1. McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. Identify the elements that make up a price.
LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO:
LO1
Identify the elements that make up a price.
Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge.
LO2
Explain what a demand curve is and the role of revenues in pricing decisions.
LO3
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3. Explain the role of costs in pricing decisions.
LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO:
Describe what price elasticity of demand means to a manager facing a pricing decision.
LO4
LO5
Explain the role of costs in pricing decisions.
Describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s breakeven point.
LO6
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4. WHEN MOTHER MAY NOT KNOW BEST: THE LAUNCH OF STUBHUB.COM!
Plan for the Start-up
How StubHub Works Now
StubHub: Who Benefits and How?
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5. FIGURE 13-1 Quick-take quiz on price: Answers that are part numbers, part good judgment
(d) $2.7 trillion
(b) fixed cost
(b) gasoline
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6. NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?
LO1
Price
Barter
Price Equation
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7. FIGURE 13-2 The “price” a buyer pays can take different names depending on what is purchased
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8. NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE
LO1
Value $ = $
Value-Pricing
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9. NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX
LO1
Profit Equation
Six Steps in Setting Price
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10. FIGURE 13-3 The six steps in setting price
FIGURE The six steps in setting price. The first three steps are covered in Chapter 13 and the last three steps in Chapter 14.
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11. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES
LO2
Pricing Objectives
Profit
Managing for Long-Run Profits
Managing for Current Profit
Target Return (ROI)
“The World is Flattening”
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12. MARKETING MATTERS How Flattening the World Affects Both Revenues and Costs: Infosys…IKEA, and You!
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13. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES
LO2
Pricing Objectives
Sales ($)
Survival
Market Share ($ or #)
Social Responsibility
Unit Volume (#)
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14. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO2
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
eBay
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15. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO2
Single Product vs. a Product Line
Cost of Producing and Marketing a Product
Cost of Changing Prices and Time Period They Apply
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16. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS
LO2
Type of Competitive Market
Pure Competition
Monopolistic Competition
Oligopoly
Pure Monopoly
Competitors’ Prices
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17. FIGURE Pricing, product, and advertising strategies available to firms in four types of competitive markets
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18. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND
LO3
The 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 13-5A 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 13-5B 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. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND
LO3
Movement Along vs. a Shift of Demand Curve
Movement Along a Demand Curve
Shift in the Demand Curve
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23. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE
LO3
Total Revenue (TR)
Average Revenue (AR)
Marginal Revenue (MR)
Demand Curves and Revenue
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24. FIGURE 13-6 Fundamental revenue concepts
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25. FIGURE How Newsweek’s downward-sloping demand curve affects total, average, and marginal revenues
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26. MARKETING MATTERS The Airbus vs
MARKETING MATTERS The Airbus vs. Boeing Face-off—How Many Can We Sell and at What Price…in a $2.7 Trillion Market?
Marketing and Pricing
The Products
Demand
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27. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE
LO4
Price Elasticity of Demand
Elastic Demand
Inelastic Demand
Unitary Demand
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28. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE
LO4
Price Elasticity of Demand
Product Substitutes
Necessities
Large Cash Outlays
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29. Clothing and Gasoline Which product is more sensitive to price changes?
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30. Unit Variable Cost (UVC)
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS THE IMPORTANCE OF CONTROLLING COSTS
LO5
Total Cost (TC)
Fixed Cost (FC)
Variable Cost (VC)
Unit Variable Cost (UVC)
Marginal Cost (MC)
Marginal Analysis
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31. FIGURE 13-8 Fundamental cost concepts
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32. MARKETING MATTERS Pricing Lessons from Failed Dot-Com Start-ups—Understand Revenues and Expenses
Brick-and-Mortar Dot-Com Failures
Travel Dot-Com Successes (So Far)
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33. Break-Even Point (BEP)
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS
LO6
Break-Even Analysis
Break-Even Point (BEP)
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34. FIGURE Profit is a maximum at the quantity at which marginal revenue and marginal cost are equal
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35. 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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36. Applications of Break-Even Analysis
STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS
LO6
Break-Even Chart
Applications of Break-Even Analysis
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37. FIGURE Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures
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38. FIGURE 13-12 The cost trade-off: Fixed versus variable costs
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39. WASHBURN GUITARS: USING BREAK-EVEN POINTS TO MAKE PRICING DECISIONS
VIDEO CASE 13
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40. VIDEO CASE 13
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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41. VIDEO CASE 13
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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42. VIDEO CASE 13
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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43. VIDEO CASE 13
WASHBURN GUITARS
4. Assume that the merger with Parker leads to the cost reductions projected in the case. Then, 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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44. VIDEO CASE 13
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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45. SUPPLEMENTAL LECTURE NOTE 13-1
TEENAGE SMOKING: COOL, PRICE ELASTICITY, AND $1-A-PACK CIGARETTES!
SUPPLEMENTAL LECTURE NOTE 13-1
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46. South Carolina Teenage Anti-Smoking Print Ad What is the effect of a tax on the price elasticity of demand for cigarettes by teenagers?
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47. PRICING A PANASONIC HIGH DEFINITION TV
IN-CLASS ACTIVITY 13-1
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48. Panasonic Viera Plasma HDTV
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49. 13-49

50. Price
A price is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service.
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51. Barter
Barter is the practice of exchanging goods and services for other goods and services rather than for money.
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52. Value
Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price).
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53. Value-Pricing
Value-pricing is the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.
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54. 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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55. Pricing Objectives
Pricing objectives specify the role of price in an organization’s marketing and strategic plans.
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56. Pricing Constraints
Pricing constraints are factors that limit the range of prices a firm may set.
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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. Demand Factors
Demand factors are those that determine consumers’ willingness and ability to pay for goods and services.
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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. Average Revenue (AR)
Average revenue (AR) is the average amount of money received for selling one unit of a product, or simply the price of that unit.
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61. Marginal Revenue (MR)
Marginal revenue (MR) is the change in total revenue that results from producing and marketing one additional unit.
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62. 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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63. 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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64. Fixed Cost (FC)
Fixed cost (FC) is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.
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65. Variable Cost (VC)
Variable cost (VC) is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.
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66. Unit Variable Cost (UVC)
Unit variable cost (UVC) is variable cost expressed on a per unit basis.
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67. Marginal Cost (UVC)
Marginal cost (UVC) is the change in total cost that results from producing and marketing one additional unit of a product.
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68. Marginal Analysis
Marginal analysis a continuing, concise trade-off of incremental costs against incremental revenues.
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69. 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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70. Break-Even Point (BEP)
A break-even point (BEP) is the quantity at which total revenue and total cost are equal.
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71. Break-Even Chart
A break-even chart is a graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold.
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