Discussing the Concepts

Discussing the Concepts

Chapter 11

2. The five product mix pricing strategies are product line pricing, optional-product pricing, captive-product pricing, by-product pricing, and product bundle pricing.

1. Product line pricing: Setting prices across an entire product line

2. Optional-product pricing: Pricing optional or accessory products sold with the main product.

3. Captive-product pricing: Pricing products that must be used with the main product

4. By-product pricing: Pricing low-value by-products to get rid of them

5. Product bundle pricing: Pricing bundles of products sold together

4. Geological pricing sets prices for customers located in different parts of the country or world. There are five geological pricing strategies, which are FOB-origin pricing, uniform-delivered pricing, zone pricing, basing-point pricing, and freight-absorption pricing. FOB-origin pricing is a geological pricing strategy in which goods are placed free on board to carrier. At this point the title and responsibility pass to the customer, who pays the freight from the factory to the destination. Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location. The freight charge is set at the average freight cost. The next strategy, zone pricing, falls between FOB-origin pricing and uniform-delivered pricing. The company sets up two or more zones. All customers within a given zone pay a single total price; the more distant the zone, the higher the price. Using the next geographical pricing strategy, basing-point pricing, the seller selects a given city as a “basing point” and charges a;; customers the freight cost, from that city to the customer location, regardless of the city from which the goods are actually shipped from. The last pricing geographical strategy is freight-absorption pricing. Using this strategy, the seller absorbs all or part of the actual freight charges in...