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assessment of the market and what pricing strategy should be used. Managers tend to make
pricing decisions based on easily gathered, short-term focused information, such as costs, sales,
market share, and competitors’ prices rather than on long-term profitability.
KEY: CB&E Model Pricing OBJ: 20-3 TOP: AACSB MSC: BLOOMS Synthesis 12. Geographically dispersed sellers often result in significant freight costs. Name and describe the
five types of geographic pricing tactics that can be selected by a marketing manager to moderate
the impact of freight costs on its more dispersed customers. For each tactic defined, specify the
circumstances that would prompt the selection of that geographic pricing tactic.
FOB ORIGIN PRICING. This price tactic requires the buyer to absorb the freight costs from the
shipping point. A manager would choose to use FOB origin pricing if he or she is not concerned
about total costs varying among the firms’ clients or if freight charges are not a significant pricing
UNIFORM DELIVERED PRICING. With this price tactic, the seller pays the actual freight
charges and bills every purchaser an identical, flat freight charge. This equalizes the total cost of
the product for all buyers, regardless of location. A manager would select this policy if the firm is
trying to maintain a nationally advertised price or when transportation charges are a minor part of
ZONE PRICING. This price tactic is a modification of uniform delivered pricing in which the
geographic selling area is divided into segments or zones. A flat freight rate is charged to all
customers in a given zone, but different rates will apply to each zone. A marketing manager
would use this strategy to equalize total costs among buyers within large geographic areas.
FREIGHT ABSORPTION PRICING. With this price tactic, the seller pays all or part of the actual
freight charges and does not pass these charges along to the buyer. A manager would choose this
tactic if competition is extremely intense or if the firm is trying to break into new market areas.
BASING-POINT PRICING. This method requires the seller to designate a location as a basing
point and charges all buyers the freight cost from that point (regardless of the point from which
the goods are actually shipped). This tactic has waned in popularity due to several adverse court
Communication REF: 327-328 OBJ: 20-3 TOP: AACSB KEY: CB&E Model Pricing MSC: BLOOMS Synthesis 13. What type of geographic pricing policy would a marketing manager most appropriately choose
for the following products: (1) nationally advertised bubble gum, (2) rebuilt engines for jet
airplanes, and (3) bulk amounts of a rare spice harvested from a single mountain in Canada and
used in high-priced restaurants. Justify your answers, and specify any assumptions you used to
arrive at your answer.
Geographic pricing policies should be compatible with the total pri...
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This document was uploaded on 09/29/2013.
- Fall '13