CHAPTER 14 Determining the Best Price 4/20/2017 CHAPTER 14 Determining the Best Price 14.1 The Economics of Price Decisions 14.2 Developing Pricing Procedures 14.3 Pricing Based on Market Conditions MARKETING

THE ECONOMICS OF PRICE DECISIONS GOALS for Lesson 14.1 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.

Price as a Marketing Tool The importance of price What is price? Adjustability

Price as an Economic Concept Economic utility Elasticity of demand

Supply and Demand Affect Price $8 7 6 5 4 3 2 10 Quantity 20 30 40 50 60 70 80 1 90 100 Supply Equilibrium Point Demand

Inelastic Demand Price of a Dozen Eggs Quantity Sold Total Revenue $0.65 305 $198.25 $0.68 300 $204.00 $0.71 292 $207.32 $0.74 285 $210.90 $0.77 277 $213.29 $0.80 264 $211.20

Elastic Demand Price of a Gallon of Ice Cream Quantity Sold Total Revenue $3.65 180 $657.00 $3.70 165 $610.50 $3.75 158 $592.50 $3.80 147 $558.60 $3.85 136 $523.60 $3.90 122 $475.80

Government’s Effect on Prices Regulating competition Taxation Regulating prices

DEVELOPING PRICING PROCEDURES GOALS for Lesson 14.2 Describe three objectives businesses commonly choose from when setting a price. Explain how businesses establish a price range for a product. Identify the three components that must be covered by the selling price.

Setting Price Objectives Maximize profits Increase sales Maintain an image

Determining a Price Range Maximum price Minimum price Breakeven analysis Price range

Breakeven Analysis for Ascroe Garden Weeder Variable Total Units Costs Variable Fixed Total Total Sold per Unit Costs + Costs = Costs Price Revenue 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

Breakeven Point Total fixed cost Breakeven point = Price – Variable costs per unit Breakeven point 85,000 85,000 = = = 7,589 units 14.00 - 2.80 11.20

Price Range for a Pair of Tennis Shoes $87.00 $53.00 $38.00 Highest price customer will pay Price range Lowest price company can charge Variable costs per pair Total cost Fixed costs per pair (estimated)

Calculating a Selling Price Gross margin Operating expenses Net profit Markup Markdown

Components of the Selling Price Product cost Operating expenses Net profit

PRICING BASED ON MARKET CONDITIONS GOALS for Lesson 14.3 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 important to marketing.

Competitive Environment Product life cycle Consumer purchase classifications Non-price competition

Pricing Policies Price flexibility Price lines Geographic pricing One-price policy Flexible pricing policy Price lines Geographic pricing FOB pricing Zone pricing Discounts and allowances Added values

Discounts and Allowances Quantity discount Seasonal discount Cash discount Trade discount Trade-in allowance Advertising allowance Coupon Rebate

Offering Credit Types of credit Developing credit procedures Consumer credit Trade credit Developing credit procedures Credit policies Credit approval Collections