Core 6e Ch11ppt r1

Marketing: The Core 6e MGH
Sean M. Keyani MKT304; David Nazarian College of Business and Economics

NATURE AND IMPORTANCE OF PRICE
WHAT IS A PRICE?: THE PRICE EQUATION
Price
Barter Bugatti
Veyron
Video
Price Equation
Final Price = List Price (Incentives + Allowances) + Extra Fees

11-2
FIGURE 11-1 The price a buyer pays can
take different names depending on what is
purchased

11-3
NATURE AND IMPORTANCE OF PRICE
PRICE AS AN INDICATOR OF VALUE
Value Perceived Benefits

Value =
Price
Profit Equation

11-4
FIGURE 11-2 Four approaches for selecting
an approximate price level

11-5
GENERAL PRICING APPROACHES
DEMAND-ORIENTED PRICING APPROACHES
Skimming Penetration
Pricing Pricing
Prestige Odd-Even
Pricing Pricing
Rolex Ad
$500.00
vs.
$499.99

11-6
MARKETING MATTERS
Energizers Lesson in Price Perception
Value Lies in the Eye of the Beholder
Energizer Ad

11-7
DEMAND-ORIENTED PRICING APPROACHES
Target Pricing
Bundle Pricing
Yield Management Pricing

11-8
COST-ORIENTED PRICING APPROACHES
Standard Markup
Pricing
Cost
Selling Price

11-9
FIGURE 11-A Markups for a manufacturer,
wholesaler, and retailer on a home appliance
sold to consumers for $100

11-10
COST-ORIENTED PRICING APPROACHES
Cost-Plus Pricing
Percentage of Cost
Fixed Fee

11-11
PROFIT-ORIENTED PRICING APPROACHES
Target Profit Pricing
Target Return-on-Sales Pricing
Target Return-on-Investment
(ROI) Pricing

11-12
COMPETITION-ORIENTED PRICING APPROACHES
Customary Pricing
Above-, At- or Below-Market Pricing
Loss-Leader Pricing

11-13
USING MARKETING DASHBOARDS
Are Red Bull Prices
Above, At, or Below the Market?
Price Premium (%)

Dollar Sales ($) Market Share for a Brand
Price Premium (%) = 1
Unit Volume (#) Market Share for a Brand

11-14
ESTIMATING DEMAND AND REVENUE
FUNDAMENTALS OF ESTIMATING DEMAND
Demand Curve
Consumer Tastes
Price and Availability

of Similar Products
Consumer Income

11-15
FIGURE 11-3 Demand curves for Red Baron
frozen cheese pizza showing the effect on
annual sales by a change in price caused by
(A) a movement along the demand curve and
(B) a shift of the demand curve

FIGURE 11-3A Demand curves for Red Baron
annual sales by a change in price caused by a
movement along the demand curve

FIGURE 11-3B Demand curves for Red Baron
annual sales by a change in price caused by a
shift of the demand curve

ESTIMATE DEMAND AND REVENUE
FUNDAMENTALS OF ESTIMATING DEMAND
Price Elasticity of Demand

Percentage Change in Quantity Demanded
Price Elasticity of Demand (E) =
Percentage Change in Price
Elastic Demand Inelastic Demand
Product Substitutes Necessities
Large Cash Outlays

11-19
FIGURE 11-B Fundamental revenue concepts
Total Revenue

11-20
FIGURE 11-4 Fundamental cost concepts
Total Cost (TC)

11-21
DETERMINING COST, VOLUME,
AND PROFIT RELATIONSHIPS
BREAK-EVEN ANALYSIS AND BEP
Break-Even Analysis
Break-Even Point (BEP)

11-22
DETERMINING COST, VOLUME,
AND PROFIT RELATIONSHIPS
BREAK-EVEN ANALYSIS
Break-Even Chart
Applications of
Break-Even Analysis

11-23
FIGURE 11-5 Calculating a break-even point
for the picture frame store shows its profit
starts at 400 framed pictures per year

11-24
FIGURE 11-6 Break-even analysis chart for
a picture frame store shows the break-even
point at 400 pictures

11-25
PRICING OBJECTIVES AND CONSTRAINTS
IDENTIFYING PRICING OBJECTIVES
Pricing Objectives
Profit
Managing for Long-Run Profits
Managing for Current Profit
Target Return (ROI)

11-26
IDENTIFYING PRICING OBJECTIVES
Pricing Objectives
Sales ($) Survival
Market Share ($ or #) Social

Responsibility
Unit Volume (#)

11-27
IDENTIFYING PRICING CONSTRAINTS
Pricing Constraints
Demand for the

Product Class (Cars),
Product (Sports Cars),
and Brand (Bugatti Veyron)
Newness of the
Product: Stage in the
Product Life Cycle
11-28
Pricing Constraints
Cost of Producing and

Marketing a Product
Competitors Prices

11-29
Pricing Constraints
Legal and Ethical Considerations
Price Fixing Deceptive Pricing
Price Discrimination Predatory Pricing

11-30
FIGURE 11-C Several pricing practices are
affected by legal and regulatory restrictions,
which benefit both consumers and firms

11-31
FIGURE 11-D Five most common deceptive
pricing practices

11-32
Pricing Constraints
Cost of Changing Prices

and Time Period They Apply
Type of Competitive Market
Pure Competition Oligopoly
Monopolistic Competition Pure Monopoly

11-33
FIGURE 11-E Pricing, product, and
advertising strategies available to firms in
four types of competitive markets

11-34
SETTING A FINAL PRICE
SET THE LIST PRICE: CHOOSING A PRICE POLICY
One-Price Policy
CarMax
Ad
Flexible Price Policy

11-35
MAKING RESPONSIBLE DECISIONS
Flexible PricingIs There Discrimination
in Bargaining for a New Car?
Buying a New Car: Some Folks Pay More

11-36
ADJUST THE LIST PRICE: DISCOUNTS
Quantity
Seasonal
Trade (Functional)
Cash

11-37
FIGURE 11-F The structure of trade
discounts affects the manufacturers selling
price and the margins made by resellers in
the marketing channel

11-38
ADJUST THE LIST PRICE: ALLOWANCES
Trade-In
Promotional
Every Day Low Pricing (EDLP)

11-39
Price (P)
A price (P) is the money or other

considerations (including other
products and services) exchanged
for the ownership or use of a
product or service.

11-40
Value
Value is the ratio of perceived

benefits to price; or
Value = (Perceived benefits
divided by Price).

11-41
Profit Equation
The profit equation is:

Profit = Total revenue Total cost; or
Profit = (Unit price Quantity sold)

(Fixed cost + Variable cost).

11-42
Demand Curve
A demand curve is a graph

relating the quantity sold and
price, which shows the maximum
number of units that will be sold
at a given price.

11-43
Price Elasticity of Demand
The price elasticity of demand

is the percentage change in
quantity demanded relative to a
percentage change in price.

11-44
Total Revenue (TR)
Total revenue (TR) is the total

money received from the sale
of a product.

11-45
Total Cost (TC)
Total cost (TC) is the total

expense incurred by a firm in
producing and marketing a
product. Total cost is the sum
of fixed cost and variable cost.

11-46
Break-Even Analysis
Break-even analysis is a
technique that analyzes the
relationship between total
revenue and total cost to
determine profitability at
various levels of output.

11-47
Pricing Objectives
Pricing objectives specify the

role of price in an organizations
marketing and strategic plans.

11-48
Pricing Constraints
Pricing constraints are factors

that limit the range of prices a
firm may set.

11-49

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Marketing: The Core 6e MGH

Sean M. Keyani MKT304; David Nazarian College of Business and Economics

Final Price = List Price (Incentives + Allowances) + Extra Fees

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Value Perceived Benefits

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Yield Management Pricing

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Target Profit Pricing

Target Return-on-Sales Pricing

Marketing: The Core 6e MGH

Above-, At- or Below-Market Pricing

Marketing: The Core 6e MGH

Price Premium (%)

Marketing: The Core 6e MGH

Price and Availability

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Price Elasticity of Demand

Elastic Demand Inelastic Demand

Product Substitutes Necessities

Large Cash Outlays

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Total Cost (TC)

Marketing: The Core 6e MGH

Break-Even Point (BEP)

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Managing for Long-Run Profits

Managing for Current Profit

Target Return (ROI)

Marketing: The Core 6e MGH

Sales ($) Survival

Market Share ($ or #) Social

Marketing: The Core 6e MGH

Demand for the

Cost of Producing and

Marketing: The Core 6e MGH

Legal and Ethical Considerations

Price Fixing Deceptive Pricing

Price Discrimination Predatory Pricing

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Cost of Changing Prices

Type of Competitive Market

Pure Competition Oligopoly

Monopolistic Competition Pure Monopoly

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Marketing: The Core 6e MGH

Buying a New Car: Some Folks Pay More