chapter thirteen pricing concepts for establishing value Mc

chapter thirteen pricing concepts for establishing value Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Pricing Concepts for Establishing Value LEARNING OBJECTIVES LO 1 LO 2 LO 3 LO 4 LO 5 LO 6 List the four pricing orientations. Explain the relationship between price and quantity sold. Explain price elasticity. Describe how to calculate a product’s break-even point. Indicate the four types of price competitive levels. Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy. LO 7 Explain the difference between a price skimming and a market penetration pricing strategy. LO 8 List pricing practices that have the potential to deceive customers. 13 -2

The 5 C’s of Pricing 13 -3

1 st C: Company Objectives 13 -4

2 nd C: Customers 13 -5

Demand Curves Not all are downward sloping Prestigious products or services have upward sloping curves 13 -6

Price Elasticity of Demand Elastic (price sensitive) Inelastic (price insensitive) Consumers are less sensitive to price increases for necessities ©Photo. Link/Getty Images 13 -7

3 rd C: Costs • Variable Costs – Vary with production volume • Fixed Costs – Unaffected by production volume • Total Cost – Sum of variable and fixed costs Michael Rosenfeld/Stone/Getty Images 13 -8

Break Even Analysis and Decision Making 13 -9

4 th C: Competition Subway Commercial 13 -10

5 th C: Channel Members • Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies • Manufactures must protect against gray market transactions 13 -11

Macro Influences on Pricing • The Internet • Increased price sensitivity • Growth of online auctions Ryan Mc. Vay/Getty Images 13 -12

Economic Factors Local economic conditions Increasing disposable income Increasing status consciousness Cross- shopping Increasing globalization 13 -13

Everyday Low Pricing vs. . High/Low Pricing Create value in different ways EDLP saves search costs of finding lowest overall prices High/low provides the thrill of the chase for the lowest price High/low pricing Everyday low pricing (EDLP) vs. . Photodisc Collection/Getty Images ©Lars A Niki 13 -14

New Product Pricing Strategies Market Penetration Pricing Price skimming 13 -15

Legal Aspects and Ethics of Pricing Deceptive or illegal price advertising Predatory pricing Legal Aspects and Ethics of Pricing Price discrimination Price fixing 13 -16