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LPC’S Pricing Supplements. DEMAND & COST BASED QUANTITATIVE PRICING. A Framework for Developing and Applying a Pricing Strategy. Objectives. Consumers. Broad Pricing Policy. Costs. Government. Pricing Strategy. Channel Members. Implementation of Pricing Strategy. Competition.

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lpc s pricing supplements

LPC’S Pricing Supplements

DEMAND & COST

BASED QUANTITATIVE PRICING

slide2

A Framework for Developing and Applying a Pricing Strategy

Objectives

Consumers

Broad Pricing Policy

Costs

Government

Pricing Strategy

Channel Members

Implementation of Pricing Strategy

Competition

Price Adjustments

Feedback

slide3

A Framework for Developing and Applying a Pricing Strategy

Objectives

Consumers

Broad Pricing Policy

Costs

Government

Pricing Strategy

Channel Members

Implementation

NOW LET’S ADVISE SEAN

2/10 NET 30 $100m

Competition

Price Adjustments

Feedback

slide4

LPC Law of Demand

Demand

  • The law of demand states that consumers usually purchase more units at a low price than at a high price.
  • When demand is high and supply low, prices rise.
  • If supply is high and demand is low, prices fall.

$

S

u

p

p

l

y

slide5

Consumers and Price

by LPC

  • Price elasticity explains consumer reaction to price changes.
  • It indicates the sensitivity of buyers to price changes in terms of quantities they will purchase.
  • Demand may be elastic,inelastic, or unitary.
  • Unitary demand exists if price changes are exactly offset by changes in quantity demanded, so total sales revenue remains constant.
slide6

Demand Elasticity Is Based on

Availability of substitutes and the urgency of need.

  • Brand loyal consumers do not want to settle for less than the most desirable attributes of a particular product.
  • Price shoppers want the best deals possible.
  • What about SW Airlines?
slide7

Elastic Demand

  • Occurs if relatively small changes in price result in large changes in the quantity demanded.
  • Consumers perceive there to be many substitutes and/or have a low urgency of need.
  • With elastic demand, total revenue goes up when prices are decreased and goes down when prices rise.
slide8

WHAT IS THE SOUTH WEST AIRLINES ARC ELASTICITY?ST. LOUIS - KCLA - SFWHAT ARE THEY TRYING TO STIMULATE?(PRIMARY OR SELECTIVE DEMAND)WHO IS THEIR PRIMARY COMPETITION?

slide9

Inelastic Demand

  • Occurs if price changes have little impact on the quantity demanded.
  • Consumers perceive there are few substitutes and/or have a high urgency of need.
  • With inelastic demand, total revenue goes up when prices are raised and goes down when prices decline.
slide10

Honda Accord Economy Car = Elastic Demand

Price

Elastic

Demand

$12,000

$10,000

Quantity (Units)

12,000 100,000

slide11

Rolls Royce Luxury Car = Inelastic Demand

Price

$50,000

Inelastic Demand

$40,000

Quantity (Units)

18,000 20,000

slide12

NYC Subway Pricing: Elastic Or Inelastic?

No Monorail

Price increases in NYC subway fares:

  • Availability of substitutes?
  • Urgency of need?

Bronx to Brooklyn ?

3 hours +

$ $ $ $ $$

slide13

Demand-Based Pricing Techniques

Price-Discrimination *Sets two or more prices to appeal to distinct market segments

Demand-Minus Pricing*Works backward from selling price to costs

Demand-Based Pricing Techniques

Modified Break-Even Analysis *Combines traditional break-even analysis with demand evaluation at different prices

Chain-Markup Pricing *Extends demand-minus pricing back through the channel

slide14

Cost-Based Pricing

A firm sets prices by computing merchandise, service, and overhead costs and then adding an amount to cover its profit goal.

  • It is easy to derive.
  • The price floor is the lowest acceptable price a firm can charge and attain profit.
  • Goals may be stated in terms of ROI.

O

R

I

+Profit goals

Price Floor

(Merchandise, service, and overhead costs)

slide15

LPC Cost-Based Pricing Techniques

Traditional Break-Even Analysis *Determines sales quantity needed to break even at a given price

Price-Floor Pricing *Determines lowest price at which to offer additional units for sale

Cost-Plus Pricing*Pre-determined profit added to costs

Cost-Based Pricing Techniques

Target Pricing*Seeks specified rate of return at a standard volume of production

Markup Pricing *Calculates percentage markup needed to cover selling costs and profit

slide16

Cost-Plus Pricing

Prices are set by adding a pre-determined profit to costs. It is the simplest form of cost-based pricing.

Price =

Total fixed costs + Total variable costs + Projected profit

Units produced

slide17

Markup Pricing

A firm sets prices by computing the per-unit costs of producing (buying) goods and/or services and then determining the markup percentages needed to cover selling costs and profit. It is most commonly used by wholesalers and retailers.

Price = Product cost

(100 – Markup percent)/100

Some firms use a variable markup policy, whereby separate categories of goods and services receive different percentage markups.

slide18

Traditional Break-Even Analysis

Break-even point (units)

=

Total fixed costs

Price - Variable costs (per unit)

Total fixed costs

Price - Variable costs (per unit)

Price

Break-even point

(sales dollars)

=

These formulas are derived from the equation: Price X Quantity = Total fixed costs + (Variable costs per unit X Quantity)

slide19

Break-Even Analysis Can Be Adjusted to Take into Account the Profit Sought

Break-even point (units)

Total fixed costs + Projected Profit

Price - Variable costs (per unit)

=

Break-even point

(sales dollars)

Total fixed costs + Projected Profit

Price - Variable costs (per unit)

Price

=

slide20

Chain-Markup Pricing

  • Chain-markup pricing extends demand-minus calculations all the way from resellers back to suppliers. Final selling price is determined and the maximum acceptable costs to each channel member are computed.
now lets price internationally
NOW LETS PRICE INTERNATIONALLY
  • WE WILL ALSO PRICE A BUSINESS IN PAGEDALE THAT MANUFACTURES FILM PRODUCING EQUIPMENT FOR MAJOR MOVIE STUDIOS