© 2002 mcgraw-hill companies, inc., mcgraw-hill/irwin building the price foundation

© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

BUILDING THE PRICE

FOUNDATION

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• What is a Price? Barter

NATURE AND IMPORTANCE OF PRICE

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The price of four different purchasesThe price of four different purchases

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Lamborghini What will this car cost?

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• Price as an Indicator of Value Value-pricing

• Price in the Marketing Mix Profit Equation

NATURE AND IMPORTANCE OF PRICE

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Steps in setting priceSteps in setting price

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• Identifying Pricing Constraints• Demand for the Product Class, Product, and

Brand

• Newness of the Product: Stage in the Product Life Cycle

• Single Product versus a Product Line

• Cost of Producing and Marketing the Product

STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

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Collectable or

Trashable?

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Collectable or Trashable?

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• Identifying Pricing Constraints

• Cost of Changing Prices and Time Period They Apply• Types of Competitive Markets

Pure monopoly Oligopoly Monopolistic competition Pure competition

STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

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Pricing, product, and advertising strategies available to Pricing, product, and advertising strategies available to firms in four types of competitive marketsfirms in four types of competitive markets

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• Identifying Pricing Constraints• Competitors’ Prices

STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

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• Identifying Pricing Objectives• Profit

STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

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Where each Where each dollar of your dollar of your movie movie ticket goesticket goes

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Identifying Pricing Objectives

• Sales

• Market Share

• Unit Volume

• Survival

• Social Responsibility

STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES

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• Fundamentals of Estimating Demand• The Demand Curve

STEP 2: ESTIMATE DEMAND AND SERVICE

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Illustrative demand curves for Illustrative demand curves for NewsweekNewsweek magazine magazine

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• The Demand Curve Demand factors

• Movement Along versus Shift of a Demand Curve

STEP 2: ESTIMATE DEMAND AND SERVICE

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• Fundamentals of Estimating Revenue Total revenue Average revenue Marginal revenue

STEP 2: ESTIMATE DEMAND AND SERVICE

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Fundamental revenue conceptsFundamental revenue concepts

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How a downward-sloping demand curve affects total, How a downward-sloping demand curve affects total, average, and marginal revenueaverage, and marginal revenue

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• Fundamentals of Estimating Revenue

• Price Elasticity of Demand Price Elasticity for Brands and Product Classes

STEP 2: ESTIMATE DEMAND AND SERVICE

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• The Importance of Controlling Costs Total cost Fixed cost Variable cost Marginal cost

STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

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Fundamental cost conceptsFundamental cost concepts

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• Marginal Analysis and Profit Maximization

STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

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Profit maximization pricingProfit maximization pricing

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• Break-Even Analysis Break-even point Break-even chart

• Calculating a Break-Even Point

STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS

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Calculating a break-even pointCalculating a break-even point

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Break-even analysis chartBreak-even analysis chart