© 2003 mcgraw-hill companies, inc., mcgraw-hill/irwin building the price foundation 13 c hapter
TRANSCRIPT
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
BUILDING BUILDING THE PRICE THE PRICE
FOUNDATIONFOUNDATION1313CHAPTER
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
• Identify the elements that make up a price.
• Recognize the constraints on a firm's pricing latitude and the objectives a firm has in setting prices.
AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO:
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• Explain what a demand curve is and how it affects a firm’s total and marginal revenue.
• Recognize what price elasticity of demand means to a manager facing a pricing decision.
AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO:
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
• Explain the role of costs in pricing decisions.
• Calculate a break-even point for various combinations of price, fixed costs, and unit variable cost.
AFTER READING THIS CHAPTERYOU SHOULD BE ABLE TO:
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WHERE DOT-COMS STILL THRIVE: HELPING YOU GET A $100 A NIGHT HOTEL ROOM OVER-LOOKING NEW YORK’S CENTRAL PARK!• Why Travel Dot-Coms Haven’t Tanked
• Travel Dot-Com Prices: A Win-Win for Both Buyers and Sellers!
BUILDING THE PRICE FOUNDATION
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• What is a Price? Barter
NATURE AND IMPORTANCE OF PRICE
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• Price as an Indicator of Value Value-pricing
• Price in the Marketing Mix Profit Equation
NATURE AND IMPORTANCE OF PRICE
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• Identifying Pricing Constraints• Demand for the Product Class, Product, and
Brand
• Newness of the Product: Stage in the Product Life Cycle
• Single Product versus a Product Line
• Cost of Producing and Marketing the Product
STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
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• Identifying Pricing Constraints (cont)• Cost of Changing Prices and Time Period
They Apply
• Types of Competitive Markets Pure monopoly Oligopoly Monopolistic competition Pure competition
STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
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• Identifying Pricing Constraints (cont)• Competitors’ Prices
STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
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• Identifying Pricing Objectives• Profit
STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
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• Identifying Pricing Objectives (cont)• Sales
• Market Share
• Unit Volume
• Survival
• Social Responsibility
STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
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Concept Check
1. What factors impact the list price to determine the final price?
A: Subtract discounts and allowances and add extra fees.
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. How does the type of competitive market a firm is in affect its latitude in setting price?
A: Different competitive markets have differences in price competition and, in turn, the nature of product differentiation and extent of advertising.
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• Fundamentals of Estimating Demand• The Demand Curve
STEP 2: ESTIMATE DEMAND AND SERVICE
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• The Demand Curve (cont) Demand factors
• Movement Along versus Shift of a Demand Curve
STEP 2: ESTIMATE DEMAND AND SERVICE
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• Fundamentals of Estimating Revenue Total revenue Average revenue Marginal revenue
STEP 2: ESTIMATE DEMAND AND SERVICE
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• Fundamentals of Estimating Revenue(cont)• Demand Curves and Revenue
STEP 2: ESTIMATE DEMAND AND SERVICE
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• Fundamentals of Estimating Revenue(cont)• Price Elasticity of Demand
• Price Elasticity for Brands and Product Classes
STEP 2: ESTIMATE DEMAND AND SERVICE
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Concept Check
1. What is the difference between a movement along and a shift of a demand curve?
A: A movement along the demand curve occurs when the price is lowered and quantity demanded increases, assuming that other demand factors remain unchanged. If some of these factors change, however, a shift of the demand curve results.
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. What does it mean if a product has a price elasticity of demand that is greater than 1?
A: Elasticities greater than 1 indicate the product is price elastic.
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• The Importance of Controlling Costs Total cost Fixed cost Variable cost Marginal cost
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
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• Marginal Analysis and Profit Maximization
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
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• Break-Even Analysis Break-even point Break-even chart
• Calculating a Break-Even Point
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
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• Break-Even Analysis (cont)• Applications of Break-Even Analysis
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
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Concept Check
1. What is the difference between fixed costs and variable costs?
A: Fixed costs are stable and do not change with the quantity of the product that is produced and sold. Variable costs vary directly with the quantity of the product that is produced and sold.
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. What is a break-even point?
A: The break-even point is the quantity at which total revenue and total cost are equal and beyond which profit occurs.