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Chapter 11: Pricing products and services. When you finish this chapter, you should: Describe the nature and importance of pricing and the approaches used to select an approximate price level; explain what a demand curve is and the role of revenues in pricing decisions; explain the role of costs in pricing decisions and describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s breakeven point.
McGrawHill/Irwin Copyright © 2013 by The McGrawHill Companies, Inc. All rights reserved LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO: LO1 Describe the nature and importance of pricing and the approaches used to select an approximate price level LO2 Explain what a demand curve is and the role of revenues in pricing decisions LO3 Explain the role of costs in pricing decisions and describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s breakeven point 112 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO: LO4 LO5 Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge Describe the steps taken in setting a final price 113 VIZIO, INC.—WHERE VISION MEETS VALUE™ IN HDTV 114 LO1 NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?: THE PRICE EQUATION Price Barter Price Equation Veyron vs EuroFighter Drag Race Final Price = List Price – (Incentives + Allowances) + Extra Fees 115 FIGURE 11-1 The “price” a buyer pays can take different names depending on what is purchased 116 LO1 NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value Value = $ Perceived Benefits Price = $ Profit Equation Profit = Total Revenue Š Total Costs = (Unit Price Quantity Sold) Š (Fixed Cost + Variable Cost) 117 FIGURE 11-2 Four approaches for selecting an approximate price level 118 LO1 GENERAL PRICING APPROACHES DEMAND-ORIENTED PRICING APPROACHES Skimming Pricing Prestige Pricing Penetration Pricing Odd-Even $500.00 vs Pricing $499.99 119 MARKETING MATTERS LO1 Energizer’s Lesson in Price Perception— Value Lies in the Eye of the Beholder 1110 LO4 PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS Pricing Constraints • Cost of Producing and Marketing a Product • Competitors’ Prices 1133 LO4 PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS Pricing Constraints • Legal and Ethical Considerations Price Fixing Deceptive Pricing Price Discrimination Predatory Pricing 1134 FIGURE 11-C Several pricing practices are affected by legal and regulatory restrictions, which benefit both consumers and firms 1135 FIGURE 11-D Five most common deceptive pricing practices 1136 LO4 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 1137 FIGURE 11-E Pricing, product, and advertising strategies available to firms in four types of competitive markets 1138 LO5 SETTING A FINAL PRICE SET THE LIST PRICE: CHOOSING A PRICE POLICY CarMax Ad One-Price Policy Flexible Price Policy 1139 MAKING RESPONSIBLE DECISIONS LO5 Flexible Pricing—Is There Discrimination in Bargaining for a New Car? Buying a New Car: Some Folks Pay More 1140 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: DISCOUNTS Quantity Seasonal Trade (Functional) Cash 1141 FIGURE 11-F The structure of trade discounts affects the manufacturer’s selling price and the margins made by resellers in the marketing channel 1142 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: ALLOWANCES Trade-In Promotional Every Day Low Pricing (EDLP) 1143 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY FOB Origin Pricing 1144 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY Uniform Delivered Pricing: Single Zone U.S Postal Service Priority Mail Flat Rate Prices from Denver to anywhere in the U.S Envelope: $5.15 Small Box: $5.35 Medium Box: $11.35 Large Box: $15.45 1145 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY Uniform Delivered Pricing: Multiple-Zone 1146 LO5 SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY Uniform Delivered Pricing: Basing-Point 1147 ... READING CHAPTER 11, YOU SHOULD BE ABLE TO: LO4 LO5 Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge Describe the steps... the demand curve 11 19 FIGURE 11- 3A Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve 11 20 FIGURE 11- 3B Demand curve... Race Final Price = List Price – (Incentives + Allowances) + Extra Fees 11 5 FIGURE 11- 1 The “price” a buyer pays can take different names depending on what is purchased 11 6 LO1 NATURE AND IMPORTANCE