1. © 2009 South-Western, Cengage LearningMARKETING 1 Chapter 14 DETERMINING THE BEST PRICE 14-1The Economics of Price Decisions 14-2Developing Pricing Procedures 14-3Pricing Based on Market Conditions CHAPTER 14

2. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 2 ©LEXUS Focus Questions: What is the focus of the advertisement for The Week? What pricing strategy do you think is being used by offering an online publication free of charge? How does this add value for the customer?

3. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 3 THE ECONOMICS OF PRICE DECISIONS GOALS Explain the reasons why price is an important marketing tool. Demonstrate how the economic concept of elasticity of demand relates to pricing decisions. Describe the three primary ways in which government influences prices. 14-1

4. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 4 Price as a Marketing Tool The importance of price What is price? Price adjustability

5. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 5 Price as an Economic Concept Economic utility Elasticity of demand

6. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 6 Supply and Demand Affect Price At a price of $3, demand (90) is greater than supply (30). At a price of $7, supply (90) is greater than demand (30). At a price of $5, supply equals demand (60), and the market is in equilibrium.

7. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 7 Inelastic Demand Price of a Dozen EggsQuantity SoldTotal Revenue $0.65305$198.25 $0.68300$204.00 $0.71292$207.32 $0.74285$210.90 $0.77277$213.29 $0.80264$211.20

8. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 8 Elastic Demand Price of a Gallon of Ice CreamQuantity SoldTotal Revenue $3.65180$657.00 $3.70165$610.50 $3.75158$592.50 $3.80147$558.60 $3.85136$523.60 $3.90122$475.80

9. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 9 Governments Effect on Prices Regulating competition Regulating prices Taxation

10. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 10 DEVELOPING PRICING PROCEDURES GOALS Describe common pricing objectives for businesses. Explain how businesses establish a price range for a product. Identify the three components that must be considered when determining the selling price. 14-2

11. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 11 Setting Price Objectives Maximize profits Increase sales Maintain an image

12. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 12 Determining a Price Range Maximum price Minimum price Breakeven analysis Price range

13. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 13 Breakeven Analysis for Ascroe Garden Weeder Variable Total UnitsCostsVariableFixedTotal Total Soldper UnitCosts+Costs=CostsPriceRevenue 5,522$2.80$15,462+$85,000=$100,462$14$77,308 6,054$2.80$16,951+$85,000=$101,951$14$84,756 6,998$2.80$19,594+$85,000=$104,594$14$97,972 7,589$2.80$21,249+$85,000=$106,249$14$106,246 8,225$2.80$23,030 +$85,000 =$108,030$14$115,150 9,110$2.80$25,508 +$85,000 =$110,508$14$127,540

14. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 14 Breakeven point Breakeven Point 7,589 units = 85,000 14.00 – 2.80 11.20 === Total fixed cost Price – Variable costs per unit

15. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 15 Price Range for a Pair of Shoes Total cost $87.00 $53.00 $38.00 Price range Highest price customer will pay Lowest price company can charge Variable costs per pair Fixed costs per pair

16. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 16 Calculating a Selling Price Gross margin Operating expenses Net profit Markup Markdown

17. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 17 Components of the Selling Price Product cost Operating expenses Net profit

18. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 18 PRICING BASED ON MARKET CONDITIONS GOALS Identify two marketing tools that illuminate competitive conditions and help marketers set prices. Describe the various criteria businesses use in establishing the final price a customer pays. Explain why extending and managing credit is an important part of marketing. 14-3

19. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 19 Competitive Environment Product life cycle Consumer purchase classifications Non-price competition

20. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 20 Pricing Strategies Price flexibility One-price policy Flexible pricing policy Price lines Geographic pricing FOB pricing Zone pricing Discounts and allowances Added values

21. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 21 Discounts and Allowances Quantity discount Seasonal discount Cash discount Trade discount Trade-in allowance Advertising allowance Coupon Rebate

22. © 2009 South-Western, Cengage LearningMARKETING Chapter 14 22 Offering Credit Types of credit Consumer credit Trade credit Developing credit procedures Credit policies Credit approval Collections