1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO:
Describe the nature and importance of pricing and the approaches used to select an approximate price level.
LO1
Explain what a demand curve is and the role of revenues in pricing decisions.
LO2
LO3
Explain the role of costs in pricing decisions and describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s breakeven point.
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3. Describe the steps taken in setting a final price.
LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 11, YOU SHOULD BE ABLE TO:
LO4
Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge.
LO5
Describe the steps taken in setting a final price.
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4. VIZIO, INC.—WHERE VISION MEETS VALUE™ IN HDTV
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5. Price Barter Price Equation
NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?: THE PRICE EQUATION
LO1
Veyron vs. Euro- FighterDrag Race
Price
Barter
Price Equation
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6. FIGURE 11-1 The “price” a buyer pays can take different names depending on what is purchased
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7. NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE
LO1
Value $ = $
Profit Equation
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8. FIGURE 11-2 Four approaches for selecting an approximate price level
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9. GENERAL PRICING APPROACHES DEMAND-ORIENTED PRICING APPROACHES
LO1
Skimming Pricing
Penetration Pricing
$ vs. $499.99
Prestige Pricing
Odd-Even Pricing
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10. MARKETING MATTERS Energizer’s Lesson in Price Perception— Value Lies in the Eye of the Beholder
LO1
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11. GENERAL PRICING APPROACHES DEMAND-ORIENTED PRICING APPROACHES
LO1
Target Pricing
Bundle Pricing
Yield Management Pricing
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12. GENERAL PRICING APPROACHES COST-ORIENTED PRICING APPROACHES
LO1
Standard Markup Pricing
Cost
Selling Price
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13. FIGURE 11-A Markups for a manufacturer, wholesaler, and retailer on a home appliance sold to consumers for $100
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14. GENERAL PRICING APPROACHES COST-ORIENTED PRICING APPROACHES
LO1
Cost-Plus Pricing
Percentage of Cost
Fixed Fee
Experience Curve Pricing
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15. GENERAL PRICING APPROACHES PROFIT-ORIENTED PRICING APPROACHES
LO1
Target Profit Pricing
Target Return-on-Sales Pricing
Target Return-on-Investment (ROI) Pricing
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16. GENERAL PRICING APPROACHES COMPETITION-ORIENTED PRICING APPROACHES
LO1
Customary Pricing
Above-, At- or Below-Market Pricing
Loss-Leader Pricing
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17. USING MARKETING DASHBOARDS Are Red Bull Prices Above, At, or Below the Market?
Price Premium (%)
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18. ESTIMATING DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND
LO2
Demand Curve
Consumer Tastes
Price and Availability of Similar Products
Consumer Income
Demand Factors
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19. FIGURE Demand curves for Newsweek showing the effect on annual sales (quantity demanded per year) by a change in price caused by (A) a movement along and (B) a shift of the demand curve
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20. FIGURE 11-3A Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve
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21. FIGURE 11-3B Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a shift of the demand curve
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22. ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND
LO2
Price Elasticity of Demand
Elastic Demand
Inelastic Demand
Product Substitutes
Necessities
Large Cash Outlays
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23. FIGURE 11-B Fundamental revenue concepts
Total Revenue
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24. FIGURE 11-4 Fundamental cost concepts
Total Cost (TC)
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25. Break-Even Point (BEP)
DETERMINING COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS AND BEP
LO3
Break-Even Analysis
Break-Even Point (BEP)
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26. FIGURE Calculating a break-even point for the picture frame store shows its profit starts at 400 framed pictures per year
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27. Applications of Break-Even Analysis
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS
LO3
Break-Even Chart
Applications of Break-Even Analysis
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28. FIGURE Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures
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29. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES
LO4
Pricing Objectives
Profit
Managing for Long-Run Profits
Managing for Current Profit
Target Return (ROI)
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30. FIGURE 11-7 Where each dollar spent by consumers for designer denim jeans goes
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31. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES
LO4
Pricing Objectives
Sales ($)
Survival
Market Share ($ or #)
Social Responsibility
Unit Volume (#)
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32. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO4
Pricing Constraints
Demand for the Product Class (Cars), Product (Sports Cars), and Brand (Bugatti Veyron)
Newness of the Product: Stage in the Product Life Cycle
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33. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO4
Pricing Constraints
Cost of Producing and Marketing a Product
Competitors’ Prices
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34. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO4
Pricing Constraints
Legal and Ethical Considerations
Price Fixing
Deceptive Pricing
Price Discrimination
Predatory Pricing
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35. FIGURE 11-C Several pricing practices are affected by legal and regulatory restrictions, which benefit both consumers and firms
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36. FIGURE 11-D Five most common deceptive pricing practices
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37. PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO4
Pricing Constraints
Cost of Changing Prices and Time Period They Apply
Type of Competitive Market
Pure Competition
Oligopoly
Monopolistic Competition
Pure Monopoly
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38. FIGURE 11-E Pricing, product, and advertising strategies available to firms in four types of competitive markets
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39. SETTING A FINAL PRICE SET THE LIST PRICE: CHOOSING A PRICE POLICY
LO5
CarMax Ad
One-Price Policy
Flexible Price Policy
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40. MAKING RESPONSIBLE DECISIONS Flexible Pricing—Is There Discrimination in Bargaining for a New Car?
LO5
Buying a New Car: Some Folks Pay More
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41. SETTING A FINAL PRICE ADJUST THE LIST PRICE: DISCOUNTS
LO5
Quantity
Seasonal
Trade (Functional)
Cash
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42. FIGURE 11-F The structure of trade discounts affects the manufacturer’s selling price and the margins made by resellers in the marketing channel
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43. SETTING A FINAL PRICE ADJUST THE LIST PRICE: ALLOWANCES
Trade-In
Promotional
Every Day Low Pricing (EDLP)
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44. SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY
LO5
FOB Origin Pricing
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45. SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY
LO5
Uniform Delivered Pricing: Single Zone
U.S. Postal Service Priority Mail Flat Rate Prices from Denver to anywhere in the U.S.
Envelope: $5.15
Small Box: $5.35
Medium Box: $11.35
Large Box: $15.45
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46. SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY
LO5
Uniform Delivered Pricing: Multiple-Zone
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47. SETTING A FINAL PRICE ADJUST THE LIST PRICE: GEOGRAPHY
LO5
Uniform Delivered Pricing: Basing-Point
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48. WASHBURN GUITARS: USING BREAK-EVEN POINTS TO MAKE PRICING DECISIONS
VIDEO CASE 11
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49. VIDEO CASE 11
WASHBURN GUITARS
1. What factors are most likely to affect the demand for the lines of Washburn guitars (a) bought by a first-time guitar buyer and (b) bought by a sophisticated musician who wants a signature model?
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50. VIDEO CASE 11
WASHBURN GUITARS
2. For Washburn, what are examples of (a) shifting the demand curve to the right to get a higher price for a guitar line (movement of the demand curve) and (b) pricing decisions involving moving along a demand curve?
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51. VIDEO CASE 11
WASHBURN GUITARS
3. In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is (a) $349, (b) $389, and (c) $309? Also, (d) if Washburn achieves the sales target of 2,000 units at the $349 retail price, what will its profit be?
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52. VIDEO CASE 11
WASHBURN GUITARS
4. Assume that the merger with Parker leads to the cost reductions projected in the case. What will be the (a) new break-even point at a $349 retail price for this line of guitars and (b) new profit if it sells 2,000 units?
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53. VIDEO CASE 11
WASHBURN GUITARS
5. If for competitive reasons, Washburn eventually has to move all its production back to Asia, (a) which specific fixed and variable costs might be lowered and (b) what additional fixed and variable costs might it expect to incur?
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54. Price (P)
A price (P) is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.
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55. Value
Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price).
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56. Profit Equation
The profit equation is: Profit = Total revenue − Total cost; or Profit = (Unit price × Quantity sold) − (Fixed cost + Variable cost).
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57. Demand Curve
A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price.
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58. Price Elasticity of Demand
The price elasticity of demand is the percentage change in quantity demanded relative to a percentage change in price.
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59. Total Revenue (TR)
Total revenue (TR) is the total money received from the sale of a product.
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60. Total Cost (TC)
Total cost (TC) is the total expense incurred by a firm in producing and marketing a product. Total cost is the sum of fixed cost and variable cost.
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61. Break-Even Analysis
Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.
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62. Pricing Objectives
Pricing objectives specify the role of price in an organization’s marketing and strategic plans.
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63. Pricing Constraints
Pricing constraints are factors that limit the range of prices a firm may set.
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