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Transcript
Marketing Chapter 12 Fundamentals of Pricing Gilbert A. Churchill, Jr. J. Paul Peter The amount of money, good, or services that must be given up to acquire ownership or use of a product. Slide 12-1 Figure 12.1 Sample Demand Curve A graphical representation of the quantity of a product demanded at various prices. Price per Unit 60 50 40 30 20 10 10,000 20,000 30,000 40,000 50,000 Quantity Demanded in Units Slide 12-2 Estimating Demand - Demographic Pricing Factors • How many potential buyers are in the market? • What is the location of potential buyers? • Are they organizational buyers or consumers? • What is the consumption rate of potential buyers? • What is the financial condition of potential buyers? • What is the general trend in the industry? Slide 12-3 Estimating Demand - Psychological Pricing Factors • Will potential buyers use price as an indicator of the product’s quality? • Will potential buyers be favorably attracted by odd pricing such as 99 cents instead of $1, or $177 instead of $180? • Will potential buyers perceive the price to be too high relative to what the product offers? • Are potential buyers concerned enough with prestige to pay more for the product? • How much will potential buyers be willing to pay for the product? Slide 12-4 Figure 12.2 Demand Curves Showing Different Price Elasticities Elastic Demand: European Vacations Price per trip Inelastic Demand: Gasoline Price per gallon Quantity Demanded (Number of Trips) Quantity Demanded (Gallons) Slide 12-5 Key Terms Terms Definition Total Revenues The total amount of money received from the sale of all units of a product. Total Costs The total amount of money spent in the sale of all units of a product. Profits The positive difference between total revenues and total costs. Marginal Analysis The technique for finding the greatest profits by measuring the economic effect of producing and selling each additional unit of a product. Marginal Revenues The change in total revenues that results from selling one additional units of a product Marginal Costs The net addition to a firm’s total costs that result from the reduction of one additional unit of a product Slide 12-6 Figure 12.4 Marginal Analysis Relationships Dollars Profit Total Cost Total Revenue Quantity Produced and Sold Dollars Marginal Cost Marginal Revenue Quantity Produced and Sold Slide 12-7 Pricing Based on Cost Markup on cost pricing a pricing approach that adds a percentage of the cost price to the producer’s cost in order to arrive at a selling price. Markup on selling price a pricing approach that adds a percentage of the selling price to the producer’s cost in order to arrive at a selling price. Cost-plus pricing a markup pricing approach that adds on a dollar amount to the producer’s cost in order to arrive at a selling price. Rate of return pricing a pricing approach that involves total costs and then adding a desired rate of return to them to determine the selling price. Breakeven analysis a technique for determining the sales volume needed to cover all costs at a specific rate. Slide 12-8 Figure 12.5 Breakeven Analysis Dollars Total Revenue Total Cost Profit Breakeven Point Loss Quantity Produced and Sold Breakeven point - the level of sales at which total revenues = total costs Slide 12-9 Pricing Based on Competition Pricing Below Competition pricing to gain market share and attract cost-conscious buyers. Especially useful to companies with low cost positions. Matching Competition pricing at competitor’s levels with the intent of distinguishing the product in other ways. Common in oligopolies. Pricing Above Competition pricing for products that offer greater value, quality, convenience or prestige. Sealed-Bid Pricing pricing in which the buyer asks potential sellers to submit sealed bids containing the seller’s pricing and availabilities. Slide 12-10 Pricing Based on Customer Value Reference Price the price that buyers use to compare the offered price of a product or service. Demand-backward Pricing a pricing approach that involves setting a price by starting with the estimated price customers will pay and working backwards with retail and wholesale margins. Value Pricing a pricing approach that involves setting prices so that the exchange value is higher than the value of competing exchanges. Slide 12-11 Comparison of the various pricing approaches Advantage Easy to use Intuitively appealing Limitations Cost-based Pricing Do not take into consideration the effects of price on consumer demand Used when you have many different products Does not take into account competitor’s prices Competition-based pricing Intuitively appealing Since costs are not considered, at what price can the firm generate profits Try to offer customers greater value Does not take into account what customers value most Value-based pricing Ideal if a match can be found Does not take both costs and competitors between what customers value most into account and it does well Offer customers greater value Slide 12-12 Table 12.3 Laws Limiting Pricing Practices Law Sherman Antitrust Act Pricing Practices Price Fixing Consumer Goods Pricing Act Resale Price Maintenance Federal Trade Commission Act Deceptive Pricing Practices Robinson-Patman Act Price discrimination that lessens or damages competition; discrimination in the use of promotional pricing Laws of most countries Dumping Slide 12-13 Table 12.3 Illegal Pricing Practices Pricing Practices Definition Price Fixing An illegal agreements among competitors to set the price of a product Deceptive Pricing An illegal pricing tactic that involves misleading customers about the relative goodness of an asking price Price Discrimination The illegal practice of charging different prices to buyers that do not reflect cost differences to the seller Predatory Pricing An illegal pricing approach that involves setting very low prices in order to hurt competitors. Dumping The illegal practice of pricing products below its costs or below the going rate in a market. Bait and switch An illegal pricing tactic by which customers are attracted to a store by an advertised low-priced product that is then reported to be out-of-stock in order to sell a more expensive product