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Transcript
Marketing 6201 Chip Besio 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 The “price” a buyer pays can take different names depending on what is purchased NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value Value = Perceived Benefits Price $ Value-Pricing = $ NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX Profit Equation Profit = Total Revenue – Total Costs = (Unit Price x Quantity Sold) – (Fixed Cost + Variable Cost) Six Steps in Setting Price The six steps in setting price STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES Pricing Objectives • Profit Managing for Long-Run Profits Managing for Current Profit Target Return (ROI) • “The World is Flattening” 13-7 MARKETING MATTERS How Flattening the World Affects Both Revenues and Costs: Infosys…IKEA, and You! 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 eBay 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 STEP 1: IDENTIFY PRICING OBJECTIVES AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS • Type of Competitive Market Pure Competition Monopolistic Competition Oligopoly Pure Monopoly • Competitors’ Prices Pricing, product, and advertising strategies available to firms in four types of competitive markets STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING DEMAND • The Demand Curve Consumer Tastes Price and Availability of Similar Products Consumer Income • Demand Factors 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 13-14 Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a shift of the demand curve STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) Demand Curves and Revenue How Newsweek’s downward-sloping demand curve affects total, average, and marginal revenues 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 Clothing and Gasoline Which product is more sensitive to price changes? 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 Fundamental cost concepts STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS Break-Even Analysis Break-Even Point (BEP) _______Fixed Cost_________ BEPQuantity = Unit Price – Unit Variable Cost ____FC____ = P - UVC STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS Break-Even Chart Applications of Break-Even Analysis Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures Calculating a break-even point for the picture frame store shows its profit starts at 400 framed pictures per year