How should a company adapt prices to meet varying circumstances

3. 14-3
1. Geographical Pricing
 Barter: the direct exchange of goods with no money and no
third party involved
 Compensation deal: the seller receives some percentage of
the payment in cash and the rest in products
 Buyback arrangement: the seller sell a plant equipment or
technology to another country and agrees to accept as partial
payment products manufactured with the supplied
equipment
 Offset: the seller receives full payment in cash but agrees to
spend a substantial amount of the money in that country
within a stated time period.

5. 14-5
2. Price Discounts and Allowances
Quantity discount:Quantity discount: The more you buy, the cheaper it becomes--
cumulative and non-cumulative.
Trade discountsTrade discounts:: Reductions from list for functions performed--
storage, promotion.
Cash discountCash discount:: A deduction granted to buyers for paying their bills
within a specified period of time, (after first deducting trade and
quantity discounts from the base price)

7. 14-7
Functional discount: discount offered by a manufacturer to trade-
channel members if they will perform certain functions.
Seasonal discount: a price reduction to those who buy out of
season.
Allowance: an extra payment designed to gain reseller
participation in special programs.

8. 14-8
3. Promotional Pricing
• Loss-leader pricing: supermarkets and department stores
often drop the price on well known brands to stimulate
additional store traffic
• Special-event pricing: sellers well establish special pricing in
certain seasons to draw in more customers
• Cash rebates: companies offer cash rebates to encourage
purchase of the manufacturers products within a specified
time period
• Low-interest financing: the company can offer customers
low-interest financing

10. 14-10
• Longer payment terms: sellers especially mortgage banks and
auto companies stretch loans over longer periods and thus
lower the monthly payment
• Warranties and service contracts: companies can promote
sales by adding a free or low cost warranty or service contract
• Psychological discounting: this strategy involves setting an
artificially high price and then offering the product at
substantial savings

11. 14-11
4. Discriminatory Pricing
• Price discrimination works when:
– Market segments show different intensities of demand
– Consumers in lower-price segments can not resell to higher-
price segments
– Competitors can not undersell the firm in higher-price
segments
– Cost of segmenting and policing the market does not
exceed extra revenue

12. 14-12
Discriminatory Pricing Tactics:
– Customer segment pricing
– Product-form pricing
– Image pricing
– Channel pricing
– Location pricing
– Time pricing

13. 14-13
5. Discriminatory Pricing
There are six situations involving product mix pricing:
1) Product line pricing:
Companies normally develop product lines rather than
single products and introduce price steps.
2) Optional feature pricing:
Many companies offer optional products, features and
service along with their main product.
3) Captive product pricing:
Some products require the use of ancillary or captive
products.

14. 14-14
4) Two part pricing product:
Service firms often engage in two-part pricing consisting of
affixed fee plus variable usage fee.
5) By-product pricing:
The production of certain goods-meat petroleum products
often results in by-products.
6) Product bundling:
Sellers often bundle products and features.

15. Thank You.Thank You.