Lecture M: Marketing (4/e) - Chapter 14: Pricing concepts for establishing value

chapter

fourteen

pricing concepts for establishing 
value

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LEARNING OBJECTIVES

LO 14-1 List the four pricing orientations.
LO 14-2 Explain the relationship between price and quantity
sold.
LO 14-3 Explain price elasticity.
LO 14-4 Describe how to calculate a product’s break-even
point.
LO 14-5 Indicate the four types of price competitive levels.
LO 14-6 Describe the difference between an everyday low
price strategy (EDLP) and a high/low strategy.
LO 14-7 Explain the difference between a price skimming and a
market penetration pricing strategy.
LO 14-8 List pricing practices that have the potential to deceive
customers.

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The 5 C’s of Pricing

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1st C: Company Objectives

Company Objective

Examples of Pricing Strategy Implications

Profit-oriented

Institute a companywide policy that all products must
provide for at least an 18 percent profit margin to reach a
particular profit goal for the firm.

Sales-oriented

Set prices very low to generate new sales and take sales
away from competitors, even if profits suffer.

Competitor-oriented

To discourage more competitors from entering the
market, set prices very low.

Customer-oriented

Target a market segment of consumers who highly value
a particular product benefit and set prices relatively high
(referred to as premium pricing).

Profit-oriented

Institute a companywide policy that all products must
provide for at least an 18 percent profit margin to reach a
particular profit goal for the firm.

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Profit Orientation

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Sales Orientation

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Competitor Orientation

•
•

Competitive parity
Status quo pricing
Value is not part of this pricing strategy

Roz Woodward/Getty Images

•

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Customer Orientation

=
C Borland/PhotoLink/Getty Images

Don Farrall/Getty Images

Focus on customer expectations by matching prices to customer
expectations

automotive.com Website
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2nd C: Customers

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Demand Curves

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Price Elasticity of Demand

©PhotoLink/Getty Images

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Factors Influencing    
Price Elasticity of Demand

Walmart Commercial
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3rd C: Costs

•

Variable Costs
–

•

Fixed Costs
–

•

Vary with production volume
Unaffected by production

volume

Total Cost
–

Sum of variable and fixed
costs
Michael Rosenfeld/Stone/Getty Images

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Break Even Analysis and 
Decision Making

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4th C: Competition

Subway Commercial
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5th C: Channel Members

•

•

Manufacturers,
wholesalers and
retailers can have
different perspectives
on pricing strategies
Manufactures must
protect against gray
market transactions

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

check yourself

•
•

•

•

What are the five Cs of pricing?
Identify the four types of company
objectives.
What is the difference between elastic
versus inelastic demand?
How does one calculate the break-even
point in units?

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Everyday Low Pricing vs..
 High/Low Pricing

High/low pricing

Everyday low pricing (EDLP)

vs..
Photodisc Collection/Getty Images
©Lars A Niki

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New Product Pricing Strategies

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

check yourself

•

•

Explain the difference between EDLP and
high/low pricing.
What is the difference between a market
penetration pricing strategy and a price
skimming pricing strategy?

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Legal Aspects and Ethics of Pricing

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

check yourself

•

What common pricing practices are
considered to be illegal or unethical?

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Glossary
Break-even analysis enables managers to
examine the relationships among cost, price,

revenue, and profit over different levels of
production and sales.

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to slide

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Glossary
Cross-price elasticity is the percentage change
in the quantity of Product A demanded compared
with the percentage change in price in Product B.

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to slide

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Glossary
Fixed costs are those costs that remain
essentially at the same level, regardless of any
changes in the volume of production.

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to slide

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