How Prices Can Be Adjusted in Response to Environmental Factors

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  • 0:07 Adjusting Base Price
  • 0:30 Pricing Discounts
  • 2:33 Promotional Allowances
  • 3:15 Rebate
  • 3:52 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Marketers have the ability to fine-tune the base price of products in the marketing mix. They can use discounts, rebates, and allowances to temporarily change the price to increase sales and profits.

Adjusting Base Price

The Jokester Novelty Company has just finished setting the base prices on their entire line of fun products, including Vomit in a Can, Fart Balloon, and Fake Severed Fingers. The final step for the company is to fine-tune the prices based on short-term objectives and to take advantage of seasonal, competitive, or promotional changes. There are a few ways that pricing can be adjusted for their line of novelty products.

Pricing Discounts

The first pricing weapon Jokester could use is to offer a quantity, cash, functional, or seasonal discount. Discounts are short-term decreases in price that are used to get customers to purchase more product, pay cash rather than credit, or take delivery at different time periods. Jokester would offer a customer a lower price on their cases of Vomit in a Can if they purchased multiple units (such as 10 cases in a month). This is called a quantity discount and is used to reward customer loyalty and encourage large purchase amounts.

Most companies have to invest time to make sure that their bills are paid on time. A second discount can help ensure a quick pay on delivery. A cash discount is a price reduction offered to a customer in return for paying a bill on time. Jokester plans on offering these discounts, as well, to save the company from billing expenses and dealing with bad debt issues. If a customer pays their bill within 30 days, they will receive ten percent off their bill.

A third type of discount is based on distribution assistance and is called a functional discount. This is a discount offered to intermediaries, such as retailers, for distribution efforts. Jokester does not plan on offering this discount, as they directly ship their product to the retailers or consumers via a website.

The last type of discount is used to provide incremental sales during slow business periods. Many companies offer seasonal discounts to increase sales. This is a type of discount that offers a price discount for buying merchandise out of season. This creates a steady demand stream of product for the manufacturer. Jokester Novelty does offer this discount, because there are times of the year that the product demand decreases and causes inventory issues. Their novelty products do a brisk business during the Halloween time frame. They offer seasonal discounts in the winter and spring to increase sales.

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