McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

One of the Most Difficult Decisions in Marketing $

Product Place Promotion Price

Price must be a reflection of value Product Price

Price must be a reflection of value Product Price

Price must be a reflection of value Product Price

Price must be a reflection of value Product Price

Price must be a reflection of value Product Price

Price must be a reflection of value Product Price...

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price)

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price) Benefits = a dollar and some change worth of value

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price) Benefits = a dollar and some change worth of value = good value..

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price) Product Price.

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price) Product Price.

Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price) Product Price.

Price must be a reflection of value Product Price

Profit Equation Profit = Total Revenue- Total Cost

Profit Equation Profit = Total Revenue- Total Cost.20 per glass.30 per glass

Profit Equation Profit = (Unit Price × Quantity Sold) – (Fixed Cost – Variable Cost)

Profit Equation Total Revenue x Quantity Sold Unit Price 70 glasses = $35 Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost.50 x 70 glasses = $35 Total Revenue Fixed cost = $5Variable cost =.20 per sale.

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost.50 x 70 glasses = $35 Total Revenue Fixed cost = $5Variable cost =.20 per sale

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost.50 x 70 glasses = $35 Total Revenue Fixed cost = $5Variable cost = $14

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost Profit = (.50 x 70) –

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost Profit = 35 – = 16

Profit Equation Profit = (Unit Price × Quantity Sold) – Fixed Cost – Variable Cost Profit = 35 – = 16 Profit = (P × Q) – [FC + (UVC × Q)] Price Quantity Fixed Cost Unit variable cost Quantity (.50 X 70) [5 + (.20 X 70)] = 16 -

General Pricing Approaches

End of Part One.

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Part Two.

General Pricing Approaches ● Demand-Oriented Pricing Approaches ● Cost-Oriented Pricing Approaches ● Profit-Oriented Pricing Approaches ● Competition-Oriented Pricing Approaches

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

Skimming Price ● Beginning price is the highest possible. ● Often used for new products.

Skimming Price PRICEPRICE Sales Volume $400 $350 $300 $250 $200

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-35

Penetration Pricing ● The opposite of price skimming. ● A product is sold at a very low price in order to immediately appeal to the mass market.

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-37

Prestige Pricing ● Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it. ● Products prestige pricing may sell worse at lower prices than at higher ones because buyers tend to associate a lower price with lower quality. $30,000...

Prestige Pricing ● Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it. ● Products prestige pricing may sell worse at lower prices than at higher ones because buyers tend to associate a lower price with lower quality. $

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-40

Odd-Even Pricing ● Pricing at.99 instead of 1.00 ● $ instead of $500. ● $29,999 instead of $30,000

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-42

Target Pricing Consumer Retailer Wholesaler Manufacturer Consumer will pay $120 Retailer will pay $60 Wholesaler will pay $36 Manufacturing cost is $32...

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-44

Bundled Pricing

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-46

Yield Management Pricing Airline%20Seating%20Charts/ Airbus_A320_Northwest_ Airlines_Seating_Chart.gif $200

Yield Management Pricing $ $275

Yield Management Pricing $ $350

Yield Management Pricing $

Yield Management Pricing $ $525

Yield Management Pricing $

Yield Management Pricing $

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level End of Program. Go to Part Two.

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Part Three.

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-56

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-57

Standard Markup $ Cost 100% Markup $ $

Standard Markup

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-60

Cost Plus $ 1.98 mm Locomotive builder’s cost = $1.8 million + 10% profit = $180,000 Locomotive price = $1,980,000

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-62

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-63

Target Profit Pricing ● Based upon maximum price you can charge, fixed cost, variable cost, and number of units sold, you set your price to get a desired profit.

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)]

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – ($30,000 + $74,600) You will need to manually advance to the next slide

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = 1800 P ( x ) - ( $30,000 + $75,600 ) You will need to manually advance to the next slide $34,000 = Price x 1,800 Units – ($30,000 + $74,600)

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] $34, P - $105,600 = - You will need to manually advance to the next slide

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] $34, P - $105,600 = - You will need to manually advance to the next slide

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] 1800 P - $139,600 = You will need to manually advance to the next slide -

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] $139,600 = You will need to manually advance to the next slide - P

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] 1800 $139,600 = You will need to manually advance to the next slide P

Target Profit Pricing Target Profit = $34,000 To calculate a target profit price for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 Target Profit = Total Revenue – Total Cost Target Profit = (Price x Quantity) – [Fixed Cost + (Unit Variable Cost x Quantity)] $34,000 = Price x 1,800 Units – [$30,000 + ($42.00 x 1,800 Units)] $77.56 = You will need to manually advance to the next slide P

End of Program. Go to Part Four.

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Part Four.

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-76

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 FC+ ( UVC x Q ) Q( 1- Target Return on Sales ) x

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 $30,000 + ( $42 x 1,800) ( ) x

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 You will need to manually advance to the next slide $30, ,600 1,800( ) x

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 You will need to manually advance to the next slide 105,600 1,800( ) x

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 You will need to manually advance to the next slide 105,600 1, x

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 You will need to manually advance to the next slide 105,600 1,368

Target Return on Sales Pricing Target Return on Sales = 24% To calculate a price to achieve a profit that is a specific for a wristwatch UVC = $42.00 FC = $30,000 Upper Limit Price = $78.00 Q = 1,800 You will need to manually advance to the next slide $77.19 $ %

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-84

Target Return on Investment

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600 Gross Margin (Net Sales – COGS)$ 64,800 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008 Less: Taxes$ 17,004 Net Profit After Taxes$ 17,004 Investment$250,000 Return on Investment 6.8%..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investme$250,000 Return on Investment 6.8% $77.56 $

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$78.34 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7%.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7%.. $77.90 $78.34

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$77.90 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608$140,220 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,864 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,864 Less: Taxes$ 17,004$ 16,932 Net Profit After Taxes$ 17,004$ 16,932 Investment$250,000 Return on Investment 6.8%...

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-98

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

At-market price Above-market price Below-market price..

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

End of Program.

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600 Gross Margin (Net Sales – COGS)$ 64,800 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008 Less: Taxes$ 17,004 Net Profit After Taxes$ 17,004 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide...

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide...

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investme$250,000 Return on Investment 6.8% You will need to manually advance to the next slide. $77.56 $

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$78.34 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7% You will need to manually advance to the next slide..

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%6.7% You will need to manually advance to the next slide... $77.90 $78.34

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$77.90 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608$140,220 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,864 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,864 Less: Taxes$ 17,004$ 16,932 Net Profit After Taxes$ 17,004$ 16,932 Investment$250,000 Return on Investment 6.8% You will need to manually advance to the next slide....

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

At-market price Above-market price Below-market price..

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

End of Program.

Closing slug

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600 Gross Margin (Net Sales – COGS)$ 64,800 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008 Less: Taxes$ 17,004 Net Profit After Taxes$ 17,004 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% 6.7%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$78.34 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$78.34 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% 6.7%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$77.90 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,252 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,252 Less: Taxes$ 17,004$ 16,626 Net Profit After Taxes$ 17,004$ 16,626 Investment$250,000 Return on Investment 6.8% 6.7%

Upper-limit price $78Year 1Year 2 Price per unit (P) $77.56$77.90 Units Sold (Q)1,800 Unit Variable Cost (UVC) $42$42.42 Fixed Costs (FC)$30,000 Investment$250,000 State and Federal Taxes50% Net Sales (P X Q)$139,608$140,220 Less: Cost of Goods Sold (Q x UVC)$ 75,600$ 76,356 Gross Margin (Net Sales – COGS)$ 64,800$ 63,864 Less: Fixed Costs$ 30,000 Net Profit Before Taxes$ 34,008$ 33,864 Less: Taxes$ 17,004$ 16,932 Net Profit After Taxes$ 17,004$ 16,932 Investment$250,000 Return on Investment 6.8%

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level

End of Program.