1. Professor Chip Besio Cox School of Business Southern Methodist University

2. 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?

3. Quick-take quiz on price: Answers that are part numbers, part good judgment 1.(d) $2.7 trillion 2.(b) gasoline 3.(b) fixed cost

4. NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?  Price  Barter  Price Equation Final Price = List Price – (Incentives + Allowances) = Extra Fees

5. The “price” a buyer pays can take different names depending on what is purchased

6. NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Value  Value-Pricing = $ $

7. NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX  Profit Equation  Six Steps in Setting Price Profit = Total Revenue – Total Costs = (Unit Price x Quantity Sold) – (Fixed Cost + Variable Cost)

8. The six steps in setting price

9. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES  Pricing Objectives Profit “The World is Flattening”  Managing for Current Profit  Managing for Long-Run Profits  Target Return (ROI) 13-9

10. MARKETING MATTERS How Flattening the World Affects Both Revenues and Costs: Infosys…IKEA, and You!

11. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES Sales ($) Social Responsibility Market Share ($ or #) Unit Volume (#) Survival  Pricing Objectives 13-11

12. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS  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 eBayeBay 13-12

13. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS Single Product vs. a Product Line Cost of Producing and Marketing a Product Cost of Changing Prices and Time Period They Apply

14. STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS Type of Competitive Market  Oligopoly  Monopolistic Competition  Pure Monopoly  Pure Competition Competitors’ Prices

15. Pricing, product, and advertising strategies available to firms in four types of competitive markets

16. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND The Demand Curve  Price and Availability of Similar Products  Consumer Income  Consumer Tastes Demand Factors

17. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND Movement Along vs. a Shift of Demand Curve  Movement Along a Demand Curve  Shift in the Demand Curve 13-17

18. 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

19. Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve

20. Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a shift of the demand curve

21. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE  Total Revenue (TR)  Average Revenue (AR)  Marginal Revenue (MR)  Demand Curves and Revenue

22. FIGURE 13-6 FIGURE 13-6 Fundamental revenue concepts

23. How Newsweek’s downward-sloping demand curve affects total, average, and marginal revenues

24. MARKETING MATTERS The Airbus vs. Boeing Face-off—How Many Can We Sell and at What Price…in a $2.7 Trillion Market?  The Products  Marketing and Pricing  Demand

25. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE  Price Elasticity of Demand Elastic Demand Inelastic Demand

26. STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE Necessities Large Cash Outlays Product Substitutes  Price Elasticity of Demand

27. Clothing and Gasoline Which product is more sensitive to price changes?

28. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS THE IMPORTANCE OF CONTROLLING COSTS  Total Cost (TC)  Fixed Cost (FC)  Variable Cost (VC)  Unit Variable Cost (UVC)  Marginal Cost (MC)  Marginal Analysis

29. Fundamental cost concepts

30. MARKETING MATTERS Pricing Lessons from Failed Dot-Com Start-ups—Understand Revenues and Expenses  Travel Dot-Com Successes (So Far)  Brick-and-Mortar Dot-Com Failures

31. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS  Break-Even Analysis  Break-Even Point (BEP) _______Fixed Cost_________ ____FC____ BEP Quantity = Unit Price – Unit Variable Cost = P - UVC

32. Profit is a maximum at the quantity at which marginal revenue and marginal cost are equal

33. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS  Break-Even Chart  Applications of Break-Even Analysis

34. Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures

35. Calculating a break-even point for the picture frame store shows its profit starts at 400 framed pictures per year

36. The cost trade-off: Fixed versus variable costs