Page 427 - Marketing Management

404 PART 5 SHAPING THE MARKET OFFERINGS

product that it sells. Here we will examine several price-adaptation strategies: geographical pricing,
price discounts and allowances, promotional pricing, and differentiated pricing.

Geographical Pricing (Cash, Countertrade, Barter)

In geographical pricing, the company decides how to price its products to different customers in
different locations and countries. Should the company charge higher prices to distant customers to
cover the higher shipping costs, or a lower price to win additional business? How should it account
for exchange rates and the strength of different currencies?
Another question is how to get paid. This issue is critical when buyers lack sufficient hard cur-
rency to pay for their purchases. Many buyers want to offer other items in payment, a practice
known as countertrade. U.S. companies are often forced to engage in countertrade if they want the
business. Countertrade may account for 15 percent to 20 percent of world trade and takes several
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• Barter. The buyer and seller directly exchange goods, with no money and no third party in-
volved.
• Compensation deal. The seller receives some percentage of the payment in cash and the rest
in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the
rest in coffee.
• Buyback arrangement. The seller sells a plant, equipment, or technology to another country
and agrees to accept as partial payment products manufactured with the supplied equipment.
A U.S. chemical company built a plant for an Indian company and accepted partial payment in
cash and the remainder in chemicals manufactured at the plant.
• 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. PepsiCo sold its cola syrup to Russia for
rubles and agreed to buy Russian vodka at a certain rate for sale in the United States.

Price Discounts and Allowances

Most companies will adjust their list price and give discounts and allowances for early payment,
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volume purchases, and off-season buying (see Table 14.5). Companies must do this carefully
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or find that their profits are much lower than planned.

TABLE 14.5 Price Discounts and Allowances

Discount: A price reduction to buyers who pay bills promptly. A typical example is
“2/10, net 30,” which means that payment is due within 30 days and that
the buyer can deduct 2 percent by paying the bill within 10 days.

Quantity Discount: A price reduction to those who buy large volumes. A typical example is
“$10 per unit for fewer than 100 units; $9 per unit for 100 or more units.”
Quantity discounts must be offered equally to all customers and must not
exceed the cost savings to the seller. They can be offered on each order
placed or on the number of units ordered over a given period.
Functional Discount (also called trade discount) offered by a manufacturer to trade-
Discount: channel members if they will perform certain functions, such as selling,
storing, and record keeping. Manufacturers must offer the same functional
discounts within each channel.
Seasonal Discount: A price reduction to those who buy merchandise or services out of season.
Hotels, motels, and airlines offer seasonal discounts in slow selling periods.
Allowance: An extra payment designed to gain reseller participation in special pro-
grams. Trade-in allowances are granted for turning in an old item when
buying a new one. Promotional allowances reward dealers for participating
in advertising and sales support programs.