Lecture Basic Marketing: A global managerial approach - Chapter 18: Price setting in the business world

Chapter 18:
  

Price Setting
in the
Business World

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Key Factors That Influence Price Setting
Pricing
objectives
Price of other
products in the line
Demand

Price flexibility

Price
settin
g

Cost

Competition

Exhibit 18­1
18­2

Markup chain
in channels

Discounts and
allowances

Legal
environment
Geographic
pricing terms

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Markup Chain and Channel Pricing
50.00
30.00

Markup = 20.00 = 40%

24.00
Markup = 6.00 = 20%
Markup = 2.40 = 10%

Cost = 21.60 = 90%
Producer

Cost = 24.00 = 80%
Wholesaler

Cost = 30.00 = 60%

Retailer

Exhibit 18­2
18­3

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Six Types of Costs
Total Cost
Total Fixed
Cost

Total Variable
Cost

Average
Fixed Cost

Average
Variable Cost
Average Cost

18­4

For use with Shapiro, Wong, Perreault, and McCarthy texts.

Copyright © 2002 McGraw-Hill Ryerson Limited.


Prices Along the Demand Curve
Total revenue = Price x Quantity

Price per unit

$3.00

$30,000
$40,000
$57,000
$66,000
$75,000
$72,000

2.00
1.90

= $3.00 x 10,000
= $2.00 x 20,000
= $1.90 x 30,000
= $1.65 x 40,000
= $1.50 x 50,000
= $1.20 x 60,000

1.65
1.50
1.20

10

20

30

40

50

60

70

Quantity (000)
Exhibit 18­6
18­5

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Summary of Relationships
Affecting Price

?

Estimated quantity to
be sold

Quantity demanded
at selling price

Cost-oriented selling
price per unit

Average fixed cost
per unit

Variable
cost per
unit

Average total cost
per unit

Profit per
unit

Exhibit 18­7
18­6

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Break-Even Analysis

Total Revenue and Cost

Higher
Profit Area

Total Revenue Curve
Total Cost Curve

Break-Even Point
Loss Area

Total Variable Costs

Total Fixed Costs

0

Units of Production

More

Exhibit 18­8
18­7

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Demand-Oriented Pricing
Psychological

Bait
Leader

Odd-Even

Types of
Demand-Oriented
Pricing

Prestige
Price Lining
DemandBackward

Value-in-Use
Reference
18­8

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Full-Line Pricing

?????
?????
?????
?????
?????
18­9

MarketMarket- or
or Firm
Firm
Oriented?
Oriented?

Complementary
Complementary
Pricing?
Pricing?

Product-Bundling
Product-Bundling
Pricing?
Pricing?

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.


Bid and Negotiated Pricing
Bid pricing means offering a 
specific price for each 
possible job.  Determining 
costs is a complicated 
process.

Negotiated pricing involves 
setting a price as the result 
of a bargaining process 

between the buyer and 
seller.
18­10

For use with Shapiro, Wong, Perreault, and McCarthy texts.
Copyright © 2002 McGraw-Hill Ryerson Limited.