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Chapter 14: Pricing concepts for establishing value. In this chapter you will learn: List the four pricing orientations, explain the relationship between price and quantity sold, explain price elasticity, describe how to calculate a product’s break-even point, indicate the four types of price competitive levels,...
chapter fourteen pricing concepts for establishing value Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education LEARNING OBJECTIVES LO 14-1 List the four pricing orientations LO 14-2 Explain the relationship between price and quantity sold LO 14-3 Explain price elasticity LO 14-4 Describe how to calculate a product’s break-even point LO 14-5 Indicate the four types of price competitive levels LO 14-6 Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy LO 14-7 Explain the difference between a price skimming and a market penetration pricing strategy LO 14-8 List pricing practices that have the potential to deceive customers 142 The 5 C’s of Pricing 143 1st C: Company Objectives Company Objective Examples of Pricing Strategy Implications Profit-oriented Institute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm Sales-oriented Set prices very low to generate new sales and take sales away from competitors, even if profits suffer Competitor-oriented To discourage more competitors from entering the market, set prices very low Customer-oriented Target a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing) Profit-oriented Institute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm 144 Profit Orientation 145 Sales Orientation 146 Competitor Orientation • • Competitive parity Status quo pricing Value is not part of this pricing strategy Roz Woodward/Getty Images • 147 Customer Orientation = C Borland/PhotoLink/Getty Images Don Farrall/Getty Images Focus on customer expectations by matching prices to customer expectations automotive.com Website 148 2nd C: Customers 149 Demand Curves 1410 Glossary Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production Return to slide 1425 Glossary Income effect is the change in the quantity of a product demanded by consumers due to a change in their income Return to slide 1426 Glossary The maximizing profits strategy assumes that if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized Return to slide 1427 Glossary Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service Return to slide 1428 Glossary The substitution effect refers to consumers’ ability to substitute other products for the focal brand Return to slide 1429 Glossary Target profit pricing is implemented by firms to meet a targeted profit objective The firms use price to stimulate a certain level of sales at a certain profit per unit Return to slide 1430 Glossary Target return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales Return to slide 1431 Glossary The total cost is the sum of the variable and fixed costs Return to slide 1432 Glossary Variable costs are the costs that vary with production value Return to slide 1433 Glossary A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions Return to slide 1434 Glossary Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers Return to slide 1435 Glossary Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service Return to slide 1436 Glossary A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process Return to slide 1437 Glossary With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located Return to slide 1438 Glossary Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers Return to slide 1439 ... 1 4-1 List the four pricing orientations LO 1 4-2 Explain the relationship between price and quantity sold LO 1 4-3 Explain price elasticity LO 1 4-4 Describe how to calculate a product’s break-even... break-even point in units? 1417 Everyday Low Pricing vs High/Low Pricing High/low pricing Everyday low pricing (EDLP) vs Photodisc Collection/Getty Images ©Lars A Niki 1418 New Product Pricing Strategies... penetration pricing strategy LO 1 4-8 List pricing practices that have the potential to deceive customers 142 The 5 C’s of Pricing 143 1st C: Company Objectives Company Objective Examples of Pricing