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MARKETINGMARKETING © South-Western Thomson
CHAPTER 14
Determining the Best Price
14.114.1 The Economics of Price Decisions14.214.2 Developing Pricing Procedures14.314.3 Pricing Based on Market Conditions
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MARKETINGMARKETING © South-Western Thomson
THE ECONOMICS THE ECONOMICS OF PRICE DECISIONSOF PRICE DECISIONSGOALSGOALS for Lesson 14.1Explain the reasons why price is an
important marketing tool.Demonstrate how the economic
concept of elasticity of demand relates to pricing decisions.
Describe the three primary ways in which government influences prices.
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MARKETINGMARKETING © South-Western Thomson
Price as Price as a Marketing Toola Marketing ToolThe importance of price
What is price?Adjustability
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MARKETINGMARKETING © South-Western Thomson
Price as Price as an Economic Conceptan Economic ConceptEconomic utilityElasticity of demand
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MARKETINGMARKETING © South-Western Thomson
Supply and Demand Affect PriceSupply and Demand Affect Price
Price$8765432
10Quantity
20 30 40 50 60 70 80
1
90 100
DemandDemand
SupplySupply
EquilibriumPoint
EquilibriumPoint
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MARKETINGMARKETING © South-Western Thomson
Inelastic DemandInelastic Demand
Price of a Dozen Eggs Quantity Sold Total Revenue
$0.65 305 $198.25
$0.68 300 $204.00
$0.71 292 $207.32
$0.74 285 $210.90
$0.77 277 $213.29
$0.80 264 $211.20
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MARKETINGMARKETING © South-Western Thomson
Elastic DemandElastic Demand
Price of a Gallon of Ice Cream Quantity Sold Total Revenue
$3.65 180 $657.00
$3.70 165 $610.50
$3.75 158 $592.50
$3.80 147 $558.60
$3.85 136 $523.60
$3.90 122 $475.80
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MARKETINGMARKETING © South-Western Thomson
Government’s Government’s Effect on PricesEffect on PricesRegulating competitionTaxationRegulating prices
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MARKETINGMARKETING © South-Western Thomson
DEVELOPING DEVELOPING PRICING PROCEDURESPRICING PROCEDURESGOALSGOALS for Lesson 14.2Describe three objectives businesses
commonly choose from when setting a price.
Explain how businesses establish a price range for a product.
Identify the three components that must be covered by the selling price.
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MARKETINGMARKETING © South-Western Thomson
Setting Price ObjectivesSetting Price Objectives
Maximize profitsIncrease salesMaintain an image
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MARKETINGMARKETING © South-Western Thomson
Determining Determining a Price Rangea Price RangeMaximum priceMinimum priceBreakeven analysisPrice range
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MARKETINGMARKETING © South-Western Thomson
Breakeven Analysis for Breakeven Analysis for Ascroe Garden WeederAscroe Garden Weeder
Variable TotalUnits Costs Variable Fixed Total TotalSold per Unit Costs + Costs = Costs Price Revenue
5,522 $2.80 $15,462 + $85,000 = $100,462 $14 $77,3086,054 $2.80 $16,951 + $85,000 = $101,951 $14 $84,7566,998 $2.80 $19,594 + $85,000 = $104,594 $14 $97,9727,589 $2.80 $21,249 + $85,000 = $106,249 $14 $106,2468,225 $2.80 $23,030 + $85,000 = $108,030 $14 $115,1509,110 $2.80 $25,508 + $85,000 = $110,508 $14 $127,540
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MARKETINGMARKETING © South-Western Thomson
Breakeven point
Breakeven PointBreakeven Point
Total fixed cost
7,589 units
Breakeven point Price – Variable costs per unit
=
85,000 85,000
14.00 - 2.80 11.20== =
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MARKETINGMARKETING © South-Western Thomson
Price Range for Price Range for a Pair of Tennis Shoesa Pair of Tennis Shoes
Total cost
$87.00
$53.00
$38.00
Price range
Highest price customer will pay
Lowest price company
can chargeVariable costs per pair
Fixed costs per pair (estimated)
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MARKETINGMARKETING © South-Western Thomson
Calculating Calculating a Selling Pricea Selling PriceGross marginOperating expensesNet profitMarkupMarkdown
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MARKETINGMARKETING © South-Western Thomson
Components Components of the Selling Priceof the Selling PriceProduct costOperating expensesNet profit
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MARKETINGMARKETING © South-Western Thomson
PRICING BASED ON PRICING BASED ON MARKET CONDITIONSMARKET CONDITIONSGOALSGOALS for Lesson 14.3Identify two marketing tools that illuminate
competitive conditions and help marketers set prices.
Describe the various criteria businesses use in establishing the final price a customer pays.
Explain why extending and managing credit is important to marketing.
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MARKETINGMARKETING © South-Western Thomson
Competitive EnvironmentCompetitive Environment
Product life cycleConsumer purchase classificationsNon-price competition
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MARKETINGMARKETING © South-Western Thomson
Pricing PoliciesPricing Policies
Price flexibilityOne-price policyFlexible pricing policy
Price linesGeographic pricing
FOB pricingZone pricing
Discounts and allowancesAdded values
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MARKETINGMARKETING © South-Western Thomson
Discounts and AllowancesDiscounts and Allowances
Quantity discountSeasonal discountCash discountTrade discountTrade-in allowanceAdvertising allowanceCouponRebate
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MARKETINGMARKETING © South-Western Thomson
Offering CreditOffering Credit
Types of creditConsumer creditTrade credit
Developing credit proceduresCredit policiesCredit approvalCollections