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1. CASH DISCOUNTS:-

It is for for prompt payment.

They are intended to speed payment and

thereby provide liquidity to the firm.

They are sometimes used as a promotional

device.

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` Examples :-

` 2/10 net 30 buyer must pay within 30 days,

but will receive a 2% discount if they paywithin 10 days.

` 3/7 EOM the buyer must pay by the End Of

the Month, but will receive a 3% discount if

they pay within 7 days.

`

2/15 net 40 ROG the buyer must pay within40 days of Receipt Of Goods, but will receive a

2% discount if paid in 15 days.

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2. QUANTITY DISCOUNTS:-

These are price reductions given for largepurchases.

The rationale behind them is to obtain economies

of scale.

Pass some (or all) of these savings on to thecustomer.

Price discount may be offer equally to allcustomers.

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` Examples:-

BUY SAVE NEW PRICE

12-23 15% I.63$ EACH

24-71 20% 1.54$ EACH

72 OR MORE 30% 1.34$ EACH

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3. TRADE DISCOUNTS:-

It is also called functional discounts.

These are payments to distribution channel

members for performing some function suchas selling ,storing and recordkeeping.

Combined to include a series of functions.

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` EXAMPLES:-

` 20/12/5 could indicate a 20% discount for

warehousing the product, an additional 12%

discount for shipping the product, and an

additional 5% discount for keeping the shelves

stocked.

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` SEASONAL DISCOUNTS:-

` These are price reductions given when an

order is placed in a slack period.

` Hotels ,Motels and Airlines offer discount in

slow selling periods.

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` EXAMPLE:

` purchasing skies in April in the northern

hemisphere, or in September in the southernhemisphere.

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` Discounts and allowances are modifications to

the basic price. They could modify either the

manufacturers list price , the retail price or the

list price.

` The purpose of discounts is to increase short-

term sales, move out-of-date stock, reward

valuable customers, or encourage distributionchannel members to perform a function.

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1. PROMOTIONAL ALLOWANCES :-

` These are price reduction given to the buyer

for performing some promotional activity.

` These include an allowance for creating and

maintaining an in-store display or a co-op

advertising allowance.

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` TRADE INALLOWANCE:-

It is granted for turning inan old item when buying

anew one item.

EXAMPLE:-

Aspart of thesalesapproach, carlotsmay

advertiseaspecificminimum trade-inallowance toanyone who purchasesanew car

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` GEOGRAPHICAL PRICING

` It is the practice of modifying a basic list price

based on the geographical location of the

buyer.

` It is intended to reflect the costs of shipping to

different locations.

` EXAMPLE:-

` TIDE

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` FOB origin - The shipping cost from the

factory or warehouse is paid by the purchaser

` Uniform delivery pricing - (also called postagestamp pricing) - The same price is charged to

all.

` Zone pricing - Prices increase as shippingdistances increase.

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`Promotional Pricing

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` Lossleaderscan bean important part ofcompanies'marketing andsalesstrategies,especially during dumping campaigns.

` Supermarketsanddepartment stores oftendrop theprice on well-known brand tostimulateadditionalstore traffic.

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` When to Use Loss Leader Pricing

` 1. Brand Awareness

` 2. Increased Traffic

` 3. Brand Awareness

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` For example, you buy a portable TV fromyour suppliers at 160 and the additional

costs of selling the TV add up to 40,totalling a break-even selling price of 200.You sell the TV fora reduced price of 189therefore making a loss of 11 foreach onesold. But to the customers, they will see thisprice as a bargain due to othershops sellingthe TV at say, 230.

` An example is a supermarket selling sugarormilk at less than cost to draw customers

to that particularsupermarket.

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Seller willestablish spatialprices incertainseasonsto draw inmorecustomers.

Forexampleevery august thereare back toschoolsales.

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` A cash rebate is an amount paid by way ofreduction, return, or r efund on what hasalready been paid or contributed. It is a

type of sales promotionmarketers useprimarily as incentives or supplements toproduct sales.

` Forexample, Kids eat free specials: Offersa discount on the total dining bill by offering

1 free kids meal with each regular mealpurchased.

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Instead of cutting its price, the company

can offer customers low interestfinancing.

Forexample automakers have used no-interest financing to try to attract morecustmers.

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Sellers, especially mortgage banksandautocompaniesstretch loans overlongerperiodsandthuslower themonthly payments.

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Companies can promote sales by adding a free or

low-cost warranty orservice contract.

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Thisstrategy involvessetting anartificially highpriceand then offering theproduct at substantialsavings.

Forexam Was Rs. 359, now Rs. 299.

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Price discrimination

occurs whe n a company sells a product orservice at two or more prices that do not reflecta proportional difference in costs.

Degree of discrimination:-

First degree price discrimination:separate

price ofproduct to each customerdepending ondemand intensity.

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Second degree price discrimination:- lesspriceischarged to buyers who buy alargervolume of

products.Third degree price discrimination:- theseller

chargesdifferent amounts to different to differentclass of buyersas in following cases:

Customer segment pricing: different customerpay different prices forsameproduct .

Ex:museumchargesarelow forstudentsandseniorcitizens.

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` Product form pricing:- product ischarged onthe basis of itsattributesandstyles on which it issold.

Ex:Big bazaarsellsshirts inmany styles, fullsleeveshirt may cost Rs 250 to Rs 600

` Image Pricing:-someproductsarepricedat twodifferent levels based onappearance , commonincosmeticsand garments.

` ChannelPricing:-product ischargeddifferentlyto buyers based on thedifferent mode by whichit is obtained.

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Travel industry

` Airlines and other travelcompanies usedifferentiatedpricing regularly, as they sell travelproductsandservicessimultaneously to differentmarket segments. They chargedifferently topassengersdepending onseating classes orstatus. Discounts for members of certainoccupations

` Many businesses, military membersespeciallyin theSouthern United States, offer reducedprices

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1. Themarket must besegmentable and thesegmentsmust show different intensities ofdemand.

2. Themembers in thelowerpricesegment mustnot beable to resell theproduct to the higherpricesegment .

3. Thecompetitorsmust not beable to undersellthe firm in higherpricesegment.

4. Thecost ofsegmenting andpolicing themarketmust not exceed theextra revenuederivedfrom thepricediscrimination

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5 . Thepracticemust not breedcustomer

resentment and ill will.6 . Thepricediscriminationmust not be illegal.

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Severalcircumstancesmight leada firm to cut prices-

1.EXCESS PLANTCAPACITY-The firmneedsadditional

businessandcannot generate it through increasedsaleseffort , product improvement etc.

2.DRIVETO DOMINATETHE MARKET-Companies

sometimes initiatepricecuts in the hope of gainingmarket share.

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LOW QUALITY TRAP-Theconsumersassumethat the quality islow.

FRAGILE-MARKET SHARETRAP-Alow price

buysmarket share but not market loyalty. SHALLOW-POCKETS TRAP-Higherpriced

competitorsmatch thelowerprices but havelongerstaying power because ofdeepercash

reserves. PRICE-WAR TRAP-Competitors respond by

lowering theirpricesevenmore,triggering apricewar.

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Asuccessfulprice increasecan raiseprofitsconsiderably.Following factorsprovokepriceincreases-

COST INFLATION-Substantial increase in thecost squeezes theprofit margins of thecompaniesand thuslead to price increases.

OVERDEMAND-When thedemand fora product

isvery high and thecompany cannot supply to allitscustomers,it can raise itsprices.

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DELAYED QUOTATION PRICING-Thecompanydoesnot set a finalprice until theproduct isfinished ordelivered.

ESCALATOR CLAUSES-Thecompany requiresthecustomer to pay today'spriceandall orapartofany inflation increase that takesplace beforedelivery.

UNBUNDLING-Thecompany maintain itspricesbut removes orpricesseparately one ormoreelements that werepart of the former offer like-freedelivery or installation.

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Shrinking theamount ofproduct instead ofincreasing theprice.

Substituting lessexpensivematerial or

ingredients. Reducing product features.

Using lessexpensivepackaging materials.

Reducing thenumber ofsizesandmodels offered.

Creating new economy brands.

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Thecompany must consider theproductsstage in thelifecycle, itsimportance in thecompanysportfolio , thecompetitors intentionsand

resources , themarket priceand quality sensitivity , the behavior ofcost with volumeand thecompanysalternative opportunities .

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AFramework to show responding to low-costRivals

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ASK

Will thecompany take

away any ofmy present or

futurecustomer?

Watch, butdont take onthenew rival.

.

Dont launch aprice war. Increase thedifferentiation of yourproducts by using a

combination of tactics.

ASK

Aresufficient numberofconsumers willing to

pay more for thebenefits I offer?

Learn to live with asmallercompany .Ifpossible , mergewith or take over

rivals .

Intensity differentiation by offeringmore benefits . Over time , restructureyourcompany to reduce theprice of

the benefits you offer.

NO

YES

YES

NO

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ASK

If I set upalow-cost

business , willit generate

synergies withmy existingbusiness ?

Switch to sellingsolutions or transformyourcompany into a

low-cost player.

Attack yourlow-cost rival bysetting upalow-costbusiness.

NO

ES

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` Themarket having high product homogeneity thefirmcansearch for ways to enhance its

augmentedproduct.

` If it cannot findany , it needsprice reduction.

` If thecompetitor raises itsprice in thehomogeneousmarket and industry isnotbenefitted the other firms willnot match itsprices.

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` Why didcompetitorchange theprice ?To stealthemarket , to utilize excesscapacity , to meetchanging cost conditions or to leadan industry-widepricechange ?

` Does thecompetitorplan to make thepricechanges temporary orpermanent ?

` What will happen to thecompanysmarket shareandprofit if it doesnot respond?Are other

companies going to respond ?` What are thecompetitorsand other firms

responseslikely to beeach possible reaction ?

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With thechange inpriceandmarketcondition, the firmneeds to control themarket

in terms ofproduct quality oradvertisement,

they oftenengage inpricing practices whichmay lead to unfairly reduce incompetition or

harmconsumer through fraudanddeception.

Somelawsand regulations have beenmadeat federalandstatelevel to prevent

unfairpractices.

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1. Deceptive or illegalpriceadvertising

2. Predatory pricing

3. Pricediscrimination

4. Price fixing

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Descriptive referenceprice:

The referenceprice of theproduct should bereasonable.

If theprice is inflated, theadvertisement thereforeisdeceptiveandmay cause harm to consumers.

Ifasellerlabelsapriceasa regularprice, thebetter bureau suggests that at least 50% ofsales

have occurredat that price.

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Lossleaderpricing

Sellerlowers theprice below thestorescost.

Bait andswitch

Thestore offersproduct at very low priceso thatcustomersareattracted towards high pricedmodel.

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A firmsetslow price for one ormore of itsproducts with with the intent to drive itself out ofcompetition.

It is illegal under both the ShermanAct and theFederalTradeCommissionAct.

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A firmsells thesameproduct to different resellersat different prices.

It is illegal under theClaytonAct and theRobinson-Patman Act.

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01/11/10

Price fixing isanagreement betweenparticipants on the

sameside inamarket to buy orsellaproduct, service, or

commodity only at a fixedprice.

1)The intent of price fixing may be to push the price of a productas high as possible, leading to profits for all sellers, but it may

also have the goal to fix, peg, discount, or stabilize prices.

2)Price fixing requires a conspiracy between sellers or buyers;

the purpose is to coordinate pricing for mutual benefit of the

traders.

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01/11/10

1)Horizontal price fixing-generally illegal arrangement

among competitors to charge the same price for an

item.

1) Horizontal Price fixing occurs when competitors that

produce and sell competing products collude, or

work together, to control prices, effectively taking

price out of the decision process for consumers.

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01/11/10

1) It is an illegal arrangement in which parties at

different levels of production and distribution act to

fix the market price of goods (e.g.,manufacturers

and retailers).

2) In the music industry case, prosecutors alleged thatthe music companies colluded with music retailers to

maintain retail prices for CDs.

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01/11/10

1) Whereas horizontal price fixing is clearly

illegal under Sherman Antitrust Act, vertical

price fixing falls into a gray area.

2) Thus, the practice of vertical price fixing is not

always illegal but rather must be reviewed on

a case-by-case basis to determine its legality.