© 2009 South-Western, Cengage LearningMARKETING 1 Chapter 14 DETERMINING THE BEST PRICE 14-1The Economics of Price Decisions 14-2Developing Pricing Procedures 14-3Pricing Based on Market Conditions CHAPTER 14

© 2009 South-Western, Cengage LearningMARKETING Chapter 14 2 ©LEXUS 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 LearningMARKETING Chapter 14 3 THE ECONOMICS OF PRICE DECISIONS GOALS Explain 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 LearningMARKETING Chapter 14 4 Price as a Marketing Tool The importance of price What is price? Price adjustability

© 2009 South-Western, Cengage LearningMARKETING Chapter 14 5 Price as an Economic Concept Economic utility Elasticity of demand

© 2009 South-Western, Cengage LearningMARKETING Chapter 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 LearningMARKETING Chapter 14 7 Inelastic Demand Price of a Dozen EggsQuantity SoldTotal Revenue $ $ $ $ $ $ $ $ $ $ $ $211.20

© 2009 South-Western, Cengage LearningMARKETING Chapter 14 8 Elastic Demand Price of a Gallon of Ice CreamQuantity SoldTotal Revenue $ $ $ $ $ $ $ $ $ $ $ $475.80

© 2009 South-Western, Cengage LearningMARKETING Chapter 14 9 Governments Effect on Prices Regulating competition Regulating prices Taxation

© 2009 South-Western, Cengage LearningMARKETING Chapter DEVELOPING PRICING PROCEDURES GOALS Describe 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 LearningMARKETING Chapter Setting Price Objectives Maximize profits Increase sales Maintain an image

© 2009 South-Western, Cengage LearningMARKETING Chapter Determining a Price Range Maximum price Minimum price Breakeven analysis Price range

© 2009 South-Western, Cengage LearningMARKETING Chapter Breakeven Analysis for Ascroe Garden Weeder Variable Total UnitsCostsVariableFixedTotal Total Soldper UnitCosts+Costs=CostsPriceRevenue 5,522$2.80$15,462+$85,000=$100,462$14$77,308 6,054$2.80$16,951+$85,000=$101,951$14$84,756 6,998$2.80$19,594+$85,000=$104,594$14$97,972 7,589$2.80$21,249+$85,000=$106,249$14$106,246 8,225$2.80$23,030 +$85,000 =$108,030$14$115,150 9,110$2.80$25,508 +$85,000 =$110,508$14$127,540

© 2009 South-Western, Cengage LearningMARKETING Chapter Breakeven point Breakeven Point 7,589 units = 85, – === Total fixed cost Price – Variable costs per unit

© 2009 South-Western, Cengage LearningMARKETING Chapter 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 charge Variable costs per pair Fixed costs per pair

© 2009 South-Western, Cengage LearningMARKETING Chapter Calculating a Selling Price Gross margin Operating expenses Net profit Markup Markdown

© 2009 South-Western, Cengage LearningMARKETING Chapter Components of the Selling Price Product cost Operating expenses Net profit

© 2009 South-Western, Cengage LearningMARKETING Chapter PRICING BASED ON MARKET CONDITIONS GOALS Identify 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 LearningMARKETING Chapter Competitive Environment Product life cycle Consumer purchase classifications Non-price competition

© 2009 South-Western, Cengage LearningMARKETING Chapter Pricing Strategies Price flexibility One-price policy Flexible pricing policy Price lines Geographic pricing FOB pricing Zone pricing Discounts and allowances Added values

© 2009 South-Western, Cengage LearningMARKETING Chapter Discounts and Allowances Quantity discount Seasonal discount Cash discount Trade discount Trade-in allowance Advertising allowance Coupon Rebate

© 2009 South-Western, Cengage LearningMARKETING Chapter Offering Credit Types of credit Consumer credit Trade credit Developing credit procedures Credit policies Credit approval Collections