LO1  Describe how to establish the "approximate price level" using demand-oriented, cost-oriented, profit-oriented, and competition-oriented approaches.

Demand, cost, profit, and competition influence the initial consideration of the approximate price level for a product or service. Demand-oriented pricing approaches stress consumer demand and revenue implications of pricing and include eight types: skimming, penetration, prestige, price lining, odd-even, target, bundle, and yield management. Cost-oriented pricing approaches emphasize the cost aspects of pricing and include three types: standard markup, cost-plus, and experience curve pricing. Profit-oriented pricing approaches focus on a balance between revenues and costs to set a price and include three types: target profit, target return-on-sales, and target return-on-investment pricing. And finally, competition-oriented pricing approaches stress what competitors or the marketplace are doing and include three types: customary; above-, at-, or below-market; and loss-leader pricing. Although these approaches are described separately, some of them overlap, and an effective marketing manager will consider several in searching for an approximate price level.

LO2  Recognize the major factors considered in deriving a final list or quoted price from the approximate price level.

Given an approximate price level for a product or service, a manager sets a list or quoted price by considering three additional factors. First, a manager must decide whether to follow a one-price versus a flexible-price policy. Second, the manager should consider the effects of the proposed price on the company, customer, and competitors. Finally, consideration should be given to balancing incremental costs and revenues, particularly when price and cost changes are planned.

LO3  Identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography.

Numerous adjustments can be made to the approximate price level. Discounts are reductions from the list or quoted price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller. These include quantity, seasonal, trade (functional), and cash discounts. Allowances offered to buyers also reduce list or quoted prices. Trade-in allowances and promotional allowances are most common. Finally, geographical adjustments are made to list or quoted prices to reflect transportation costs from sellers to buyers. The two general methods for quoting prices related to transportation costs are FOB origin pricing and uniform delivered pricing.

LO4  Discuss the laws and regulations affecting specific pricing practices.

Anti-competition and consumer protection regulations in the United States and in many Asian countries affect specific pricing practices. These practices include horizontal price fixing and predatory pricing, vertical price fixing and resale price maintenance, deceptive pricing that may involve geographical pricing and some aspects of predatory pricing, price discrimination for goods of like grade and quality, and price discrimination related to the use of promotional allowance and certain aspects of geographical pricing.