marketing 333 chapter 17 price setting in the business world
TRANSCRIPT
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Marketing 333
Chapter 17
Price Setting in the Business World
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Exhibit 17-1
Markup chainin channels
17-3
Key Factors That Influence Price SettingPricing
objectives
Discounts andallowances
Legal environment
Price flexibility
Geographicpricing terms
Demand
Cost
Price of otherproducts in the line
Competition
Pricesettin
g
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Markup
An amount added to the cost of a product that results in the price
May be calculated as a percentage on selling price or on cost
Relationship between markup and turnover
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Markup in the Channel of Distribution
ManufacturerCost $20.0020% MU $ 5.00 Selling price $25.00
WholesalerCost $25.0015% MU 4.41Selling price $29.41
RetailerCost $29.4141% MU $20.59Selling price $50.00
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Six Types of Costs
Total Cost
AverageFixed Cost
Total VariableCost
AverageVariable Cost
Total FixedCost
Average Cost
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Types of Costs
PricePrice
QuantityQuantity
DemandDemand
Marginal revenueMarginal revenue
Marginal costMarginal cost Average costAverage cost
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Marginal Analysis
Method for determining the costs and revenues associated with the production and sale of each additional unit of product
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Intersection of Marginal Cost and Marginal Revenue
Co
st a
nd
rev
enu
eC
ost
an
d r
even
ue
Units produced and soldUnits produced and sold
Cost greaterCost greaterthan revenuethan revenue
MRMR
MCMC
Cost lessCost lessthan revenuethan revenue
Marginal cost =Marginal cost =marginal revenuemarginal revenue
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Break Even Analysis
Quantity units produced & soldQuantity units produced & sold
Re
ven
ue
& c
os
tR
ev
enu
e &
co
st
Total RevenuesTotal Revenues
Total CostsTotal Costs
Fixed CostsFixed CostsBreakBreakevenevenpointpoint
LossLoss
LossLoss
Profit
Profit
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Demand Curve
Relationship between various prices and the Relationship between various prices and the quantities of product demanded.quantities of product demanded.
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
$5,500
Demand
8,000 13,000 18,000 23,000 28,000
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Evaluating a Customer’s Price Sensitivity
Are there substitute ways of meeting a need? Is it easy to compare prices? Who pays the bill? How great is the total expenditure? How significant is the end benefit? Is there already a sunk investment related to
the purchase?
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Price Elasticity
Measures the effect of a change in price on the quantity demanded– Price elasticity– Price inelasticity– Perfect price elasticity– Perfect price inelasticity– Cross elasticity
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Demand-Oriented Pricing
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Odd-Even
Prestige Value-in-Use
Reference
Leader
Psychological Types ofDemand-Oriented
Pricing
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Full-Line Pricing
Product-BundlingPricing?
Product-BundlingPricing?
ComplementaryPricing?
ComplementaryPricing?
Market- or FirmOriented?
Market- or FirmOriented???????????
????????????????????????????????????????
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Bid pricing means offering a specific price for each
possible job. Determining costs is a complicated
process.
Negotiated pricing involves setting a price as the result
of a bargaining process between the buyer and
seller.
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Bid and Negotiated Pricing
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Pricing and Social Responsibility
Some legal pricing strategies create ethical dilemmas
– Corporate profit goals– SR often increases price– Business self-interest
versus society’s best interest