1. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin BUILDING THE PRICE FOUNDATION

2. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin What is a Price?  Barter Barter NATURE AND IMPORTANCE OF PRICE

3. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The price of four different purchases

4. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Lamborghini What will this car cost?

5. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Price as an Indicator of ValueValue  Value-pricing Value-pricing Price in the Marketing Mix  Profit Equation Profit Equation NATURE AND IMPORTANCE OF PRICE

6. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Steps in setting price

7. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Identifying Pricing ConstraintsPricing 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 STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

8. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Collectable or Trashable?

9. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Collectable or Trashable?

10. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Identifying Pricing Constraints Cost of Changing Prices and Time Period They Apply Types of Competitive Markets  Pure monopoly  Oligopoly  Monopolistic competition  Pure competition STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

11. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Pricing, product, and advertising strategies available to firms in four types of competitive markets

12. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Identifying Pricing Constraints Competitors’ Prices STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

13. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Identifying Pricing ObjectivesPricing Objectives Profit STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

14. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Where each dollar of your movie ticket goes

15. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Identifying Pricing Objectives Sales Market Share Unit Volume Survival Social Responsibility STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

16. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fundamentals of Estimating Demand The Demand CurveDemand Curve STEP 2: ESTIMATE DEMAND AND SERVICE

17. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Illustrative demand curves for Newsweek magazine

18. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The Demand Curve  Demand factors Demand factors Movement Along versus Shift of a Demand Curve STEP 2: ESTIMATE DEMAND AND SERVICE

19. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fundamentals of Estimating Revenue  Total revenue Total revenue  Average revenue Average revenue  Marginal revenue Marginal revenue STEP 2: ESTIMATE DEMAND AND SERVICE

20. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fundamental revenue concepts

21. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin How a downward-sloping demand curve affects total, average, and marginal revenue

22. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fundamentals of Estimating Revenue Price Elasticity of Demand  Price Elasticity for Brands and Product Classes STEP 2: ESTIMATE DEMAND AND SERVICE

23. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The Importance of Controlling Costs  Total cost Total cost  Fixed cost Fixed cost  Variable cost Variable cost  Marginal cost Marginal cost STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

24. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Fundamental cost concepts

25. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Marginal Analysis and Profit MaximizationMarginal Analysis STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

26. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Profit maximization pricing

27. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Break-Even Analysis  Break-even point Break-even point  Break-even chart Break-even chart Calculating a Break-Even Point STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

28. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Calculating a break-even point

29. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Break-even analysis chart

30. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The practice or exchanging goods and services for other goods and services rather than for money. Barter

31. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Specifically, value can be defined as the ratio of perceived benefits to price: (Value = Perceived benefits/Price). Value

32. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The practice of simultaneously increasing service and product benefits and maintaining or increasing price. Value-Pricing

33. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Profit = total revenue – Total cost, or Profit = (Unit Price x Quantity Sold) – Total Cost Profit Equation

34. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Factors that limit the latitude of price a firm may set. Pricing Constraints

35. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Expectations that specify the role of price in an organization’s marketing and strategic plans. Pricing Objectives

36. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The summation of points representing the maximum number of products consumers will buy at a given price. Demand Curve

37. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Factors that determine consumers’ willingness and ability to pay for goods and services. Demand Factors

38. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The total money received from the sale of a product. Total Revenue

39. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The average amount of money received for selling one unit of a product. Average Revenue

40. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The change in total revenue obtained by selling one additional unit. Marginal Revenue

41. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The percentage change in quantity demanded relative to a percentage change in price. Price Elasticity of Demand

42. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The total expense incurred by a firm in producing and marketing a product. Total cost is the sum of fixed cost and variable cost. In physical distribution decisions, the sum of all applicable costs for logistical activities. Total Cost

43. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The sum of expenses of the firm that are stable and do not change with the quantity of product that is produced and sold. Fixed Cost

44. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The sum of the expenses of the firm that vary directly with the quantity of product that is produced and sold. Variable Cost

45. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin The change in total cost that results from producing and marketing one additional unit. Marginal Cost

46. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A continuing, concise trade-off of incremental costs against incremental revenues. Marginal Analysis

47. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. Break-Even Analysis

48. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Quantity at which total revenue and total cost are equal and beyond which profit occurs. Break-Even Point

49. © 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin A graphic presentation of the break-even analysis. Break-Even Chart