Managing the Pricing Function

Explain the organizational structure for pricing decisions.  

      Two basic steps in making pricing decisions are (1 ) to assign someone to administer the pricing structure and (2) to set the overall structure. The person or groups in the firm most commonly chosen to set pricing structures are (1) a pricing committee composed of top executives (2) the company CEO or (3) the chief marketing officer. In one study, the chief marketing executive was responsible for administering the price structure in 51 percent of the firms surveyed, while overall marketers administered the pricing structure in over 68 percent.

Compare the alternative pricing strategies and explain when each strategy is most appropriate.

      The alternative pricing strategies are a skimming pricing strategy, a penetration pricing strategy, and a competitive pricing strategy. Skimming pricing is commonly used as a market&-entry price for distinctive products with little or no initial competition. Penetration pricing is used when there is a wide array of competing brands. Competitive pricing is employed when the marketers wish to concentrate their competitive efforts on marketing variables other than price. More than two&-thirds of the firms surveyed in a recent study used the competitive pricing approach.

Describe how prices are quoted.

      Methods for quoting prices depend on such factors as cost structures, traditional practices in the particular industry, and policies of individual firms. Prices quoted can involve list prices, market prices, cash discounts, trade discounts, quantity discounts, and allowances such as trade&-ins, promotional allowances, and rebates.

      Shipping costs often figure heavily in the pricing of goods. A number of alternatives for dealing with these costs exist: FOB plant, in which the price includes no shipping charges; freight absorption, which allows the buyer to deduct transportation expenses from the bill; uniform delivered price, in which the same price, including shipping expenses, is charged to all buyers; and zone pricing, in which a set price exists within each region.

Identify the various pricing policy decisions that marketers must make.

      A pricing policy is a general guideline based on pricing objectives and is intended for use in specific pricing decisions. Pricing policies include psychological pricing, unit pricing, price flexibility, product line pricing, and promotional pricing.

Relate price to consumer perceptions of quality.

      The relationship between price and consumer perceptions of quality has been the subject of considerable research. In the absence of other cues, price is an important indicator of how the consumer perceives the product's quality. A well&-known and accepted concept is that of price limits&-limits within which the perception of product quality varies directly with price. The concept of price limits suggests that extremely low prices may be considered too cheap, thus indicating inferior quality.

Contrast competitive bidding and negotiated prices. 

      Competitive bidding and negotiated prices are pricing techniques used primarily in the industrial sector and in government and organizational markets. Sometimes prices are negotiated through competitive bidding, in which several buyers quote prices on the same service or good. Buyer specifications describe the item that the government or industrial firm wishes to acquire. Negotiated contracts are another possibility in many procurement situations. The terms of the contract are set through talks between buyer and seller.

Explain the importance of transfer pricing.

            A phenomenon in large corporations is transfer pricing, in which a company sets prices for transferring goods or services from one company profit center to another. A profit center refers to any part of the organization to which revenue and controllable costs can be assigned. In large companies whose profit centers acquire resources from other parts of the firm, the prices charged by one profit center to another have a direct impact on the cost and profitability of the output of both profit centers.