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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

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-1 The price a buyer pays can
take different names depending on what is
purchased

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
NATURE AND IMPORTANCE OF PRICE
PRICE AS AN INDICATOR OF VALUE

Value Perceived Benefits


Value =
Price

Profit Equation

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-2 Four approaches for selecting
an approximate price level

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
DEMAND-ORIENTED PRICING APPROACHES

Skimming Penetration
Pricing Pricing

Prestige Odd-Even
Pricing Pricing
Rolex Ad
$500.00
vs.
$499.99

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
MARKETING MATTERS
Energizers Lesson in Price Perception
Value Lies in the Eye of the Beholder

Energizer Ad

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
DEMAND-ORIENTED PRICING APPROACHES

Target Pricing

Bundle Pricing

Yield Management Pricing

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
COST-ORIENTED PRICING APPROACHES

Standard Markup
Pricing

Cost

Selling Price

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-A Markups for a manufacturer,
wholesaler, and retailer on a home appliance
sold to consumers for $100

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
COST-ORIENTED PRICING APPROACHES

Cost-Plus Pricing

Percentage of Cost

Fixed Fee

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
PROFIT-ORIENTED PRICING APPROACHES

Target Profit Pricing

Target Return-on-Sales Pricing

Target Return-on-Investment
(ROI) Pricing

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
GENERAL PRICING APPROACHES
COMPETITION-ORIENTED PRICING APPROACHES

Customary Pricing

Above-, At- or Below-Market Pricing

Loss-Leader Pricing

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
ESTIMATING DEMAND AND REVENUE
FUNDAMENTALS OF ESTIMATING DEMAND

Demand Curve

Consumer Tastes

Price and Availability


of Similar Products

Consumer Income

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-3A Demand curves for Red Baron
frozen cheese pizza showing the effect on
annual sales by a change in price caused by a
movement along the demand curve

Marketing: The Core 6e MGH


Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-3B Demand curves for Red Baron
frozen cheese pizza showing the effect on
annual sales by a change in price caused by a
shift of the demand curve

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-B Fundamental revenue concepts

Total Revenue

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-4 Fundamental cost concepts

Total Cost (TC)

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
DETERMINING COST, VOLUME,
AND PROFIT RELATIONSHIPS
BREAK-EVEN ANALYSIS AND BEP

Break-Even Analysis

Break-Even Point (BEP)

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
DETERMINING COST, VOLUME,
AND PROFIT RELATIONSHIPS
BREAK-EVEN ANALYSIS

Break-Even Chart

Applications of
Break-Even Analysis

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-5 Calculating a break-even point
for the picture frame store shows its profit
starts at 400 framed pictures per year

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-6 Break-even analysis chart for
a picture frame store shows the break-even
point at 400 pictures

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
PRICING OBJECTIVES AND CONSTRAINTS
IDENTIFYING PRICING OBJECTIVES

Pricing Objectives

Profit

Managing for Long-Run Profits

Managing for Current Profit

Target Return (ROI)

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
PRICING OBJECTIVES AND CONSTRAINTS
IDENTIFYING PRICING OBJECTIVES

Pricing Objectives

Sales ($) Survival

Market Share ($ or #) Social


Responsibility
Unit Volume (#)

Marketing: The Core 6e MGH


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

Pricing Constraints

Cost of Producing and


Marketing a Product

Competitors Prices

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
PRICING OBJECTIVES AND CONSTRAINTS
IDENTIFYING PRICING CONSTRAINTS

Pricing Constraints

Legal and Ethical Considerations

Price Fixing Deceptive Pricing

Price Discrimination Predatory Pricing

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-C Several pricing practices are
affected by legal and regulatory restrictions,
which benefit both consumers and firms

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-D Five most common deceptive
pricing practices

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
PRICING OBJECTIVES AND CONSTRAINTS
IDENTIFYING PRICING CONSTRAINTS

Pricing Constraints

Cost of Changing Prices


and Time Period They Apply

Type of Competitive Market

Pure Competition Oligopoly

Monopolistic Competition Pure Monopoly

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-E Pricing, product, and
advertising strategies available to firms in
four types of competitive markets

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
SETTING A FINAL PRICE
SET THE LIST PRICE: CHOOSING A PRICE POLICY

One-Price Policy

CarMax
Ad
Flexible Price Policy

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
MAKING RESPONSIBLE DECISIONS
Flexible PricingIs There Discrimination
in Bargaining for a New Car?

Buying a New Car: Some Folks Pay More

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
SETTING A FINAL PRICE
ADJUST THE LIST PRICE: DISCOUNTS

Quantity

Seasonal

Trade (Functional)

Cash

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
FIGURE 11-F The structure of trade
discounts affects the manufacturers selling
price and the margins made by resellers in
the marketing channel

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
SETTING A FINAL PRICE
ADJUST THE LIST PRICE: ALLOWANCES

Trade-In

Promotional

Every Day Low Pricing (EDLP)

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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

Value is the ratio of perceived


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

Marketing: The Core 6e MGH


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

The profit equation is:


Profit = Total revenue Total cost; or

Profit = (Unit price Quantity sold)


(Fixed cost + Variable cost).

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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

The price elasticity of demand


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

Marketing: The Core 6e MGH


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Sean M. Keyani MKT304; David Nazarian College of Business and Economics
Total Revenue (TR)

Total revenue (TR) is the total


money received from the sale
of a product.

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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

Marketing: The Core 6e MGH


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

Pricing objectives specify the


role of price in an organizations
marketing and strategic plans.

Marketing: The Core 6e MGH


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

Pricing constraints are factors


that limit the range of prices a
firm may set.

Marketing: The Core 6e MGH


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