Lecture Basic Marketing: A global managerial approach - Chapter 18: Price setting in the business world

When you finish this chapter, you will: Understand how most wholesalers and retailers set their prices using markups, understand why turnover is so important in pricing, understand the advantages and disadvantages of average-cost pricing, know how to use break-even analysis to evaluate possible prices, know the many ways that price setters use demand estimates in their pricing.
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Lecture Basic Marketing: A global managerial approach - Chapter 18: Price setting in the business worldChapter18:Price Settingin theBusiness World For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Key Factors That Influence Price Setting Pricing objectives Price of other Price flexibility products in the line Discounts and Demand allowances Price settin g Cost Legal environment Geographic Competition pricing terms Markup chain in channelsExhibit181182 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Markup Chain and Channel Pricing 50.00 30.00 24.00 Markup = 20.00 = 40% Markup = 6.00 = 20%Markup = 2.40 = 10% Cost = 30.00 = 60% Cost = 24.00 = 80%Cost = 21.60 = 90% Producer Wholesaler RetailerExhibit182183 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Six Types of Costs Total Cost Total Fixed Total Variable Cost Cost Average Average Fixed Cost Variable Cost Average Cost184 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Prices Along the Demand Curve $3.00 Total revenue = Price x Quantity $30,000 = $3.00 x 10,000 $40,000 = $2.00 x 20,000 $57,000 = $1.90 x 30,000 Price per unit $66,000 = $1.65 x 40,000 $75,000 = $1.50 x 50,000 2.00 $72,000 = $1.20 x 60,000 1.90 1.65 1.50 1.20 10 20 30 40 50 60 70 Quantity (000)Exhibit186 185 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Summary of Relationships Affecting Price Estimated quantity to ? be sold Quantity demanded Average fixed cost at selling price per unit Variable cost per unit Cost-oriented selling Average total cost price per unit per unit Profit per unitExhibit187186 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Break-Even Analysis Higher Total Revenue and Cost Profit Area Total Revenue Curve Total Cost Curve Break-Even Point Loss Area Total Variable Costs Total Fixed Costs 0 More Units of ProductionExhibit188187 For use with Shapiro, Wong, Perreault, and McCarthy texts. Copyright © 2002 McGraw-Hill Ryerson Limited. Demand-Oriented Pricing Psychological Odd-Even Bait Prestige Types ...