Lecture Marketing (12/e): Chapter 13 – Kerin, Hartley, Rudelius

Chapter 13 – Building the price foundation. After reading chapter 13, you should be able to: 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 roles of revenues in pricing decisions,...

Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO 13-1 LO 13-2 LO 13-3 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 roles of revenues in pricing decisions 13­2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO 13-4 Describe what price elasticity of demand means to a manager facing a pricing decision LO 13-5 Explain the role of costs in pricing decisions LO 13-6 Describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s break-even point 13­3 MOTHER “WAS NOT THRILLED”: THE LAUNCH OF STUBHUB.COM!  Plan for the Start-up  How StubHub’s Pricing Works Now 13­4 LO 13-1 NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?  Price  Barter  Price Equation Final Price = List Price – (Incentives + Allowances) + Extra Fees  Calculating a Final Price 13­5 FIGURE 13-1 The “price” a buyer pays can take different names depending on what is purchased 13­6 LO 13-1 NATURE AND IMPORTANCE OF PRICE  Price Transparency  Price and the Global Marketplace 13­7 LO 13-1 MARKETING MATTERS Dollar Shave Club: Razor Blade Cartridges Every Month…by Mail 13­8 LO 13-1  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value Value = $  Perceived Benefits Price = $ Value-Pricing 13­9 LO 13-1  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Decoding Today’s Consumer Prices • “77 & 7” BOGO (Buy One Get One) Deal 13­10 FIGURE 13-5A Demand curves for Red Baron frozen cheese pizza showing the effect on annual sales by a change in price caused by a movement along the demand curve 13­29 FIGURE 13-5B Demand curves for Red Baron frozen cheese pizza showing the effect on annual sales by a change in price caused by a shift of the demand curve 13­30 LO 13-3 STEP 2: ESTIMATE DEMAND AND REVENUE ESTIMATING REVENUE  Total Revenue (TR)  Average Revenue (AR)  Marginal Revenue (MR)  Demand and Total Revenue Curves 13­31 FIGURE 13-6 Fundamental revenue concepts 13­32 FIGURE 13-7 How Red Baron’s downwardsloping demand curve affects total, average, and marginal revenues 13­33 LO 13-4  STEP 2: ESTIMATE DEMAND AND REVENUE PRICE ELASTICITY OF DEMAND Price Elasticity of Demand Price Elasticity of Demand (E) = Percentage Change in Quantity Demanded • Elastic Demand Percentage Change in Price • Inelastic Demand • How Price Elasticity Affects Marketing and Public Policy Decisions 13­34 LO 13-5 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 13­35 FIGURE 13-8 Fundamental cost concepts 13­36 LO 13-6 STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS  Break-Even Analysis  Break-Even Point (BEP) Fixed Cost FC BEPQuantity = = Unit Price – Unit Variable Cost P – UVC  Break-Even Chart 13­37 FIGURE 13-9 Calculating a break-even point for the picture frame store shows its profit starts at 400 framed pictures per year 13­38 FIGURE 13-10 Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures 13­39 FIGURE 13-10A Break-even analysis chart for a picture frame store shows the break-even point at 400 pictures without new machine 13­40 FIGURE 13-10B Break-even analysis chart for a picture frame store shows the break-even point at 500 pictures with new machine 13­41 LO 13-6 STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS BREAK-EVEN ANALYSIS, TECHNOLOGY AND JOBS  Impact of New Technology in the Picture Frame Store • Profit without New Machine  • Profit with New Machine Technology and Automation: Planning the Effect on Your Career 13­42 VIDEO CASE 13 WASHBURN GUITARS: USING BREAK-EVEN POINTS TO MAKE PRICING DECISIONS 13­43 ... $10.00 on the pants 13? ?13 LO 13- 1 MARKETING MATTERS American Eagle “Buy One, Get One Free” Hoodies: A Good Deal? 13? ?14 LO 13- 1  NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX Profit... decisions 13? ?2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO 13- 4 Describe what price elasticity of demand means to a manager facing a pricing decision LO 13- 5 Explain...LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 13, YOU SHOULD BE ABLE TO: LO 13- 1 LO 13- 2 LO 13- 3 Identify the elements that make up a price Recognize the objectives