Chapter 13

Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Chapter 13Chapter 13

Price Determination


13-2

Pricing and the LawPricing and the Law

PricePrice: the exchange value of a good or service

Robinson-Patman ActRobinson-Patman ActProhibits price discrimination that is not based

on a cost differentialProhibits selling at

unreasonably low prices to eliminate competition


13-3

Protecting Image by Avoiding Price Discounting


13-4

Pricing Objectives and thePricing Objectives and theMarketing MixMarketing Mix

Prices determine how much revenue a company receives

Prices influence a firm’s profits Prices influence how a firm uses factors of

production:Natural resourcesCapitalHuman ResourcesEntrepreneurship


13-5

Pizza Hut, what would you say about their pricing objectives?


13-6

ProfitabilityFor-profit firms must set prices with profitability in mindProfit MaximizationTarget-Return Objectives


13-7

The OfficeDepot seems to understand the needs and methods for profits. Even in the recent economic slow down OfficeDepot has held their own in the marketplace.


13-8

VolumeSales maximization

Market-share objectives

The PIMS Project: Research supports a strong positive relationship between a firm’s market share and its return on investment


13-9

Price as a Tool to Achieve Volume Objectives


13-10

Glad GladWare ContainersUsing Price to

Achieve a Market Share Objective


13-11

Clorox Increasing

Profitability through Product Quality and Market Share


13-12

This ad is aimed at increasing profitability by building volume and market share for Sprint.


13-13

Meeting CompetitionMeeting CompetitionSeeks simply to meet competitor’s pricesValue Pricing


13-14

Prestige ObjectivesWaterford

Prestige Pricing Maintains a High-Quality Image


13-15

Prestige Pricing: Prices for lynx boom boom drivers are set at a relatively high level in order to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers


13-16

Pricing Objectives of Not-for-Profit Pricing Objectives of Not-for-Profit OrganizationsOrganizations

Profit maximization Cost recovery Market incentives Market suppression


13-17

Methods for Determining PricesMethods for Determining Prices

Customary Prices: traditional prices that consumers expect to pay for a good or service

Cough Suppressants Are Typical of the Products That Use Customary Pricing – So Customary That This “Classic” International Ad Doesn’t Even Mention Price


13-18

Price Determination inPrice Determination inEconomic TheoryEconomic Theory

Demand

Supply


13-19

Four Market Structures

Pure Competition

Monopolistic Competition


13-20

Internet Service Providers Operate in a Monopolistic Competition Market Structure – Some Even Offer Free Service


13-21

OligopolyOligopoly


13-22

MonopolyMonopolyAnti-trust legislationGovernment regulated monopolies


13-23

Cost and Revenue CurvesCost and Revenue CurvesPrice is often determined by analyzing the cost and revenue curves

Average total cost

Marginal cost

Average revenue

Marginal revenue


13-24

The Concept Of Elasticity In Pricing StrategyThe Concept Of Elasticity In Pricing StrategyElasticity: measure of responsiveness of

purchasers and suppliers to changes in price

One Internet Service Provider, Freeinternet.Com, Uses Ads Like This One to Differentiate Itself From Its Competitors in an Elastic Market With Many Substitutes


13-25

Determinants Of ElasticityDeterminants Of Elasticity

Availability of Substitutes

Luxury or Necessity

Portion of Budget

Time Perspective


13-26

Four Seasons Hotels Inelastic demand for a service viewed as a necessity

for upscale travelers


13-27

Elasticity and RevenueElasticity and RevenueElasticity of demand exerts an important influence on total revenue as a result in the changes in the price of a good or service


13-28

Practical Problems of Price TheoryPractical Problems of Price TheoryMarketers may thoroughly understand

price theory concepts but still encounter difficulty in applying them in practice.Estimating demand curves is a difficult

process


13-29

Price Determination in PracticePrice Determination in Practice

Cost-plus pricing: practice of adding a percentage of a specified dollar amount to the base cost of a product to cover unassigned costs and provide a profit


13-30

Alternative Pricing ProceduresAlternative Pricing Procedures

Full-cost pricing

Incremental-cost pricing


13-31

Breakeven analysis: pricing technique used to determine the number of products that must be sold at a specified price in order to generate sufficient revenue to cover total cost Target Returns

The target return may be set as:A desired dollar returnA percentage of sales


13-32

Toward Realistic PricingToward Realistic Pricing

In actual practice, most pricing approaches are largely cost oriented

They thus violate the marketing concept New approaches being developed are

incorporating the element of consumer demand


13-33

The Modified Breakeven ConceptThe Modified Breakeven ConceptPricing technique used to evaluate

consumer demand by comparing the number of products that must be sold at a variety of prices in order to cover total cost with estimates of expected sales at the various prices


13-34

Yield ManagementYield Management: pricing strategy designed to maximize sales in situations such as airfares, lodging, auto rentals, and theater tickets where costs are fixed

Prices for a Round-TripFlight Between NYC and Miami Varied in From $190 to $739 in coach.


13-35

Global Issues in Price DeterminationGlobal Issues in Price Determination

Global Prices must support the firm’s broader goals including:Product developmentAdvertising and salesCustomer supportCompetitive plansFinancial objectives


13-36

In general firms that set prices in global marketing follow the same objectives with one addition:

Price stability is the ability to maintain consistent prices during major economic fluctuations and periods of political change

Chapter 13

Documents

Transcript of Chapter 13