Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Marketing channel wikipedia , lookup
Gasoline and diesel usage and pricing wikipedia , lookup
Transfer pricing wikipedia , lookup
Dumping (pricing policy) wikipedia , lookup
Yield management wikipedia , lookup
Revenue management wikipedia , lookup
Service parts pricing wikipedia , lookup
Pricing science wikipedia , lookup
Supply and demand wikipedia , lookup
Price discrimination wikipedia , lookup
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO1 LO2 LO3 Identify the elements that make up a price. Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge. Explain what a demand curve is and the role of revenues in pricing decisions. 13-2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO4 LO5 LO6 Describe what price elasticity of demand means to a manager facing a pricing decision. Explain the role of costs in pricing decisions. Describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s breakeven point. 13-3 WHEN MOTHER MAY NOT KNOW BEST: THE LAUNCH OF STUBHUB.COM! Plan for the Start-up How StubHub Works Now StubHub: Who Benefits and How? 13-4 FIGURE 13-1 Quick-take quiz on price: Answers that are part numbers, part good judgment 1. (d) $2.7 trillion 3. (b) fixed cost 2. (b) gasoline 13-5 NATURE AND IMPORTANCE OF PRICE LO1 WHAT IS A PRICE? Price Barter Price Equation Final Price = List Price Š (Incentives + Allowances) + Extra Fees 13-6 FIGURE 13-2 The “price” a buyer pays can take different names depending on what is purchased 13-7 LO1 NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value Value = Perceived Benefits Price $ = $ Value-Pricing 13-8 LO1 NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX Profit Equation Profit = Total Revenue Š Total Costs = (Unit Price Quantity Sold) Š (Fixed Cost + Variable Cost) Six Steps in Setting Price 13-9 FIGURE 13-3 The six steps in setting price. The first three steps are covered in Chapter 13 and the last three steps in Chapter 14. 13-10 STEP 1: IDENTIFY PRICING OBJECTIVES LO2 AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES Pricing Objectives • Profit Managing for Long-Run Profits Managing for Current Profit Target Return (ROI) • “The World is Flattening” 13-11 MARKETING MATTERS How Flattening the World Affects Both Revenues and Costs: Infosys…IKEA, and You! 13-12 STEP 1: IDENTIFY PRICING OBJECTIVES LO2 AND CONSTRAINTS IDENTIFYING PRICING OBJECTIVES Pricing Objectives • Sales ($) • Survival • Market Share ($ or #) • Social Responsibility • Unit Volume (#) 13-13 STEP 1: IDENTIFY PRICING OBJECTIVES LO2 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 13-14 STEP 1: IDENTIFY PRICING OBJECTIVES LO2 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 13-15 STEP 1: IDENTIFY PRICING OBJECTIVES LO2 AND CONSTRAINTS IDENTIFYING PRICING CONSTRAINTS • Type of Competitive Market Pure Competition Monopolistic Competition Oligopoly Pure Monopoly • Competitors’ Prices 13-16 FIGURE 13-4 Pricing, product, and advertising strategies available to firms in four types of competitive markets 13-17 LO3 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 13-18 FIGURE 13-5 Demand curves for Newsweek showing the effect on annual sales (quantity demanded per year) by a change in price caused by (A) a movement along and (B) a shift of the demand curve 13-19 FIGURE 13-5A Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a movement along the demand curve 13-20 FIGURE 13-5B Demand curve for Newsweek showing the effect on annual sales by a change in price caused by a shift of the demand curve 13-21 LO3 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 13-22 LO3 STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) Demand Curves and Revenue 13-23 FIGURE 13-6 Fundamental revenue concepts 13-24 FIGURE 13-7 How Newsweek’s downwardsloping demand curve affects total, average, and marginal revenues 13-25 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 13-26 LO4 STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE Price Elasticity of Demand Price Elasticity of Demand (E) = Percentage Change in Quantity Demanded Percentage Change in Price • Elastic Demand • Inelastic Demand • Unitary Demand 13-27 LO4 STEP 2: ESTIMATE DEMAND AND REVENUE FUNDAMENTALS OF ESTIMATING REVENUE Price Elasticity of Demand • Product Substitutes • Necessities • Large Cash Outlays 13-28 Clothing and Gasoline Which product is more sensitive to price changes? 13-29 LO5 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 13-30 FIGURE 13-8 Fundamental cost concepts 13-31 MARKETING MATTERS Pricing Lessons from Failed Dot-Com Start-ups—Understand Revenues and Expenses Brick-and-Mortar Dot-Com Failures Travel Dot-Com Successes (So Far) 13-32 LO6 STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS Break-Even Analysis Break-Even Point (BEP) BEPQuantity Fixed Cost FC Unit Price Š Unit Variable Cost P Š UVC 13-33 FIGURE 13-9 Profit is a maximum at the quantity at which marginal revenue and marginal cost are equal 13-34 FIGURE 13-10 Calculating a break-even point for the picture frame store shows its profit starts at 400 framed pictures per year 13-35 LO6 STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS Break-Even Chart Applications of Break-Even Analysis 13-36 FIGURE 13-11 Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures 13-37 FIGURE 13-12 The cost trade-off: Fixed versus variable costs 13-38 VIDEO CASE 13 WASHBURN GUITARS: USING BREAK-EVEN POINTS TO MAKE PRICING DECISIONS 13-39 VIDEO CASE 13 WASHBURN GUITARS 1. What factors are most likely to affect the demand for the lines of Washburn guitars (a) bought by a first-time guitar buyer and (b) bought by a sophisticated musician who wants a signature model? 13-40 VIDEO CASE 13 WASHBURN GUITARS 2. For Washburn, what are examples of (a) shifting the demand curve to the right to get a higher price for a guitar line (movement of the demand curve) and (b) pricing decisions involving moving along a demand curve? 13-41 VIDEO CASE 13 WASHBURN GUITARS 3. In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is (a) $349, (b) $389, and (c) $309? Also, (d) if Washburn achieves the sales target of 2,000 units at the $349 retail price, what will its profit be? 13-42 VIDEO CASE 13 WASHBURN GUITARS 4. Assume that the merger with Parker leads to the cost reductions projected in the case. Then, what will be the (a) new break-even point at a $349 retail price for this line of guitars and (b) new profit if it sells 2,000 units? 13-43 VIDEO CASE 13 WASHBURN GUITARS 5. If for competitive reasons, Washburn eventually has to move all its production back to Asia, (a) which specific fixed and variable costs might be lowered and (b) what additional fixed and variable costs might it expect to incur? 13-44 SUPPLEMENTAL LECTURE NOTE 13-1 TEENAGE SMOKING: COOL, PRICE ELASTICITY, AND $1-A-PACK CIGARETTES! 13-45 South Carolina Teenage Anti-Smoking Print Ad What is the effect of a tax on the price elasticity of demand for cigarettes by teenagers? 13-46 IN-CLASS ACTIVITY 13-1 PRICING A PANASONIC HIGH DEFINITION TV 13-47 Panasonic Viera Plasma HDTV 13-48 13-49 Price A price is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service. 13-50 Barter Barter is the practice of exchanging goods and services for other goods and services rather than for money. 13-51 Value Value is the ratio of perceived benefits to price; or Value = (Perceived benefits divided by Price). 13-52 Value-Pricing Value-pricing is the practice of simultaneously increasing product and service benefits while maintaining or decreasing price. 13-53 Profit Equation The profit equation is: Profit = Total revenue − Total cost; or Profit = (Unit price × Quantity sold) − (Fixed cost + Variable cost). 13-54 Pricing Objectives Pricing objectives specify the role of price in an organization’s marketing and strategic plans. 13-55 Pricing Constraints Pricing constraints are factors that limit the range of prices a firm may set. 13-56 Demand Curve A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price. 13-57 Demand Factors Demand factors are those that determine consumers’ willingness and ability to pay for goods and services. 13-58 Total Revenue (TR) Total revenue (TR) is the total money received from the sale of a product. 13-59 Average Revenue (AR) Average revenue (AR) is the average amount of money received for selling one unit of a product, or simply the price of that unit. 13-60 Marginal Revenue (MR) Marginal revenue (MR) is the change in total revenue that results from producing and marketing one additional unit. 13-61 Price Elasticity of Demand The price elasticity of demand is the percentage change in quantity demanded relative to a percentage change in price. 13-62 Total Cost (TC) Total cost (TC) is the total expense incurred by a firm in producing and marketing a product. Total cost is the sum of fixed cost and variable cost. 13-63 Fixed Cost (FC) Fixed cost (FC) is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold. 13-64 Variable Cost (VC) Variable cost (VC) is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. 13-65 Unit Variable Cost (UVC) Unit variable cost (UVC) is variable cost expressed on a per unit basis. 13-66 Marginal Cost (UVC) Marginal cost (UVC) is the change in total cost that results from producing and marketing one additional unit of a product. 13-67 Marginal Analysis Marginal analysis a continuing, concise trade-off of incremental costs against incremental revenues. 13-68 Break-Even Analysis Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. 13-69 Break-Even Point (BEP) A break-even point (BEP) is the quantity at which total revenue and total cost are equal. 13-70 Break-Even Chart A break-even chart is a graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold. 13-71