1. McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING OBJECTIVES 13-2 Learning Objectives Why should firms pay more attention to setting prices? What is the relationship between price and quantity sold? Why is it important to know a product’s break-even point? Who wins in a price war? How has the Internet changed the way some people use price to make purchasing decisions?

3. 13-3 Price and Value What’s the most you will pay for a pair of jeans?

4. 13-4 Price BenefitsSacrifice

5. 13-5 Bottled vs. Tap Water

6. 13-6 Price is the ________ a consumer is willing to make to acquire a specific product or service. A. financial expenditure B. total cost C. durable fixed cost D. target return E. overall sacrifice

7. 13-7 Price is a Signal Prices can be both too high and too low Price set too low may signal poor quality Price set too high might signal low value PriceGrabber.com Website

8. 13-8 The Role of Price in the Marketing Mix Price is the only marketing mix element that generates revenue Price is usually ranked as one of the most important factors in purchase decisions

9. 13-9 While most consumers rank low price as an important factor, they would rather purchase a product or service of: A. high value. B. status quo variation. C. profit orientation. D. inelastic income demand. E. gray market efficiency.

10. 13-10 The 5 C’s of Pricing

11. 13-11 1 st C: Company Objectives

12. 13-12 Profit Orientation Profit Orientation Target return pricing Target profit pricing Maximizing profits

13. 13-13 Sales Orientation Focus on increasing sales More concerned with overall market share Does not always imply low setting low prices

14. 13-14 Competitor Orientation Competitive parity Status quo pricing Value is not part of this pricing strategy

15. 13-15 = Focus on customer expectations by matching prices to customer expectations automotive.com Website Customer Orientation

16. 13-16 What are they trying to accomplish with this ad?

17. 13-17 2nd C: Customers

18. 13-18 Demand Curves and Pricing Knowing demand curve enables to see relationship between price and demand

19. 13-19 Demand Curves Not all are downward sloping Prestigious products or services have upward sloping curves

20. 13-20 Price Elasticity of Demand Elastic (price sensitive) Inelastic (price insensitive) Consumers are less sensitive to price increases for necessities

21. 13-21 Price Elasticity of Demand

22. 13-22 Factors Influencing Price Elasticity of Demand Wal-Mart Commercial Income effect Substitution effect Cross- price elasticity

23. 13-23 Price elasticity of demand measures consumers’: A. cross-price elasticity responsiveness. cross-price elasticity B. sensitivity to price changes. C. response to a change in income. response to a change in income D. break-even satisfaction point. E. demand price parity.

24. 13-24 Substitution Effect Meet Pete, college student on a budget: Old Spice Sport Deodorant user At the store he notices that Old Spice is more expensive Pete decides to give another brand a try and save money

25. 13-25 Cross-Price Elasticity Meet Kendra, self- supporting college student: Buys a new printer on sale for a great price Learns it requires special ink cartridges that cost more than the printer

26. 13-26 3rd C: Costs Variable Costs  Vary with production volume Fixed Costs  Unaffected by production volume Total Cost  Sum of variable and fixed costs

27. 13-27 Break Even Analysis and Decision Making

28. 13-28 Break Even Analysis

29. 13-29 4th C: Competition Subway Commercial

30. 13-30 Wal-Mart vs. Target

31. 13-31 5th C: Channel Members Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies Manufactures must protect against gray market transactions

32. 13-32 Which of the following is NOT one of the Five C’s of Pricing? A. Customers. B. Channel members. C. Cost. D. Customization. E. Company objectives.

33. 13-33 Check Yourself 1. What are the five Cs of pricing? 2. Identify the four types of company objectives. 3. What is the difference between elastic versus inelastic demand? 4. How does one calculate the break-even point in units?

34. 13-34 Macro Influences on Pricing The Internet Increased price sensitivity Growth of online auctions

35. 13-35 Economic Factors Local economic conditions Increasing disposable income Cross- shopping Increasing status consciousness Increasing globalization

36. 13-36 1. How have the Internet and economic factors affected the way people react to prices? Check Yourself

37. 13-37 Glossary Break-even analysis enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales. Return to slide

38. 13-38 Glossary Cross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B. Return to slide

39. 13-39 Glossary Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Return to slide

40. 13-40 Glossary Income effect is the change in the quantity of a product demanded by consumers due to a change in their income. Return to slide

41. 13-41 Glossary The maximizing profits strategy assumes that if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized. Return to slide

42. 13-42 Glossary Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service. Return to slide

43. 13-43 Glossary The substitution effect refers to consumers’ ability to substitute other products for the focal brand. Return to slide

44. 13-44 Glossary Target profit pricing is implemented by firms to meet a targeted profit objective. The firms use price to stimulate a certain level of sales at a certain profit per unit. Return to slide

45. 13-45 Glossary Target return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales. Return to slide

46. 13-46 Glossary The total cost is the sum of the variable and fixed costs. Return to slide

47. 13-47 Glossary Variable costs are the costs that vary with production value. Return to slide