Discussing the Concepts
1.What market conditions would discourage a company from using a
penetration-pricing strategy to enter a market?
Question objective: To highlight a new-product pricing
strategy—market penetration pricing.
Several conditions must be met for this low-price strategy to work.
∙First, the market must be highly price sensitive so that a low price produces more market growth.
∙Second, production and distribution costs must fall as sales volume increases.
∙Finally, the low price must help keep out the competition, and the penetration pricer must maintain its low-price position—otherwise,
the price advantage may be only temporary.”
2.Automobile companies use optional-product pricing. In what other product
categories do companies use this pricing strategy?
Question objective: To highlight a product mix pricing
strategy—optional-product pricing.
Almost any durable good* would have optional-product pricing:
∙PCs
∙Furniture
∙Appliances
∙Home
∙Jewelry
∙Aircraft
* A durable good is a product that has a life of three years or greater.
3.The chapter mentions “2/10, net 30” as an example of a cash discount given to
reward customers for prompt payment, and “$10 per unit for less than 100 units, $9 per unit for 100 or more units,” as an example of a quantity discount.
Name and explain five other discounts or allowances commonly given in buyers.
Question objective: To become familiar with many of the discounts
available to buyers.
Additional discounts given to buyers:
1.Functional (trade) discount—is offered to trade-channel members
who perform certain functions, such as selling, storing, and record
keeping.
2.Seasonal discount—is a price reduction to buyers who buy
merchandise or services out of season.
3.Forward discount—is where the customer does not pay for the
goods until well after they are received
4.Trade-in allowance—is a price reduction given for turning in an
old item when buying a new one.
5.Promotional allowance—is a payment or price reduction to reward
dealers for participating in advertising and sales support
programs.
4.Psychological pricing is a pricing-adjustment strategy often used by retailers.
Explain this pricing strategy. How it is tied to the concept of reference prices?
Question objective: Gain a deeper understanding of psychological
pricing and reference price.
Psychological pricing is an approach that considers the psychology of
prices and not simply the economics; the price is used to say something
about the product.
Reference prices are a form of psychological pricing. They are prices
that consumers carry in their mind and refer to when looking at a
given product. Reference prices may be formed by noting current
prices, remembering past prices, or assessing the buying situation.
Sellers can influence reference prices.
Applying the Concepts
1.Promotional pricing generates a sense of urgency and excitement. However,
recognizing the dangers of this pricing approach, your boss has requested you to design an alternative pricing strategy that will generate the greater long-term sales and customer loyalty. What pricing strategy do you recommend? Will this strategy work as well as promotional pricing in the short term? Explain.
Question objective: Highlight the concept of value pricing and an
alternative to constant promotional discounts.
I doubt that many retailers will ever get away from promotional
pricing entirely, but an every day low price pricing strategy would be
an approach.
In the short term an EDLP pricing strategy will not work as well as promotional pricing, but as the consumer begins to understand that EDLP is just what it says, the long-term value of this strategy can be achieved. There is at least one caveat—the prices of an EDLP program need to be real – they need to be genuinely low on a daily basis.。