Basic Marketing – Chapter 18 Supplementary PowerPoint Archive This is an archive of photos and exhibits from the text and additional graphics and exhibits as referenced in the Basic Marketing Multimedia Lecture Guides. See the Basic Marketing Multimedia Lecture Support Package for additional detail and teaching suggestions. For use only with Perreault/Cannon/McCarthy. These images may not be redistributed or used for any other purpose without permission of the publisher, McGraw-Hill/Irwin, The McGraw-Hill Companies, Inc. William D. Perreault Jr. and E. Jerome McCarthy For use only with Perreault/Cannon/McCarthy or Perreault/McCarthy texts. © 2009 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin For use only with Perreault and McCarthy texts. © 2005 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1 Basic Marketing

Sony’s flat-panel TVs opening photo (p.484)

Exhibit 18-1: Price Setting and Strategy Planning (p.487)

Kohler and Splenda ads (p. 488)

Black and Decker cordless electric drill photo (p. 489)

Exhibit 18-2: Example of a Markup Chain and Channel Pricing (p.489)

EnergyTomorrow.org ad (p.490)

Exhibit 18-3: Results of Average-Cost Pricing (p.491)

Exhibit 18-4: Cost Structure of a Firm (p.493)

Exhibit 18-5: Typical Shape of Cost (per unit) Curves when Average Variable Cost per Unit is Constant (p.493)

Exhibit 18-6: Evaluation of Various Prices along a Firm’s Demand Curve (p.494)

Exhibit 18-7: Summary of Relationships among Quantity, Cost, and Price Using Cost-Oriented Pricing (p.494)

Exhibit 18-8: Break-Even Chart for a Particular Situation (p.497)

Gillette international photo (p. 498)

Exhibit 18-9: Revenue, Cost, and Profit at Different Prices for a Firm (p.499)

Note: profit area shown in green Exhibit 18-10: Graphic Determination of the Price Giving the Greatest Total Profit for a Firm (p.500) Note: profit area shown in green

Exhibit 18-11: Marginal Revenue Drops Fast in an Oligopoly (p.501)

Xerox ad (p.502)

Porsche ad (p.503)

Grasshopper ad (p. 504)

Kodak ad (p.506)

Benjamin Moore ad (p.506)

Exhibit 18-12: How Customers Reference Price Influences Perceived Value (for a marketing mix with a given set of benefits and costs) (p.506)

Exhibit 18-13: Demand Curve when Psychological Pricing is Appropriate (p.507)

Carino’s ad (p.508)

Exhibit 18-14: Demand Curve Showing a Prestige Pricing Situation (p

Cartier ad (p.508)

Paradigm ad (p.508)

Comcast ad (p.510)

Worldbid and Jaffe ads (p.511)

Wal-Mart photo

Key Factors that Influence Price Setting

Products may be marked up several times through the channel Markups Dollar amount added to the cost of the products to get the selling price Markup percent is the percentage of selling price that is added to the cost to get the selling price percent of selling price unless otherwise noted Products may be marked up several times through the channel the sequence of markups is the markup chain High markups don't always mean high profits depends on the stockturn rate

Alternative Example of a Markup Chain and Channel Pricing

Alternate Approach for Computing Channel Markups

Milk in supermarket stockturn photo

Adds a reasonable markup to the average cost of a product Average-Cost Pricing Adds a reasonable markup to the average cost of a product Simplifies pricing Quite common, especially among middlemen Usually based on estimates or past records actual average cost depends on quantity sold! quantity sold depends on price

Cargill average cost ad

Experience Curve Pricing A type of average-cost pricing that is not discussed in text, but uses an estimate of future average costs Often leads to low prices if future economies of scale are expected costs may drop with accumulated production experience Can be very risky if costs do not drop, or if expected volume is not achieved

Can be modified to incorporate a target return Problems: Break-Even Analysis Used to evaluate whether the firm will be able to cover costs (break even) at a particular price Indicates the break-even point—sales (units or dollars) needed to break even Can be modified to incorporate a target return Problems: assumes any quantity can be sold at a given price total cost curve is assumed to be a straight line

Break-Even Chart Example

Marginal Revenue and Price

A Plotting of the Demand and Marginal Revenue Data

Cost Structure for Individual Firm (fill in the missing numbers)

Cost Structure for Individual Firm (with missing numbers filled in)

Per-Unit Cost Curves (for Individual Firm)

Alternate Determination of the Most Profitable Output and Price for a Firm

Finding the Most Profitable (or least unprofitable) Price and Quantity in Pure Competition (in the short run)

Demand-Oriented Pricing Approaches Evaluating a customer’s price sensitivity Value in use pricing Auctions including online sequential price reductions Reference prices Leader pricing Bait pricing Psychological pricing odd-even pricing price lining Demand-backward pricing Prestige pricing Full-line pricing complementary product pricing product-bundle pricing

Evaluating a Customer’s Price Sensitivity Are there substitute ways of meeting a need? Is it easy to compare prices? Who pays the bill? How great is the total expenditure? How significant is the end benefit? Are there switching costs?

Folgers Home Café Brewing System ad

Value in Use Pricing Sets prices that will capture some of what customers will save by substituting the firm's product for the one the customer is currently using Example: A construction firm that buys a new, more efficient bulldozer at a higher price might still save money on: labor (operator) expenses down-time for repairs fuel consumption maintenance costs

eCampus.com and Hallmark ads

Affordable Furniture ad

Rolex ad