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Marketing 333

Marketing 333. Chapter 17 Price Setting in the Business World. Pricing objectives. Price of other products in the line. Price flexibility. Discounts and allowances. Demand. Price setting. Cost. Legal environment. Geographic pricing terms. Competition.

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Marketing 333

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  1. Marketing 333 Chapter 17 Price Setting in the Business World

  2. Pricing objectives Price of other products in the line Price flexibility Discounts and allowances Demand Price setting Cost Legal environment Geographic pricing terms Competition Key Factors That Influence Price Setting Markup chain in channels Exhibit 17-1 17-3

  3. 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

  4. Markup in the Channel of Distribution Manufacturer Cost $20.00 20% MU $ 5.00 Selling price $25.00 Wholesaler Cost $25.00 15% MU 4.41 Selling price $29.41 Retailer Cost $29.41 41% MU $20.59 Selling price $50.00

  5. Total Cost Total Fixed Cost Total Variable Cost Average Fixed Cost Average Variable Cost Average Cost Six Types of Costs 17-5

  6. Types of Costs Price Marginal cost Average cost Demand Marginal revenue Quantity

  7. Marginal Analysis • Method for determining the costs and revenues associated with the production and sale of each additional unit of product

  8. Intersection of Marginal Cost and Marginal Revenue MR Marginal cost = marginal revenue MC Cost and revenue Cost less than revenue Cost greater than revenue Units produced and sold

  9. Break Even Analysis Total Revenues Profit Total Costs Loss Revenue & cost Break even point Fixed Costs Loss Quantity units produced & sold

  10. Demand Curve Relationship between various prices and the quantities of product demanded. Demand 8,000 13,000 18,000 23,000 28,000

  11. 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? 17-10

  12. 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

  13. Demand-Oriented Pricing Prestige Value-in-Use Types of Demand-Oriented Pricing Reference Psychological Leader Odd-Even 17-11

  14. ????? ????? ????? ????? ????? Full-Line Pricing Market- or Firm Oriented? Complementary Pricing? Product-Bundling Pricing? 17-12

  15. Bid and Negotiated Pricing 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. 17-13

  16. 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

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