImportantisCost inthePricing Process? 59
VolumeAssumptions forthePurposes ofCost Calculations 60
Break-evenanalysis 61
6 Demandand Competition-orientedPricing 66
OverlookingtheLink between Cost and Price 66
Demand-orientedPricing 67
Competition-orientedPricing 74
7 PricingDecisions byManufacturers 78
The Pricing Environment 78
Pricing Strategies 84
DiscountsandAllowances 88
8 ProductLinePricing 96
Pricing Related Products 97
ComplementaryProducts 101
SubstituteProducts 107
End-Itemsand In-between Items 109
9 PricingOvertheProductLifeCycle 113
ConceptoftheProductLifeCycle II3
Stages of theProduct LifeCycle II6
Pricing StrategiesforProductLife Cycle Stages 123
10 GeographicPricingPractices 133
Geographical Pricing Systems 133
DeliveredPricing Systems 139
11 Retail Pricing 142
One Price versus VariablePrices 142
Price Lining 143
Markdownsand Discounts 145
LeaderMerchandising 148
Odd Prices 150
CustomaryPrices 151
Bundling 152
Unit Pricing 152
Posting Prices 153
Contents vii
12 Pricingand the Legal Issues 155
Legal Environment 156
Regulatory Effects 158
Horizontal Price Control 158
VerticalPriceControl 160
Price Discrimination 162
PredatoryPricing 166
DeceptivePricingPractices 168
13 PricingofServices 171
CharacteristicsofServices 171
PricingDecisions 176
ServicePricing Strategies 178
PricingTactics 184
14 PricingDuringInflationaryandShortageConditions 186
Inflationaryand ShortageConditions 186
ANeed for PricingStrategyDuring Inflation 193
15 PricinginInternationalMarkets 195
ConsiderationsinInternationalPricing 196
Cost andMarketStructures 198
Regulatory andPoliticalEnvironments 200
Monopoly Pricing,Inflation, andPrice Control 203
ExchangeRate Fluctuations 205
Foreign Trade Zones 206
Dumping 206
Countertrade, Offsets, andBuybacks 207
TransferPricing 208
PricingAlternatives 209
Index 213
List of Tables
2.1 Return on investmentasafunction ofquality and price 15
2.2 Comparativevalues forcomparisonsbetweenfour brands
ofcars 22
2.3 Pricelines formen'sfragrances 26
3.1 Elasticitychangesalong ademandcurve 34
3.2 Quantity demandedandcoefficientofelasticity 35
4.1 Proposedrequirementsforsellingthe 1995Aurora 43
5.1 Hypotheticalexampleofcosts andprices ofanew compact
car model 55
6.1 Outcomes withdifferentpricing alternatives 69
7.1 Exampleofquantity discountschedule 89
8.1 Sales and cost data 100
8.2 Sales anddirectcosts 101
8.3 Hypothetical exampleofbalancebetween sales ofcamera
(using device) and film(expendable) 104
8.4 Hypotheticalexampleoftwopricing scenarios with
unique expendable 105
8.5 Hypotheticalexampleoftwopricing scenarios with
standardexpendable 105
10.1 FOB factory freight prepaidcalculationofpriceusing a
weighted-averagemethod 136
10.2 FOB factory allowedcalculationofpriceusing asimple-
averagemethod 137
10.3 FOB factory freight equalizedcalculationofprice using
asimple-averagemethod 138
10.4 FOB factory freight equalizedlanded costs foreach buyer 138
13.1 Exampleofindividual and packagepricing (mixedbundling) 175
13.2 Hypothetical exampleofcapacity management 181
13.3 Transaction costs 181
15.1 Trade-offassembly versus subassembliesand parts purchase 201
VJlJ
List of Figures
1.1 Conceptualizationofprovidingtotalvaluetocustomers 4
2.1 Priceasaninformational indicatorofquality 18
2.2 Potentialmarket shareforpriceslinesofahypothetical
product 27
3.1 Exampleofatypicaldemandcurve 32
3.2 Exampleofatypicalsupplycurve 36
3.3 Exampleofshifts inthetypicalsupplycurve 37
3.4 Determination ofequilibrium ofmarketprice 37
4.1 Cost-volumerelationships 44
4.2 Atypicalexperience curve(15percentreduction) 48
5.1 Cost-price-volumerelationship 54
5.2 Abreak-evenpointchart 63
5.3 Aprofit-volumegraph 64
6.1 Arevenue possibility chart 68
8.I Hypothetical exampleofpriceversusperformance foraline
ofminicomputers I10
8.2 Twodifferent approachestopricingalineofproducts in
relation tobenefits/use III
9.1 Typicalproduct lifecycle 114
9.2 Patternsofsalesdevelopment uponmarketentry 117
9.3 Possiblestrategies formatureproducts 121
9.4 Productfamiliarity cycle 124
12.1 Classificationofpricingpracticessubjecttolegalregulation 157
12.2 Illustration ofprice discrimination atprimary level 163
12.3 Illustration ofpricediscrimination atsecondary level 164
12.4 Illustration ofpricediscrimination atthirdlevel 165
13.1 Degrees oftangibility andintangibility 172
15.1 Pricingsituations ininternational markets 198
ix