1. CHAPTER 14 Determining the Best Price
4/20/2017
CHAPTER 14 Determining the Best Price
14.1 The Economics of Price Decisions
14.2 Developing Pricing Procedures
14.3 Pricing Based on Market Conditions
MARKETING

2. THE ECONOMICS OF PRICE DECISIONS
GOALS for Lesson 14.1
Explain the reasons why price is an important marketing tool.
Demonstrate how the economic concept of elasticity of demand relates to pricing decisions.
Describe the three primary ways in which government influences prices.

3. Price as a Marketing Tool
The importance of price
What is price?
Adjustability

4. Price as an Economic Concept
Economic utility
Elasticity of demand

5. Supply and Demand Affect Price$8 7 6 5 4 3 2 10
Quantity 20 30 40 50 60 70 80 1 90
100
Supply
Equilibrium Point
Demand

6. Inelastic Demand
Price of a Dozen Eggs Quantity Sold Total Revenue
$ $198.25
$ $204.00
$ $207.32
$ $210.90
$ $213.29
$ $211.20

7. Elastic Demand
Price of a
Gallon of Ice Cream Quantity Sold Total Revenue
$ $657.00
$ $610.50
$ $592.50
$ $558.60
$ $523.60
$ $475.80

8. Government’s Effect on Prices
Regulating competition
Taxation
Regulating prices

9. DEVELOPING PRICING PROCEDURES
GOALS for Lesson 14.2
Describe three objectives businesses commonly choose from when setting a price.
Explain how businesses establish a price range for a product.
Identify the three components that must be covered by the selling price.

10. Setting Price Objectives
Maximize profits
Increase sales
Maintain an image

11. Determining a Price Range
Maximum price
Minimum price
Breakeven analysis
Price range

12. Breakeven Analysis for Ascroe Garden Weeder
Variable Total
Units Costs Variable Fixed Total Total
Sold per Unit Costs + Costs = Costs Price Revenue
5,522 $2.80 $15,462 + $85,000 = $100,462 $14 $77,308
6,054 $2.80 $16,951 + $85,000 = $101,951 $14 $84,756
6,998 $2.80 $19,594 + $85,000 = $104,594 $14 $97,972
7,589 $2.80 $21,249 + $85,000 = $106,249 $14 $106,246
8,225 $2.80 $23, $85,000 = $108,030 $14 $115,150
9,110 $2.80 $25, $85,000 = $110,508 $14 $127,540

13. Breakeven Point Total fixed cost Breakeven point =
Price – Variable costs per unit
Breakeven point
85,000
85,000 = = =
7,589 units
11.20

14. Price Range for a Pair of Tennis Shoes
$87.00
$53.00
$38.00
Highest price customer will pay
Price range
Lowest price company can charge
Variable costs per pair
Total cost
Fixed costs per pair (estimated)

15. Calculating a Selling Price
Gross margin
Operating expenses
Net profit
Markup
Markdown

16. Components of the Selling Price
Product cost
Operating expenses
Net profit

17. PRICING BASED ON MARKET CONDITIONS
GOALS for Lesson 14.3
Identify two marketing tools that illuminate competitive conditions and help marketers set prices.
Describe the various criteria businesses use in establishing the final price a customer pays.
Explain why extending and managing credit is important to marketing.

18. Competitive Environment
Product life cycle
Consumer purchase classifications
Non-price competition

19. Pricing Policies Price flexibility Price lines Geographic pricing
One-price policy
Flexible pricing policy
Price lines
Geographic pricing
FOB pricing
Zone pricing
Discounts and allowances
Added values

20. Discounts and Allowances
Quantity discount
Seasonal discount
Cash discount
Trade discount
Trade-in allowance
Advertising allowance
Coupon
Rebate

21. Offering Credit Types of credit Developing credit procedures
Consumer credit
Trade credit
Developing credit procedures
Credit policies
Credit approval
Collections