© 2009 South-Western, Cengage LearningMARKETINGMARKETING

1

Chapter 14

DETERMININGDETERMININGTHE BEST PRICETHE BEST PRICE

14-1 The Economics of Price Decisions

14-2 Developing Pricing Procedures

14-3 Pricing Based on Market Conditions

CHAPTER

14

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

2©

LEX

US

Focus Questions:What is the focus of the

advertisement for The Week?

What pricing strategy do you think is being used by offering an online publication free of charge?

How does this add value for the customer?

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

3

THE ECONOMICS OF PRICE DECISIONS

GOALSGOALSExplain 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.

14-1

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

4

Price as a Marketing Tool

The importance of priceWhat is price?Price adjustability

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

5

Price as an Economic Concept

Economic utilityElasticity of demand

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

6

Supply and Demand Affect Price

At a price of $3, demand (90) is greater than supply (30).

At a price of $7, supply (90) is greater than demand (30).

At a price of $5, supply equals demand (60), and the market is in equilibrium.

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

7

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

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

8

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

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

9

Government’s Effect on Prices

Regulating competitionRegulating pricesTaxation

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

10

DEVELOPING PRICING PROCEDURES

GOALSGOALSDescribe common pricing objectives for

businesses.Explain how businesses establish a price

range for a product.Identify the three components that must be

considered when determining the selling price.

14-2

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

11

Setting Price Objectives

Maximize profitsIncrease salesMaintain an image

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

12

Determining a Price Range

Maximum priceMinimum priceBreakeven analysisPrice range

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

13

Breakeven Analysis forAscroe Garden Weeder

Variable TotalUnits Costs Variable Fixed Total TotalSold per Unit Costs + Costs = Costs Price Revenue

5,522 $2.80 $15,462 + $85,000 = $100,462 $14 $77,3086,054 $2.80 $16,951 + $85,000 = $101,951 $14 $84,7566,998 $2.80 $19,594 + $85,000 = $104,594 $14 $97,9727,589 $2.80 $21,249 + $85,000 = $106,249 $14 $106,2468,225 $2.80 $23,030 + $85,000 = $108,030 $14 $115,1509,110 $2.80 $25,508 + $85,000 = $110,508 $14 $127,540

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

14

Breakevenpoint

Breakeven point

Breakeven Point

7,589 units

=

85,000 85,000

14.00 – 2.80 11.20== =

Total fixed cost

Price – Variable costs per unit

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

15

Price Range for a Pair of Shoes

Total cost

$87.00

$53.00

$38.00

Price range

Highest price customer will pay

Lowest price company

can chargeVariable costs per pair

Fixed costsper pair

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

16

Calculating a Selling Price

Gross marginOperating expensesNet profitMarkupMarkdown

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

17

Components of the Selling Price

Product costOperating expensesNet profit

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

18

PRICING BASED ONMARKET CONDITIONS

GOALSGOALSIdentify 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 an important part of marketing.

14-3

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

19

Competitive Environment

Product life cycleConsumer purchase classificationsNon-price competition

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

20

Pricing Strategies

Price flexibilityOne-price policyFlexible pricing policy

Price linesGeographic pricing

FOB pricingZone pricing

Discounts and allowancesAdded values

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

21

Discounts and Allowances

Quantity discountSeasonal discountCash discountTrade discount

Trade-in allowanceAdvertising allowanceCouponRebate

© 2009 South-Western, Cengage LearningMARKETINGMARKETINGChapter 14

22

Offering Credit

Types of creditConsumer creditTrade credit

Developing credit proceduresCredit policiesCredit approvalCollections