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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
