LO 14-1 List the four pricing orientations.
LO 14-2 Explain the relationship between price and quantity sold.
LO 14-3 Explain price elasticity.
LO 14-4 Describe how to calculate a product’s break-even point.
LO 14-5 Indicate the four types of price competitive levels.
LO 14-6 Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy.
LO 14-7 Explain the difference between a price skimming and a market penetration pricing strategy.
LO 14-8 List pricing practices that have the potential to deceive customers.
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pricing concepts for establishing valuefourteenCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.LEARNING OBJECTIVESLO 14-1 List the four pricing orientations.LO 14-2 Explain the relationship between price and quantity sold.LO 14-3 Explain price elasticity.LO 14-4 Describe how to calculate a product’s break-even point.LO 14-5 Indicate the four types of price competitive levels.LO 14-6 Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy.LO 14-7 Explain the difference between a price skimming and a market penetration pricing strategy.LO 14-8 List pricing practices that have the potential to deceive customers.The 5 C’s of Pricing1st C: Company ObjectivesCompany ObjectiveExamples of Pricing Strategy ImplicationsProfit-orientedInstitute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm.Sales-orientedSet prices very low to generate new sales and take sales away from competitors, even if profits suffer.Competitor-orientedTo discourage more competitors from entering the market, set prices very low.Customer-orientedTarget a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing).Profit-orientedInstitute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm.Profit OrientationSales OrientationCompetitor OrientationCompetitive parityStatus quo pricingValue is not part of this pricing strategyRoz Woodward/Getty Images=Focus on customer expectations by matching prices to customer expectationsautomotive.com WebsiteCustomer OrientationC Borland/PhotoLink/Getty ImagesDon Farrall/Getty Images2nd C: CustomersDemand CurvesPrice Elasticity of Demand©PhotoLink/Getty ImagesFactors Influencing Price Elasticity of DemandWalmart Commercial3rd C: CostsVariable CostsVary with production volumeFixed CostsUnaffected by production volumeTotal CostSum of variable and fixed costsMichael Rosenfeld/Stone/Getty ImagesBreak Even Analysis and Decision Making4th C: CompetitionSubway Commercial5th C: Channel MembersManufacturers, wholesalers and retailers can have different perspectives on pricing strategiesManufactures must protect against gray market transactionsWhat are the five Cs of pricing?Identify the four types of company objectives.What is the difference between elastic versus inelastic demand?How does one calculate the break-even point in units?vs..Everyday low pricing (EDLP)High/low pricingEveryday Low Pricing vs.. High/Low PricingPhotodisc Collection/Getty Images©Lars A NikiNew Product Pricing StrategiesExplain the difference between EDLP and high/low pricing.What is the difference between a market penetration pricing strategy and a price skimming pricing strategy?Legal Aspects and Ethics of PricingWhat common pricing practices are considered to be illegal or unethical?Break-even analysis enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales. GlossaryCross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B.GlossaryFixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production.GlossaryIncome effect is the change in the quantity of a product demanded by consumers due to a change in their income.GlossaryThe maximizing profits strategy assumes that if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.GlossaryPrice is the overall sacrifice a consumer is willing to make to acquire a specific product or service.GlossaryThe substitution effect refers to consumers’ ability to substitute other products for the focal brand.GlossaryTarget profit pricing is implemented by firms to meet a targeted profit objective. The firms use price to stimulate a certain level of sales at a certain profit per unit.GlossaryTarget return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales.GlossaryThe total cost is the sum of the variable and fixed costs.GlossaryVariable costs are the costs that vary with production value.GlossaryA cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions.GlossaryHorizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.GlossaryPrice skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service.GlossaryA reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process.GlossaryWith a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located.GlossaryVertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers.Glossary