Lecture Marketing: The core (5/e): Chapter 11 – Kerin, Hartley, Rudelius

                           McGraw­Hill/Irwin                                                                                             Copyright © 2013 by The McGraw­Hill Companies, Inc.  All rights reserved.


LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO:

LO1

Describe the nature and importance of
pricing and the approaches used to
select an approximate price level.

LO2

Explain what a demand curve is and
the role of revenues in pricing
decisions.

LO3

Explain the role of costs in pricing
decisions and describe how various
combinations of price, fixed cost, and
unit variable cost affect a firm’s
breakeven point.
11­2


LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO:

LO4

LO5

Recognize the objectives a firm has in
setting prices and the constraints that
restrict the range of prices a firm can
charge.
Describe the steps taken in setting a
final price.

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VIZIO, INC.—WHERE VISION
MEETS VALUE™ IN HDTV

11­4


LO1

NATURE AND IMPORTANCE OF PRICE
WHAT IS A PRICE?: THE PRICE EQUATION



Price



Barter



Price Equation

Veyron
vs.
EuroFighter
Drag
Race

Final Price = List Price – (Incentives + Allowances) + Extra Fees

11­5


FIGURE 11-1 The “price” a buyer pays can
take different names depending on what is
purchased

11­6


LO1



NATURE AND IMPORTANCE OF PRICE

PRICE AS AN INDICATOR OF VALUE

Value

Value =

$



Perceived Benefits
Price

=

$

Profit Equation

Profit = Total Revenue Š Total Costs
= (Unit Price
Quantity Sold) Š (Fixed Cost + Variable Cost)
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FIGURE 11-2 Four approaches for selecting
an approximate price level

11­8

LO1

GENERAL PRICING APPROACHES
DEMAND-ORIENTED PRICING APPROACHES



Skimming
Pricing





Prestige
Pricing



Penetration
Pricing

Odd-Even $500.00
vs.
Pricing
$499.99
11­9

MARKETING MATTERS
LO1

Energizer’s Lesson in Price Perception—
Value Lies in the Eye of the Beholder

11­10


LO1

GENERAL PRICING APPROACHES
DEMAND-ORIENTED PRICING APPROACHES



Target Pricing



Bundle Pricing



Yield Management Pricing
11­11


LO1



GENERAL PRICING APPROACHES
COST-ORIENTED PRICING APPROACHES

Standard Markup
Pricing
• Cost
• Selling Price

11­12


FIGURE 11-A Markups for a manufacturer,
wholesaler, and retailer on a home appliance
sold to consumers for $100

11­13


LO1



GENERAL PRICING APPROACHES
COST-ORIENTED PRICING APPROACHES

Cost-Plus Pricing
• Percentage of Cost

• Fixed Fee



Experience Curve Pricing
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LO1

GENERAL PRICING APPROACHES
PROFIT-ORIENTED PRICING APPROACHES



Target Profit Pricing



Target Return-on-Sales Pricing



Target Return-on-Investment
(ROI) Pricing
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LO1

GENERAL PRICING APPROACHES
COMPETITION-ORIENTED PRICING APPROACHES



Customary Pricing



Above-, At- or Below-Market Pricing



Loss-Leader Pricing
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USING MARKETING DASHBOARDS
LO1

Are Red Bull Prices
Above, At, or Below the Market?
Price Premium (%)
Price Premium (%) =

Dollar Sales ($) Market Share for a Brand
–1
Unit Volume (#) Market Share for a Brand

11­17

LO2



ESTIMATING DEMAND AND REVENUE
FUNDAMENTALS OF ESTIMATING DEMAND

Demand Curve
• Consumer Tastes
• Price and Availability
of Similar Products
• Consumer Income
• Demand Factors
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FIGURE 11-3 Demand curves for Newsweek
showing the effect on annual sales (quantity
demanded per year) by a change in price
caused by (A) a movement along and
(B) a shift of the demand curve

11­19


FIGURE 11-3A Demand curve for Newsweek
showing the effect on annual sales by a
change in price caused by a movement

along the demand curve

11­20


FIGURE 11-3B Demand curve for Newsweek
showing the effect on annual sales by a
change in price caused by a shift of the
demand curve

11­21


LO2



ESTIMATE DEMAND AND REVENUE
FUNDAMENTALS OF ESTIMATING DEMAND

Price Elasticity of Demand

Price Elasticity of Demand (E) =

Percentage Change in Quantity Demanded
Percentage Change in Price

• Elastic Demand

• Inelastic Demand

• Product Substitutes

• Necessities

• Large Cash Outlays
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FIGURE 11-B Fundamental revenue concepts


Total Revenue

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FIGURE 11-4 Fundamental cost concepts


Total Cost (TC)

11­24


LO3

DETERMINING COST, VOLUME,
AND PROFIT RELATIONSHIPS
BREAK-EVEN ANALYSIS AND BEP



Break-Even Analysis



Break-Even Point (BEP)

BEPQuantity

Fixed Cost
Unit Price Š Unit Variable Cost

FC
P Š UVC

11­25