1. PRICE

2. Yes, But What Does It Cost? Price is the value that customers give up or exchange to obtain a desired product Payment may be in the form of money, goods, services, favors, votes or anything else that has value to the other party

3. Opportunity Costs The value of something that is given up to obtain something else also affects the “price” of a decision Example: the cost of going to college is charged in tuition and fees but also includes the opportunity cost of what a student cannot earn by working instead

4. The Importance of Pricing Decisions Price is the only P which represents revenue rather than an expense Pricing and the Marketing Mix –Price and Place –Price and Product –Price and Promotion

5. The price of four different purchases

6. Identify objectives & constraints Estimate demand & revenue Determine cost, volume and profit Set an approximate price level Set List or Quoted price Make adjustments to list price Steps in setting price

7. Identifying Pricing constraints –Demand for the Product Class, Product, and Brand –Newness of the Product: Stage in the Product Life Cycle –Single Product versus a Product Line –Cost of Producing and Marketing the Product –Cost of Changing Prices & Time Period They Apply –Types of Competitive Markets - Competitors’ Prices

8. Pricing Objectives Sales or market share objectives Profit objectives Competitive effect objectives Customer satisfaction objectives Image enhancement objectives –Social Responsibility

9. Estimating Demand Demand refers to customers’ desire for products –How much of a product do consumers want? –How will this change as the price goes up or down? Identify demand for an entire product category in markets the company serves Predict what the company’s market share is likely to be

10. The Price Elasticity of Demand How sensitive are customers to changes in the price of a product? Price elasticity of demand is a measure of the sensitivity of customers to changes in price. Price elasticity of demand = Percentage change in quantity demanded / Percentage change in price

11. Demand Curves Shows the quantity of a product that customers will buy in a market during a period of time at various prices if all other factors remain the same Vertical axis represents the different prices a firm might charge Horizontal axis shows the number of units

12. Demand Curves

13. Influences on Price Elasticity of Demand Availability of substitute goods or services –If a product has a close substitute, its demand will be elastic Time period –The longer the time period, the greater the likelihood that demand will be more elastic Income effect –Change in income affects demand for a product even if its price remains the same normal goods, luxury goods, inferior goods

14. Elastic and Inelastic Demand Curves

15. Types of Costs - 1 Variable costs - per-unit costs of production that will fluctuate depending on how many units or individual products a firm produces Fixed costs - do not vary with the number of units produced. Costs remain the same regardless of amount produced

16. Types of Costs - 2 Average fixed cost is the fixed cost per unit produced (total fixed costs / number of units produced) Total costs = variable costs plus fixed costs

17. Break-Even Analysis Technique used to examine the relationship between cost and price and to determine what sales volume must be reached at a given price before the company will completely cover its total costs and past which it will begin making a profit All costs are covered but there isn’t a penny left over

18. Break-even analysis chart

19. Marginal Analysis Provides a way for marketers to look at cost and demand at the same time Examines the relationship of marginal cost to marginal revenue –marginal cost is the increase in total costs from producing one additional unit of a product –marginal revenue is the increase in total income or revenue that results from selling one additional unit of a product

20. Marginal Analysis