1. McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO:
Describe how to establish the “approximate price level” using demand-oriented, cost-oriented, profit-oriented, and competition-oriented approaches.
Recognize the major factors considered in deriving a final list or quoted price from the approximate price level.
LO2
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3. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO:
Identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography.
LO3
Name the principal laws and regulations affecting specific pricing practices.
LO4
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4. STANDING TALL IN STARBURY SIGNATURE SNEAKERS
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5. FIGURE 14-1 The six steps in setting price
FIGURE The six steps in setting price. The first three steps were covered in Chapter 13 and the last three steps in Chapter 14.
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6. FIGURE 14-2 Four approaches for selecting an approximate price level
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7. STEP 4: SELECT AN APPROXIMATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES
LO1
Skimming Pricing
Penetration Pricing
Prestige Pricing
Price Lining
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8. FIGURE 14-3 Demand curves for two demand-oriented pricing approaches
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9. Yield Management Pricing
STEP 4: SELECT AN APPROXIMATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES
LO1
Odd-Even Pricing
Target Pricing
Bundle Pricing
Yield Management Pricing
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10. Standard Markup Pricing
STEP 4: SELECT AN APPROXIMATE PRICE LEVEL COST-ORIENTED PRICING APPROACHES
LO1
Standard Markup Pricing
Cost-Plus Pricing
Cost-Plus Fixed-Fee Pricing
Cost-Plus Percentage- of-Cost Pricing
Experience Curve Pricing
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11. FIGURE 14-A Markups for a manufacturer, wholesaler, and retailer on a home appliance sold to the consumer for $100
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12. Target Return- on-Sales Pricing
STEP 4: SELECT AN APPROXIMATE PRICE LEVEL PROFIT-ORIENTED PRICING APPROACHES
LO1
Target Profit Pricing
Target Return- on-Sales Pricing
Target Return-on-Investment Pricing
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13. FIGURE Results of a computer spreadsheet simulation to select a price to achieve a target return on investment
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14. Above-, At-, or Below-Market Pricing
STEP 4: SELECT AN APPROXIMATE PRICE LEVEL COMPETITION-ORIENTED PRICING APPROACHES
LO1
Customary Pricing
Above-, At-, or Below-Market Pricing
Loss-Leader Pricing
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15. USING MARKETING DASHBOARDS Are Cracker Jack Prices Above, At, or Below the Market?
Price Premium (%)
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16. STEP 5: SET THE LIST OR QUOTED PRICE CHOOSING A PRICE POLICY
LO2
One-Price Policy
Flexible-Price Policy
Dynamic Pricing
Clickstream
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17. MAKING RESPONSIBLE DECISIONS Flexible Pricing—Is There Race and Gender Discrimination in Bargaining for a New Car?
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18. Company Effects Customer Effects Competitive Effects
STEP 5: SET THE LIST OR QUOTED PRICE COMPANY, CUSTOMER, AND COMPETITIVE EFFECTS ON PRICING
LO2
Company Effects
Product-Line Pricing
Customer Effects
Competitive Effects
Price War
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19. STEP 5: SET THE LIST OR QUOTED PRICE BALANCING INCREMENTAL COSTS AND REVENUES
LO2
Marginal Analysis
How Many Units to Sell for a $1,000 Advertisement?
Hire 3 More Salespeople?
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20. FIGURE Expected incremental revenue from pricing and other marketing actions must more than offset incremental costs to achieve incremental profit
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21. FIGURE Three special adjustments to list or quoted price include discounts, allowances, and geographical adjustments
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22. STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE DISCOUNTS
LO3
Discounts
Quantity Discounts
Noncumulative Quantity Discounts
Cumulative Quantity Discounts
Seasonal Discounts
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23. STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE DISCOUNTS
LO3
Trade (Functional) Discounts
Cash Discounts
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24. FIGURE The structure of trade discounts affects the manufacturer’s selling price and the margins made by resellers in the marketing channel
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25. STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE ALLOWANCES
Trade-In Allowances
Promotional Allowances
Everyday Low Pricing (EDLP)
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26. Uniform Delivered Pricing
STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS
LO3
FOB Origin Pricing
Uniform Delivered Pricing
Single-Zone Pricing
Multiple-Zone Pricing
FOB with Freight-Allowed Pricing
Basing-Point Pricing
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27. FIGURE 14-C Example of basing-point pricing
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28. FIGURE Several pricing practices are affected by legal and regulatory restrictions, which benefit both consumers and firms
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29. STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING
LO4
Price Fixing
Horizontal Price Fixing
Vertical Price Fixing
Resale Price Maintenance
Rule of Reason
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30. Price Discrimination Deceptive Pricing Geographical Pricing
STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING
LO4
Price Discrimination
Deceptive Pricing
Geographical Pricing
Predatory Pricing
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31. FIGURE 14-9 Five most common deceptive pricing practices
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32. THE STARBURY COLLECTION: SETTING A PRICE. MAKING A DIFFERENCE
VIDEO CASE 14
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33. THE STARBURY COLLECTION
VIDEO CASE 14
THE STARBURY COLLECTION
1. What broad pricing objective is most apparent in Stephon Marbury’s offer to endorse a signature sneaker for $14.98?
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34. THE STARBURY COLLECTION
VIDEO CASE 14
THE STARBURY COLLECTION
2. In what ways are the demand factors of (a) consumer tastes, (b) price and availability of substitute products, and (c) consumer income important in influencing consumer demand for the Starbury Collection of sneakers and apparel?
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35. THE STARBURY COLLECTION
VIDEO CASE 14
THE STARBURY COLLECTION
3. For analysis purposes only, assume that (a) a air of Starbury One sneakers is delivered to Steve & Barry’s from its supplier at a price of $10.00, (b) the launch program cost $500,000 including the tour expenses, website development, and print advertising production and placement, and (c) these were the only relevant costs. How many pairs of Starbury One sneakers must Steve & Barry’s sell to break even given these launch costs? Has Steve & Barry’s achieved a 15 percent return on sales given that 3 million pairs of Starbury One sneakers have been sold?
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36. RIDING DOWN THE EXPERIENCE CURVE SUPPLEMENTAL LECTURE NOTE 14-1
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37. FIGURE 14-B Experience curve for selected electronics products
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38. EXTRA VALUE MEAL BUNDLE PRICING AT MCDONALD’S
IN-CLASS ACTIVITY 14-1
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39. 14-39

40. 14-40

41. Skimming Pricing
Skimming pricing is used when introducing a new or innovative product, and involves setting the highest initial price that customers really desiring the product are willing to pay.
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42. Penetration Pricing
Penetration pricing involves setting a low initial price on a new product to appeal immediately to the mass market.
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43. Prestige Pricing
Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it.
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44. Price Lining
Price lining involves setting the price of a line of products at a number of different specific pricing points.
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45. Odd-Even Pricing
Odd-even pricing involves setting prices a few dollars or cents under an even number.
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46. Target Pricing
Target pricing consists of (1) estimating the price that ultimate consumers would be willing to pay for a product, (2) working backward through markups taken by retailers and wholesalers to determine what price to charge wholesalers, and then (3) deliberately adjusting the composition and features of the product to achieve the target price to consumers.
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47. Bundle Pricing
Bundle pricing involves the marketing of two or more products in a single package price.
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48. Yield Management Pricing
Yield management pricing involves the charging of different prices to maximize revenue for a set amount of capacity at any given time.
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49. Standard Markup Pricing
Standard markup pricing involves adding a fixed percentage to the cost of all items in a specific product class.
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50. Cost-Plus Pricing
Cost-plus pricing involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price.
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51. Experience Curve Pricing
Experience curve pricing is a method of pricing based on the learning effect, which holds that the unit cost of many products and services declines by 10 percent to 30 percent each time a firm’s experience at producing and selling them doubles, resulting in possible rapid price reductions.
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52. Target Profit Pricing
Target profit pricing involves setting an annual target of a specific dollar volume of profit.
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53. Target Return-on-Sales Pricing
Target return-on-sales pricing involves setting a price to achieve a profit that is a specified percentage of the sales volume.
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54. Target Return-on-Investment Pricing
Target return-on-investment pricing involves setting a price to achieve an annual target return-on-investment (ROI).
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55. Customary Pricing
Customary pricing involves pricing setting a price that is dictated by tradition, a standardized channel of distribution, or other competitive factors.
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56. Above-, At-, or Below-Market Pricing
Above-, at, or below-market pricing involves setting a market price for a product or product class based on a subjective feel for the competitors’ price or market price as the benchmark.
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57. Loss-Leader Pricing
Loss-leader pricing involves deliberately selling a product below its customary price, not to increase sales, but to attract customers’ attention in hopes that they will buy other products as well.
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58. One-Price Policy
A one-price policy involves setting one price for all buyers of a product or service. Also called fixed pricing.
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59. Flexible Price Policy
A flexible price policy involves setting different prices for products and services depending on individual buyers and purchase situations. Also called dynamic pricing.
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60. Product Line Pricing
Product line pricing involves the setting of prices for all items in a product line to cover the total cost and produce a profit for the complete line, not necessarily for each item.
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61. Price War
A price war involves successive price cutting by competitors to increase or maintain their unit sales or market share.
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62. Quantity discounts are reductions in unit costs for a larger order.
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63. Promotional Allowances
Promotional allowances are cash payments or extra amount of “free goods” awarded sellers in the channel of distribution for undertaking certain advertising or selling activities to promote a product.
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64. Everyday Low Pricing (EDLP)
Everyday low pricing (EDLP) is the practice of replacing promotional allowances with lower manufacturer list prices.
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65. FOB Origin Pricing
FOB origin pricing is the “free on board” (FOB) price the seller quotes that includes only the cost of loading the product onto the vehicle and specifies the name of the location where the loading is to occur (seller’s factory or warehouse).
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66. Uniform Delivered Pricing
Uniform delivered pricing is the price that the seller quotes includes all transportation costs.
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67. Basing-Point Pricing
Basing-point pricing involves selecting one or more geographical locations (basing point) from which the list price for products plus freight expenses are charged to the buyer.
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68. Price Fixing
Price fixing involves a conspiracy among firms to set prices for a product.
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69. Price Discrimination
Price discrimination is the practice of charging different prices to different buyers for goods of like grade and quality.
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70. Predatory Pricing
Predatory pricing is the practice of charging a very low price for a product with the intent of driving competitors out of business.
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