Grewal, 5th edition - Ch14 student ppt_slides

1. 14-1
CHAPTER
PRICING CONCEPTS
FOR ESTABLISHING
VALUE
14

2. 14-2
L E A R N I N G O B J E C T I V E S
List the four pricing orientations.
Explain the relationship between price
and quantity sold.
Explain price elasticity.
Describe how to calculate a product’s
break-even point.
Indicate the four types of price
competitive levels.
Pricing Concepts for Establishing Value
LO1
LO2
LO3
LO4
LO5

3. 14-3
The 5 C’s of Pricing

4. 14-4
1st C: Company Objectives
Company Objective Examples of Pricing Strategy Implications
Profit-oriented Institute a companywide policy that all products must
provide for at least an 18 percent profit margin to reach a
particular profit goal for the firm.
Sales-oriented Set prices very low to generate new sales and take sales
away from competitors, even if profits suffer.
Competitor-oriented To discourage more competitors from entering the
market, set prices very low.
Customer-oriented Target a market segment of consumers who highly value
a particular product benefit and set prices relatively high
(referred to as premium pricing).

5. 14-5
CHECK YOURSELF
1. What are the five Cs of pricing?
2. Identify the four types of company objectives.

6. 14-6
2nd C: Customers

7. 14-7
Demand Curves
Not all are downward
sloping
Prestigious products
or services have
upward sloping
curves

8. 14-8
Price Elasticity of Demand
Elastic
(price sensitive)
Inelastic
(price insensitive)
Consumers are
less sensitive to
price increases for
necessities ©PhotoLink/Getty Images

9. 14-9
Factors Influencing
Price Elasticity of Demand
Income
effect
Substitution
effect
Cross-
price
elasticity
Walmart
Commercial

10. 14-10
CHECK YOURSELF
1. What is the difference between elastic versus
inelastic demand?
2. What are the factors influencing price elasticity

11. 14-11
3rd C: Costs
 Variable Costs
 Vary with production volume
 Fixed Costs
 Unaffected by production volume
 Total Cost
 Sum of variable and fixed costs
Michael Rosenfeld/Stone/Getty Images

12. 14-12
Break Even Analysis and
Decision Making

13. 14-13
Break Even Analysis
Total Variable Cost = Variable Cost per unit X Quantity
Total Cost = Fixed Cost + Total Variable Cost
Total Revenue = Price X Quantity
Fixed Costs
Contribution per unit
Break-Even Point (units) =

14. 14-14
CHECK YOURSELF
1. What is the difference between fixed costs and
variable costs?
2. How does one calculate the break-even point in
units?

15. 14-15
4th C: Competition
Subway
Commercial

16. 14-16
CHECK YOURSELF
1. What are the four different types of competitive
environments?

17. 14-17
5th C: Channel Members
 Manufacturers,
wholesalers and
retailers can have
different perspectives
on pricing strategies
 Manufactures must
protect against gray
market transactions