Transcript 13 - City University of New York

chapter
thirteen
pricing concepts for
establishing value
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Pricing Concepts for Establishing Value
LEARNING OBJECTIVES
LO1
LO2
LO3
LO4
LO5
LO6
List the four pricing orientations.
Explain the relationship between price and quantity sold.
Explain price elasticity.
Describe how to calculate a product’s break-even point.
Indicate the four types of price competitive levels.
Describe the difference between an everyday low price strategy
(EDLP) and a high/low strategy.
LO7 Explain the difference between a price skimming and a market
penetration pricing strategy.
LO8 List pricing practices that have the potential to deceive
customers.
13-2
The 5 C’s of Pricing
13-3
1st C: Company Objectives
13-4
2nd C: Customers
13-5
Demand Curves
Not all are downward
sloping
Prestigious products
or services have
upward sloping
curves
13-6
Price Elasticity of Demand
Elastic
(price sensitive)
Inelastic
(price insensitive)
Consumers are less
sensitive to price
increases for
necessities
©PhotoLink/Getty Images
13-7
3rd C: Costs
• Variable Costs
– Vary with production volume
• Fixed Costs
– Unaffected by production
volume
• Total Cost
– Sum of variable and fixed costs
Michael Rosenfeld/Stone/Getty Images
13-8
Break Even Analysis and
Decision Making
13-9
4th C: Competition
Subway Commercial
13-10
5th C: Channel Members
• Manufacturers,
wholesalers and
retailers can have
different perspectives
on pricing strategies
• Manufactures must
protect against gray
market transactions
13-11
Macro Influences on Pricing
• The Internet
• Increased price
sensitivity
• Growth of online
auctions
Ryan McVay/Getty Images
13-12
Economic Factors
Local economic
conditions
Increasing
disposable
income
Increasing
status
consciousness
Cross- shopping
Increasing
globalization
13-13
Everyday Low Pricing vs..
High/Low Pricing
Create value in different ways
EDLP saves search costs of finding lowest overall prices
High/low provides the thrill of the chase for the lowest price
High/low pricing
Everyday low pricing (EDLP)
vs..
Photodisc Collection/Getty Images
©Lars A Niki
13-14
New Product Pricing Strategies
Market Penetration
Pricing
Price skimming
13-15
Legal Aspects and Ethics of Pricing
Deceptive or
illegal price
advertising
Predatory
pricing
Legal Aspects
and Ethics of
Pricing
Price
discrimination
Price
fixing
13-16