Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

17. Pricing Objectives and
    Policies

Text © The McGraw−Hill

Companies, 2002

Pricing Objectives and Policies 501

list price that frequently changes with various discounts or allowances. Many grocery

stores use this approach. And some producers, including P&G, use it.

Sale prices should be used carefully, consistent with well-thought-out pricing

objectives and policies. A marketing manager who constantly uses temporary sales

to adjust the price level probably has not done a good job setting the normal price.^19

Allowance Policies—Off List Prices

Advertising

allowances—something

for something

Stocking allowances—

get attention and

shelf space

Are stocking

allowances ethical?

PMs—push for cash

Allowances,like discounts, are given to final consumers, customers, or channel

members for doing something or accepting less of something.

Advertising allowancesare price reductions given to firms in the channel to

encourage them to advertise or otherwise promote the supplier’s products locally.

For example, General Electric gave an allowance (1.5 percent of sales) to its whole-

salers of housewares and radios. They, in turn, were expected to spend the allowance

on local advertising.

Stocking allowances—sometimes called slotting allowances—are given to a

middleman to get shelf space for a product. For example, a producer might offer a

retailer cash or free merchandise to stock a new item. Stocking allowances are used

mainly to get supermarket chains to handle new products. Supermarkets don’t have

enough slots on their shelves to handle all of the available new products. They’re

more willing to give space to a new product if the supplier will offset their handling

costs—like making space in the warehouse, adding information on computer sys-

tems, and redesigning store shelves, for example.

Some retailers get allowances that cover more than handling costs. The Shoprite

Stores chain in New York City got an $86,000 allowance to stock $172,000 worth

of Old Capital Microwave Popcorn. When the popcorn didn’t sell well, Shoprite

quickly took it off its shelves. With a big stocking allowance, the middleman makes

extra profit—even if a new product fails and the producer loses money.

There is controversy about stocking allowances. Critics say that retailer demands

for big stocking allowances slow new product introductions and make it hard for

small producers to compete. Some producers feel that retailers’ demands are uneth-

ical—just a different form of extortion. Retailers, on the other hand, point out that

the fees protect them from producers that simply want to push more and more me-

too products onto their shelves. Perhaps the best way for a producer to cope with

the problem is to develop new products that really do offer consumers superior value.

Then it benefits everyone in the channel, including retailers, to get the products to

the target market.^20

Push money (or prize money) allowances—sometimes called PMs or spiffs—are

given to retailers by manufacturers or wholesalers to pass on to the retailers’ sales-

clerks for aggressively selling certain items. PM allowances are used for new items,

slower-moving items, or higher-margin items. They are often used for pushing fur-

niture, clothing, consumer electronics, and cosmetics. A salesclerk, for example,

might earn an additional $5 for each new model Pansonic DVD player sold.

A trade-in allowanceis a price reduction given for used products when similar

new products are bought. Trade-ins give the marketing manager an easy way to lower

the effective price without reducing list price. Proper handling of trade-ins is impor-

tant when selling durable products.

Bring in the old, ring

up the new—with

trade-ins