© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing Markup Dollar amount added to the cost of the product to get the selling price Markup may be calculated as a percent of the selling price or as a percent of the cost –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

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing Example of Markup Chain and Channel Pricing Exhibit 17-2

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing Alternate Example of a Markup Chain and Channel Pricing

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing 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

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing Break-Even Chart for a Particular Situation Exhibit 17-8

Psychological Pricing Techniques Leader Pricing (Loss Leaders)—setting price below cost to attract buyers to store Bait Pricing—using a very low price to attract buyers then switching them off to higher priced goods Odd Pricing—prices that end in less than whole dollar amounts Price Lining—pricing groups of merchandise rather than pricing items individually Complementary Pricing—pricing items high that are needed to operate or maintain the primary good Bundle Pricing—grouping products/services and offer them at a price less than the combined individual prices

Courtesy Colgate-Palmolive—for use only with Essentials of Marketing Colgate toothbrushes at different price points

© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin—for use only with Essentials of Marketing 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? Is there already a sunk investment related to the purchase?