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|368 PART 3 Designing a Customer Value-Driven Strategy and Mix
implications to initiating price cuts and initiating price increases.
Buyer reactions to price changes are influenced by the meaning
customers see in the price change. Competitors’ reactions flow
from a set reaction policy or a fresh analysis of each situation.
There are also many factors to consider in responding to a
competitor’s price changes. The company that faces a price
change initiated by a competitor must try to understand the com-
petitor’s intent as well as the likely duration and impact of the
change. If a swift reaction is desirable, the firm should preplan
its reactions to different possible price actions by competitors.
When facing a competitor’s price change, the company might sit
tight, reduce its own price, raise perceived quality, improve quality
and raise price, or launch a fighter brand.
MyMarketingLab
Go to mymktlab.com to complete the problems marked with this icon .
Key Terms By-product pricing (p 351)
Product bundle pricing (p 352)
OBJECTIVE 1
Market-skimming pricing (price OBJECTIVE 3
skimming) (p 349) Discount (p 352)
Market-penetration pricing (p 349) Allowance (p 352)
Segmented pricing (p 353)
OBJECTIVE 2 Psychological pricing (p 353)
Product line pricing (p 350) Reference prices (p 354)
Optional-product pricing (p 350)
Captive-product pricing (p 351)
DISCUSSION AND CRITICAL THINKING
Discussion Questions
11-1 Explain the essential nature of pricing and why it is nec-
11-2 essary to switch strategies over the course of a product
or service life cycle. What is particularly important about
setting prices for the first time? (AACSB: Communication;
Reflective Thinking)
Define captive-product pricing and give examples. What
must marketers be concerned about when implementing
this type of pricing? (AACSB: Communication)
Critical Thinking Exercises
11-6 You are an owner of a small independent chain of cof-
fee houses competing head-to-head with Starbucks. The
retail price your customers pay for coffee is exactly the
same as at Starbucks. The wholesale price you pay for
roasted coffee beans has increased by 25 percent. You
know that you cannot absorb this increase and that you
OBJECTIVE 5 Overview the social and legal issues
that affect pricing decisions. (pp 365–367)
Many federal, state, and even local laws govern the rules of fair
pricing. Also, companies must consider broader societal pricing
concerns. The major public policy issues in pricing include poten-
tially damaging pricing practices within a given level of the channel,
such as price-fixing and predatory pricing. They also include pricing
practices across channel levels, such as retail price maintenance,
discriminatory pricing, and deceptive pricing. Although many fed-
eral and state statutes regulate pricing practices, reputable sellers
go beyond what is required by law. Treating customers fairly is an
important part of building strong and lasting customer relationships.
Promotional pricing (p 354)
Geographical pricing (p 355)
FOB-origin pricing (p 355)
Uniform-delivered pricing (p 356)
Zone pricing (p 356)
Basing-point pricing (p 356)
Freight-absorption pricing (p 356)
Dynamic pricing (p 356)
11-3 What is geographical pricing? What kinds of options
11-4 are available to a company using this type of pricing?
11-5 (AACSB: Communication)
What factors does a company need to consider when
responding to a competitor’s price change? What is the
process and why are these steps important? (AACSB:
Communication)
Briefly discuss the major policy issues across levels of the
channel of distribution. (AACSB: Communication)
must pass it on to your customers. However, you are
concerned about the consequences of an open price in-
crease. Discuss three alternative price-increase strategies
that address these concerns. (AACSB: Communication;
Reflective Thinking)