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Introduction
to
Chapter 19: Pricing Concepts
Designed & Prepared by Laura Rush
B-books, Ltd.
Copyright Cengage Learning 2013
All Rights Reserved
1
Learning Outcomes
LO1
Discuss the importance of pricing decisions
to the economy and to the individual firm
LO2
List and explain a variety of pricing objectives
LO3
Explain the role of demand in price
determination
Copyright Cengage Learning 2013
All Rights Reserved
2
Learning Outcomes
LO4
Understand the concept of yield management
systems
LO5
Describe cost-oriented pricing strategies
LO6
Demonstrate how the product life cycle,
competition, distribution and promotion
strategies, guaranteed price matching,
customer demands, the Internet, and
perceptions of quality can affect price
Copyright Cengage Learning 2013
All Rights Reserved
3
The Importance of Price
To the seller...
Price is revenue
To the consumer...
Price is the cost
of something
Price allocates resources
in a free-market economy
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4
What is Price?
Price is that which is given
up in an exchange to acquire
a good or service.
Copyright Cengage Learning 2013
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5
The Importance of Price to
Marketing Managers
Revenue - The price charged to
customers multiplied by the
number of units sold.
Profit - Revenue minus expenses.
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6
Pricing Objectives
Profit-Oriented
Sales-Oriented
Status Quo
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7
Sales Maximization
• Short-term objective to maximize
sales
• Ignores profits, competition, and
the marketing environment
• May be used to sell
off excess inventory
Copyright Cengage Learning 2013
All Rights Reserved
8
The Demand Determinant of Price
Demand - The quantity of a product
that will be sold in the market at
various prices for a
specified period.
Supply- The quantity of a
product that will be
offered to the market by a supplier
at various prices for a
specified period.
Copyright Cengage Learning 2013
All Rights Reserved
9
How Demand and Supply
Establish Price
Price equilibrium - The price at
which demand and supply
are equal.
Elasticity of Demand Consumers’ responsiveness or
sensitivity to changes in price.
Copyright Cengage Learning 2013
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10
Elasticity of Demand
Elastic
Demand
Inelastic
Demand
Unitary
Elasticity

Consumers buy more or less
of a product when the
price changes.

An increase or decrease in
price will not significantly
affect demand.

An increase in sales exactly
offsets a decrease in prices,
and revenue is unchanged.
Copyright Cengage Learning 2013
All Rights Reserved
11
Factors that Affect Elasticity of
Demand
Availability of substitutes
Price relative to
purchasing power
Product durability
A product’s other uses
Rate of inflation
Copyright Cengage Learning 2013
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12
Yield Management Systems
A technique for adjusting prices
that uses complex mathematical
software to profitably fill unused
capacity.
Copyright Cengage Learning 2013
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13
The Cost Determinant of Price
Types of Costs
Variable
Cost
Fixed Cost
Varies with changes
in level of output
Does not change
as level of output changes
Copyright Cengage Learning 2013
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14
The Cost Determinant of Price
Markup pricing
Methods
Used to
Set Prices
Keystoning
Profit Maximization
Pricing
Break-Even
Pricing
Copyright Cengage Learning 2013
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15
Other Determinants of Price
Stages of the
Product Life Cycle
Competition
Distribution Strategy
Promotion Strategy
Perceived Quality
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16
The Impact of the Internet
Product selection
Second opinions from expert sites
Shopping bots
Internet auctions
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17
Promotion Strategy/Price
Guarantee
Promotion Strategy
•
Price used as promotional tool
•
Pricing can also be a tool for trade promotions
Price Guarantee
•
Match any competitor’s price
•
Signals to target market it is positioned as a lowprice dealer
Copyright Cengage Learning 2013
All Rights Reserved
18
The Relationship of Price to Quality
Prestige Pricing - Charging a high
price to help promote a highquality image.
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19
Dimensions of Quality
1. Ease of use
2. Versatility
3. Durability
4. Serviceability
5. Performance
6. Prestige
Copyright Cengage Learning 2013
All Rights Reserved
20