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Chapter 13

Chapter 13. Price Determination. Pricing and the Law. Price : the exchange value of a good or service Robinson-Patman Act Prohibits price discrimination that is not based on a cost differential Prohibits selling at unreasonably low prices to eliminate competition.

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Chapter 13

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  1. Chapter 13 Price Determination

  2. Pricing and the Law • Price: the exchange value of a good or service • Robinson-Patman Act • Prohibits price discrimination that is not based on a cost differential • Prohibits selling at unreasonably low prices to eliminate competition

  3. Protecting Image by Avoiding Price Discounting

  4. Pricing Objectives and theMarketing Mix • Prices determine how much revenue a company receives • Prices influence a firm’s profits • Prices influence how a firm uses factors of production: • Natural resources • Capital • Human Resources • Entrepreneurship

  5. Pizza Hut, what would you say about their pricing objectives?

  6. ProfitabilityFor-profit firms must set prices with profitability in mind • Profit Maximization • Target-Return Objectives

  7. The OfficeDepot seems to understand the needs and methods for profits. Even in the recent economic slow down OfficeDepot has held their own in the marketplace.

  8. Volume • Sales maximization • Market-share objectives • The PIMS Project: Research supports a strong positive relationship between a firm’s market share and its return on investment

  9. Price as a Tool to Achieve Volume Objectives

  10. Glad GladWare Containers • Using Price to Achieve a Market Share Objective

  11. Clorox • Increasing Profitability through Product Quality and Market Share

  12. This ad is aimed at increasing profitability by building volume and market share for Sprint.

  13. Meeting CompetitionSeeks simply to meet competitor’s prices • Value Pricing

  14. Prestige Objectives • WaterfordPrestige Pricing Maintains a High-Quality Image

  15. Prestige Pricing: Prices for lynx boom boom drivers are set at a relatively high level in order to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers

  16. Pricing Objectives of Not-for-Profit Organizations • Profit maximization • Cost recovery • Market incentives • Market suppression

  17. Methods for Determining Prices • Customary Prices: traditional prices that consumers expect to pay for a good or service Cough Suppressants Are Typical of the Products That Use Customary Pricing – So Customary That This “Classic” International Ad Doesn’t Even Mention Price

  18. Price Determination inEconomic Theory • Demand • Supply

  19. Four Market Structures • Pure Competition • Monopolistic Competition

  20. Internet Service Providers Operate in a Monopolistic Competition Market Structure – Some Even Offer Free Service

  21. Oligopoly

  22. Monopoly • Anti-trust legislation • Government regulated monopolies

  23. Cost and Revenue CurvesPrice is often determined by analyzing the cost and revenue curves • Average total cost • Marginal cost • Average revenue • Marginal revenue

  24. The Concept Of Elasticity In Pricing Strategy • Elasticity: measure of responsiveness of purchasers and suppliers to changes in price One Internet Service Provider, Freeinternet.Com, Uses Ads Like This One to Differentiate Itself From Its Competitors in an Elastic Market With Many Substitutes

  25. Determinants Of Elasticity • Availability of Substitutes • Luxury or Necessity • Portion of Budget • Time Perspective

  26. Four Seasons Hotels • Inelastic demand for a service viewed as a necessity for upscale travelers

  27. Elasticity and RevenueElasticity of demand exerts an important influence on total revenue as a result in the changes in the price of a good or service

  28. Practical Problems of Price Theory • Marketers may thoroughly understand price theory concepts but still encounter difficulty in applying them in practice. • Estimating demand curves is a difficult process

  29. Price Determination in Practice • Cost-plus pricing: practice of adding a percentage of a specified dollar amount to the base cost of a product to cover unassigned costs and provide a profit

  30. Alternative Pricing Procedures • Full-cost pricing • Incremental-cost pricing

  31. Breakeven analysis: pricing technique used to determine the number of products that must be sold at a specified price in order to generate sufficient revenue to cover total cost • Target ReturnsThe target return may be set as: • A desired dollar return • A percentage of sales

  32. Toward Realistic Pricing • In actual practice, most pricing approaches are largely cost oriented • They thus violate the marketing concept • New approaches being developed are incorporating the element of consumer demand

  33. The Modified Breakeven Concept • Pricing technique used to evaluate consumer demand by comparing the number of products that must be sold at a variety of prices in order to cover total cost with estimates of expected sales at the various prices

  34. Yield Management: pricing strategy designed to maximize sales in situations such as airfares, lodging, auto rentals, and theater tickets where costs are fixed • Prices for a Round-TripFlight Between NYC and Miami Varied in From $190 to $739 in coach.

  35. Global Issues in Price Determination • Global Prices must support the firm’s broader goals including: • Product development • Advertising and sales • Customer support • Competitive plans • Financial objectives

  36. In general firms that set prices in global marketing follow the same objectives with one addition: • Price stability is the ability to maintain consistent prices during major economic fluctuations and periods of political change

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