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Chapter pricing concepts for establishing value thirteen Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

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Presentation on theme: "Chapter pricing concepts for establishing value thirteen Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin."— Presentation transcript:

1 chapter pricing concepts for establishing value thirteen Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2 LEARNING OBJECTIVES LO1 List the four pricing orientations. LO2 Explain the relationship between price and quantity sold. LO3Explain price elasticity. LO4 Describe how to calculate a products break-even point. LO5Indicate the four types of price competitive levels. LO6Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy. LO7Explain the difference between a price skimming and a market penetration pricing strategy. LO8List pricing practices that have the potential to deceive customers. Pricing Concepts for Establishing Value 13-2

3 The 5 Cs of Pricing 13-3

4 1 st C: Company Objectives 13-4

5 2 nd C: Customers 13-5

6 Demand Curves Not all are downward sloping Prestigious products or services have upward sloping curves 13-6

7 Price Elasticity of Demand Elastic (price sensitive) Inelastic (price insensitive) Consumers are less sensitive to price increases for necessities ©PhotoLink/Getty Images 13-7

8 3 rd C: Costs Variable Costs – Vary with production volume Fixed Costs – Unaffected by production volume Total Cost – Sum of variable and fixed costs Michael Rosenfeld/Stone/Getty Images 13-8

9 Break Even Analysis and Decision Making 13-9

10 4 th C: Competition Subway Commercial 13-10

11 5 th C: Channel Members Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies Manufactures must protect against gray market transactions 13-11

12 Macro Influences on Pricing The Internet Increased price sensitivity Growth of online auctions Ryan McVay/Getty Images 13-12

13 Economic Factors Local economic conditions Increasing disposable income Cross- shopping Increasing status consciousness Increasing globalization 13-13

14 vs.. Everyday low pricing (EDLP) High/low pricing Everyday Low Pricing vs.. High/Low Pricing Create value in different waysEDLP saves search costs of finding lowest overall pricesHigh/low provides the thrill of the chase for the lowest price Photodisc Collection/Getty Images ©Lars A Niki 13-14

15 New Product Pricing Strategies Market Penetration Pricing Price skimming 13-15

16 Legal Aspects and Ethics of Pricing Deceptive or illegal price advertising Predatory pricing Price discrimination Price fixing Legal Aspects and Ethics of Pricing 13-16

17 Return to slide Break-even analysis enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales. Glossary 13-17

18 Return to slide Cross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B. Glossary 13-18

19 Return to slide Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Glossary 13-19

20 Return to slide Income effect is the change in the quantity of a product demanded by consumers due to a change in their income. Glossary 13-20

21 Return to slide The maximizing profits strategy assumes that if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized. Glossary 13-21

22 Return to slide Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service. Glossary 13-22

23 Return to slide The substitution effect refers to consumers ability to substitute other products for the focal brand. Glossary 13-23

24 Return to slide Target profit pricing is implemented by firms to meet a targeted profit objective. The firms use price to stimulate a certain level of sales at a certain profit per unit. Glossary 13-24

25 Return to slide Target return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales. Glossary 13-25

26 Return to slide The total cost is the sum of the variable and fixed costs. Glossary 13-26

27 Return to slide Variable costs are the costs that vary with production value. Glossary 13-27

28 Return to slide A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions. Glossary 13-28

29 Return to slide Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers. Glossary 13-29

30 Return to slide Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service. Glossary 13-30

31 Return to slide A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. Glossary 13-31

32 Return to slide With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located. Glossary 13-32

33 Return to slide Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers. Glossary 13-33

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