Chapter 13 – Building the price foundation. This chapter 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,...
McGrawHill/Irwin Copyright © 2013 by The McGrawHill Companies, Inc. All rights reserved 13-1 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 Describe what price elasticity of demand means to a manager facing a pricing decision LO5 Explain the role of costs in pricing decisions LO6 Describe how various combinations of price, fixed cost, and unit variable cost affect a firm’s break-even point 13-3 THE RESULT OF AN “UNTHRILLED MOTHER”: THE LAUNCH OF STUBHUB.COM! Plan for the Start-up How StubHub’s Pricing Works Now 13-4 LO1 NATURE AND IMPORTANCE OF PRICE WHAT IS A PRICE?: THE PRICE EQUATION Price Barter Price Equation Final Price = List Price – (Incentives + Allowances) + Extra Fees Price and the Global Marketplace 13-5 FIGURE 13-1 The “price” a buyer pays can take different names depending on what is purchased 13-6 MARKETING MATTERS How Flattening the World Affects Prices, Revenues, and Costs: InfoSys, IKEA, and You! LO1 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 AS AN INDICATOR OF VALUE Decoding Today’s Consumer Prices • BOGO (Buy One, Get One Free) Q1: Which represents the biggest savings in total dollars? a A markdown from $85.27 to $70.66 b A markdown from $83.99 to $69.99 c A markdown from $80.00 to $70.00 13-9 LO1 NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Decoding Today’s Consumer Prices • BOGO (Buy One, Get One Free) Q2: Which represents the biggest percentage off a $2,000 item? a 50% off b 25% off, then another 25% off the reduced price c 20% off, then another 20% off the reduced price, then 20% off the twice-reduced price 13-10 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 13-55 Demand Factors Demand factors are those that determine consumers’ willingness and ability to pay for products and services 13-56 Total Revenue (TR) Total revenue (TR) is the total money received from the sale of a product 13-57 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 13-58 Marginal Revenue (MR) Marginal revenue (MR) is the change in total revenue that results from producing and marketing one additional unit of a product 13-59 Price Elasticity of Demand The price elasticity of demand is the percentage change in quantity demanded relative to a percentage change in price 13-60 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 13-61 Fixed Cost (FC) Fixed cost (FC) is the sum of the expenses of the firm that are stable and not change with the quantity of a product that is produced and sold 13-62 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 13-63 Unit Variable Cost (UVC) Unit variable cost (UVC) is variable cost expressed on a per unit basis for a product 13-64 Marginal Cost (MC) Marginal cost (MC) is the change in total cost that results from producing and marketing one additional unit of a product 13-65 Marginal Analysis Marginal analysis a continuing, concise trade-off of incremental costs against incremental revenues 13-66 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 13-67 Break-Even Point (BEP) A break-even point (BEP) is the quantity at which total revenue and total cost are equal 13-68 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 13-69 ... Six Steps in Setting Price 13- 13 FIGURE 13- 2 The six steps in setting price The first three steps are covered in Chapter 13 and the last three steps in Chapter 14 13- 14 STEP 1: IDENTIFY PRICING... Price – (Incentives + Allowances) + Extra Fees Price and the Global Marketplace 13- 5 FIGURE 13- 1 The “price” a buyer pays can take different names depending on what is purchased 13- 6 MARKETING. .. markdown of $10.00 on the pants 13- 11 MARKETING MATTERS LO1 American Eagle “Buy One, Get One Free” Hoodies: A Good Deal? 13- 12 LO1 NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX Profit Equation