CHAPTER 13

Building the
Price
Foundation
MEMBERS:
Heolin John Paul M.
Macapobres, Yshabeth O.
Ocol, Gelizaire B.
 Learning Objectives:
LO1 Identify the elements that make up a price.

LO2 Recognize the objectives a firm has in setting

prices and the constraints that restrict the range of
prices a firm can charge.

LO3Explain what a demand curve is and the role

of revenues in pricing decisions.
LO4 Describe what price elasticity of
demand means to a manager facing a
pricing decision.

LO5 Explain the role of costs in pricing

decisions.

LO6 Describe how various combinations of

price, fixed cost, and unit variable cost
affect a firm's breakeven point.
NATURE AND IMPORTANCE OF
PRICE:
The price paid for goods and services goes
by many names. Like;
Rent
Car insurance
Tuition fees
What you pay for clothes, groceries, haircut
and Etc.
 What is Price?
The money or other
considerations exchanged
for ownership or use of a
good or service.
 FIGURE 1
The price a buyer pays can take different names, depending on
what is purchase
Barter
exchanging goods and services
for other goods and services
rather than for money.
Price as an indicator of value
Priceinfluences consumers perception of
quality and value to customers.

Value
This is the ratio of benefits to price.

Value =Perceived benefits

Price
Figure 2
The importance of price in the marketing mix
necessitates an understanding of six major steps
involved in the process organizations go through
in setting prices (Figure 2) :

1.Identify pricing objectives and constraints.

2. Estimate demand and revenue.
3. Determine cost, volume, and profit
relationships.
4.Select an approximate price level.
5. Set list or quoted price.
6. Make special adjustments to list quoted
price.
Step 1: Identify Pricing
Objectives & Constraints
Pricing Objectives
Specifying the role of price in orgs. marketing
and strategic plans
Profit
3 different Objectives relate to a firms profit
which is measured as (ROI) or (ROA):

1.Return on Investment/Assets
Managing for long-run profits Give up immediate profit
by developing high-end products to penetrate
competitive markets profits generated via market
share
2. Maximizing current profit
Setting a short term profit (quarter year or
less)

3. Target Return
Firm sets specific profit goal
Market Share
Ratio of firms sale revenues or unit sales
Unit Volume
quantity produced or sold, as a pricing objective.
Survival
In some instances, profits, sales, and market share
are less important objectives of the firm than mere
survival.
Social Responsibility
Follow pricing objectives
 Identifying Pricing Constraints
Factors that limit the range of prices a firm may set
are Pricing Constraints.
Demand for the Product Class, Product and Brand
The number of potential buyers More demand, higher price
can be charged
Newness of Product: Stage in product lifecycle
newer product can charge higher prices
Single Product vs. Product Line
Must be consistent with other products in the market based
on features
Cost of Producing and Marketing Product
Firm must cover cost of producing and marketing product
Cost of Changing Prices and Time Period they Apply
If selling to multiple consumers, time and effort to change
product prices
Type of Competitve Market

FIGURE 3
pricing, product and advertising strategies avalable to firms in four types of Type of Competitve
Market
Step 2: Estimate Demand and
Revenue
Basic to setting a products price is the
extent of customer demand for it.

Demand Curve a graph relating the

quantity sold and the price, which shows
the maximum number of units that will be
sold at a given price.
Economist emphasize 3 other
key factors:
1. Consumer taste
2. Price and availability of similar products
3. Consumer income.
Figure 4
Step 3: Determine Cost,
Volume & Profit Relationships
Costs or Expenses are the monies
the firm pays out to its employees and
suppliers
Marginal Analysis and Profit
Maximization:
A basic idea in business, economics, and
indeed everyday life is Marginal Analysis

Break even analysis

An technique that analyzes the relations
between total revenue and total costs
Break even point
is the quantity at which total revenue and
total cost are equal