1. Chapter Nineteen Introduction to Pricing Concepts

2. ObjectivesObjectives bDefine & discuss price bDescribe price interaction with the other “Ps” bAnalyze price’s role of in the economy bOutline pricing strategy fundamentals bReview relationship between price and organizational objectives bRelate demand to price bOverview demand & cost considerations on pricing bDifferentiate price elasticity, inelasticity, and cross- elasticity bDefine & discuss price bDescribe price interaction with the other “Ps” bAnalyze price’s role of in the economy bOutline pricing strategy fundamentals bReview relationship between price and organizational objectives bRelate demand to price bOverview demand & cost considerations on pricing bDifferentiate price elasticity, inelasticity, and cross- elasticity

3. Key Pricing Concepts Value: product’s power to stimulate exchange Barter: Money-less exchange Value: product’s power to stimulate exchange Barter: Money-less exchange Other terms: bRent bFee bDonation bToll bHonorarium bTuition Other terms: bRent bFee bDonation bToll bHonorarium bTuition

4. Price in the Marketing Mix bPays for all of a firm’s activities bMost flexible element in marketing mix in free economy bMajor impact on store image bList price = basic price quote bMark down = price reduction Consumer

5. Price & Competition Price only competition: bLong distance telephone bInternet service providers bCommodities Price only competition: bLong distance telephone bInternet service providers bCommodities Nonprice competition: competition emphasizing marketing variables other than price bPositioning bDifferentiation bBranding Nonprice competition: competition emphasizing marketing variables other than price bPositioning bDifferentiation bBranding

6. Relationship between price and demand $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000 Demand Curve

7. Relationship between price and supply $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000 Supply Curve Supply

8. $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8,000 13,000 18,000 23,000 28,000 Equilibrium Price Supply Supply = Demand = $4,000

9. Pricing Strategy bSet pricing objectives bEstablish importance of price to target market bKnow demand bUnderstand costs bDetermine strategy $ d s TM ₤ П

10. Relating Pricing to Other Marketing Objectives Product objectives Distribution objectives Promotion objectives Price objectives MarketingobjectivesMarketingobjectives CompanyobjectivesCompanyobjectives Actual Actual prices prices Actual Actual prices prices PricingstrategiesandpoliciesPricingstrategiesandpolicies

11. Pricing Objectives: Income-Oriented bROI bProfit maximization bCash flow bSurvival

12. Pricing Objectives Sales oriented bMarket share bSales growth Competition oriented bAvoid bMeet bUndercut bStabilize prices

13. Pricing Objectives: Social Concerns bBehave ethically bMaintain employment bPublic education b“Give back to the community”

14. Target Market Considerations bWho bPrice sensitivity bPrice perception bWillingness to pay

15. Price Quantity D P1P1P1P1 Q1Q1Q1Q1 Q2Q2Q2Q2 P2P2P2P2 Relative Price Inelasticity A relatively large increase in price results in only a small decrease in demand

16. Price Quantity D P1P1P1P1 Q1Q1Q1Q1 Q2Q2Q2Q2 P2P2P2P2 Relative Price Elasticity A relatively small decrease in price results in substantial increase in demand

17. Price QuantityD Q 1, Q 2 P1P1P1P1 P2P2P2P2 Total Price Elasticity

18. Price QuantityDP Total Price Inelasticity

19. Cross-ElasticityCross-Elasticity Relationship in elasticities between products bComputer demand increase  printer demand increase bBeef prices increase, decreasing demand  fish demand increase Relationship in elasticities between products bComputer demand increase  printer demand increase bBeef prices increase, decreasing demand  fish demand increase

20. Know Your Costs TotalcostMarginalcost Averagecost

21. Types of Costs Price Quantity Demand Marginal revenue Marginal cost Average cost

22. Cost less than revenue Cost greater than revenue Marginal cost = marginal revenue Intersection of Marginal Cost and Marginal Revenue Cost and revenue Units produced and sold MR MC

23. ReviewReview bDefine & discuss price bDescribe price interaction with the other “Ps” bAnalyze price’s role of in the economy bOutline pricing strategy fundamentals bReview relationship between price and organizational objectives bRelate demand to price bOverview demand & cost considerations on pricing bDifferentiate price elasticity, inelasticity, and cross- elasticity bDefine & discuss price bDescribe price interaction with the other “Ps” bAnalyze price’s role of in the economy bOutline pricing strategy fundamentals bReview relationship between price and organizational objectives bRelate demand to price bOverview demand & cost considerations on pricing bDifferentiate price elasticity, inelasticity, and cross- elasticity