1. Chapter 17 Pricing Concepts

2. The Importance of Price To the consumer... Price is the cost of something In the broadest sense, price allocates resources in a free-market economy What is Price? To the seller... Price is revenue and profit source To the seller... Price is revenue and profit source

3. The Importance of Price to Marketing Managers Revenue The price charged to customers multiplied by the number of units sold. Profit Revenue minus expenses

4. The Importance of Price Revenue = Unit Price  Number of units sold  Revenue pays for every activity.  What’s left over is Profit. Marketers must select a price that is not too high or not too low, or not too low, a price that equals the perceived value to target consumers

5. Trends Influencing Price Setting Trends in the MarketTrends Market High rate of new product introduction High rate of new product introduction Increased availability of bargain-priced dealer and generic brands Increased availability of bargain-priced dealer and generic brands Price cutting as a strategy to maintain or regain market share Price cutting as a strategy to maintain or regain market share More efficient and better informed buyers More efficient and better informed buyers

6. Profit-Oriented Pricing Objectives Profit Maximization Profit Maximization Satisfactory Profits Target Return on Investment Target Return on Investment

7. Sales-Oriented Pricing Objectives Market Share Market Share Sales Maximization Sales Maximization Sales-Oriented Pricing Objectives

8. Status Quo Pricing Objectives Maintain existing prices Maintain existing prices Meet competition’s prices Meet competition’s prices Status Quo Pricing Objectives

9. Demand and Supply Demand The quantity of a product that will be sold in the market at various prices for a specified period. Supply The quantity of a product that will be offered to the market by a supplier at various prices for a specific period. The quantity of a product that will be offered to the market by a supplier at various prices for a specific period.

10. The Demand Curve D D Price.50 1.00 1.50 2.00 2.50 020406080100120 Quantity demanded

11. The Supply Curve Quantity supplied S S Price.50 1.00 1.50 2.00 2.50 020406080100120

12. Equilibrium Price Quantity demanded S S Price.50 1.00 1.50 2.00 2.50 020406080100120 D D Surplus Shortage Price Equilibrium

13. Elasticity of Demand Elastic Demand  Consumers buy more or less of a product when the price changes Inelastic Demand  An increase or decrease in price will not significantly affect demand Unitary Elasticity  An increase in sales exactly offsets a decrease in prices, and revenue is unchanged

14. Elasticity of Demand Price Goes... Revenue Goes... Demand is... DownUpElastic Down Inelastic Up Inelastic UpDownElastic Up or DownStays the SameUnitary Elasticity

15. Elasticity of Demand Elastic Demand Curve D D Quantity Price D D Quantity Price Inelastic Demand Curve

16. Factors that Affect Elasticity Factors That Affect ElasticityofDemand ElasticityofDemand Availability of Substitutes Price relative to Purchasing Power Price relative to Purchasing Power Product Durability Product’s Other Uses

17. Yield Management Systems Discounting early purchases Discounting early purchases YMS Price Adjustments YMS Price Adjustments Limiting early sales at discounted prices Limiting early sales at discounted prices Overbooking capacity

18. The Cost Determinant of Price Deviate with changes in level of output Deviate with changes in level of output Types of Costs VariableCostsVariableCosts Fixed Costs Do not deviate as level of output changes Do not deviate as level of output changes

19. The Cost Determinant of Price Target-Return Pricing Target-Return Pricing Break-Even Pricing Break-Even Pricing Profit Maximization Pricing Keystoning Markup pricing Methods Used to Set Prices Methods Used to Set Prices

20. Break-Even Pricing Quantity Price 2,000 01,0002,000 3,0004,0005,0006,000 4,000 Fixed costs Loss Profit Total Revenue Total Costs Break-even point

21. Break-Even Pricing Break-Even Quantity = Total Fixed Costs Fixed cost Contribution Fixed cost Contribution =Price -- Avg. Variable Cost

22. Other Determinants of Price Perceived Quality Promotion Strategy Distribution Strategy Competition Stages of the Product Life Cycle Stages of the Product Life Cycle Other Factors ThatInfluencePrice ThatInfluencePrice

23. Stages in the Product Life Cycle IntroductoryStageGrowthStageDeclineStage$High$Stable$DecreaseMaturityStage$ Decrease Stable High

24. The Impact of the Internet Allows price and product comparisons Prices are coming down Data collection allows sellers to tailor products and prices