Pricing Concepts Chapter 19 Lamb, Hair, McDaniel 2013-2014 Chapter 19 Pricing Concepts Pricing Concepts Chapter 19 Lamb, Hair, McDaniel 2013-2014 © iStockphoto.com/ktsimage © Cengage Learning 2014. All Rights Reserved.

© Cengage Learning 2014. All Rights Reserved. Chapter 19 Pricing Concepts 1 Discuss the importance of pricing decisions to the economy and to the individual firm List and explain a variety of pricing objectives Explain the role of demand in price determination 2 3 © Cengage Learning 2014. All Rights Reserved.

© Cengage Learning 2014. All Rights Reserved. Chapter 19 Pricing Concepts 4 Understand the concept of yield management systems Describe cost-oriented pricing strategies Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the Internet and extranets, and perceptions of quality can affect price 5 6 © Cengage Learning 2014. All Rights Reserved.

The Importance of Price to Marketing Managers Chapter 19 Pricing Concepts The Importance of Price to Marketing Managers Revenue The price charged to customers multiplied by the number of units sold. Profit Revenue minus expenses. 1 1 © Cengage Learning 2014. All Rights Reserved.

© Cengage Learning 2014. All Rights Reserved. Chapter 19 Pricing Concepts Pricing Objectives Profit Oriented Sales Oriented Status Quo 2 © Cengage Learning 2014. All Rights Reserved.

Profit-Oriented Pricing Objectives Chapter 19 Pricing Concepts Profit-Oriented Pricing Objectives Profit-Oriented Pricing Objectives Profit Maximization Satisfactory Profits Target Return on Investment 2 © Cengage Learning 2014. All Rights Reserved.

Sales-Oriented Pricing Objectives Chapter 19 Pricing Concepts Sales-Oriented Pricing Objectives Market Share Sales Maximization Sales-Oriented Pricing Objectives 2 © Cengage Learning 2014. All Rights Reserved.

Status Quo Pricing Objectives Chapter 19 Pricing Concepts Status Quo Pricing Objectives Maintain existing prices Meet competition’s Status Quo Pricing Objectives 2 © Cengage Learning 2014. All Rights Reserved.

The Demand Determinant of Price Chapter 19 Pricing Concepts The Demand Determinant of Price 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. 3 © Cengage Learning 2014. All Rights Reserved.

How Demand and Supply Establish Price Chapter 19 Pricing Concepts How Demand and Supply Establish Price Price Equilibrium The price at which demand and supply are equal. Elasticity of Demand Consumers’ responsiveness or sensitivity to changes in price. 3 © Cengage Learning 2014. All Rights Reserved.

© Cengage Learning 2014. All Rights Reserved. Elasticity of Demand Chapter 19 Pricing Concepts Elastic Demand Consumers buy more or less of a product when the price changes. Inelastic Demand An increase or a decrease in price will not significantly affect demand. Unitary Elasticity An increase in sales exactly offsets a decrease in prices, so total revenue remains the same. 3 © Cengage Learning 2014. All Rights Reserved.

Factors that Affect Elasticity of Demand Chapter 19 Pricing Concepts Factors that Affect Elasticity of Demand Availability of substitutes Price relative to purchasing power Product durability A product’s other uses Rate of inflation 3 © Cengage Learning 2014. All Rights Reserved.

Yield Management Systems Chapter 19 Pricing Concepts Yield Management Systems Discounting early purchases Limiting early sales at discounted prices Overbooking capacity 4 © Cengage Learning 2014. All Rights Reserved.

The Cost Determinant of Price Chapter 19 Pricing Concepts The Cost Determinant of Price Varies with changes in level of output Types of Costs Variable Cost Fixed Cost Does not change as level of output changes 5 © Cengage Learning 2014. All Rights Reserved.

The Cost Determinant of Price Methods Used to Set Prices Chapter 19 Pricing Concepts Break-Even Pricing Profit Maximization Pricing Keystoning Markup pricing Methods Used to Set Prices 5 © Cengage Learning 2014. All Rights Reserved.

Other Determinants of Price Chapter 19 Pricing Concepts Other Determinants of Price Perceived Quality Promotion Strategy Distribution Strategy Competition Stages of the Product Life Cycle 6 © Cengage Learning 2014. All Rights Reserved.

The Relationship of Price to Quality Chapter 19 Pricing Concepts The Relationship of Price to Quality Prestige Pricing Charging a high price to help promote a high-quality image. 6 © Cengage Learning 2014. All Rights Reserved.

© Cengage Learning 2014. All Rights Reserved. Chapter 19 Pricing Concepts Dimensions of Quality Ease of use Versatility Durability Serviceability Performance Prestige 6 © Cengage Learning 2014. All Rights Reserved.