Chapter 14

Pricing Concepts for Establishing

Value

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 Learning Objectives

Learning Objective 14.1 List the four pricing orientations.

Learning Objective 14.2 Explain the relationship between

price and quantity sold.

Learning Objective 14.3 Explain price elasticity.

Learning Objective 14.4 Describe how to calculate a

products break-even point.

Learning Objective 14.5 Indicate the four types of price

competitive levels.

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 The 5 Cs of Pricing

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 1st C: Company Objectives

Example of Pricing Strategy

Company Objective
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).
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 PROGRESS CHECK (1 of 4)

1. What are the five Cs of pricing?

2. Identify the four types of company objectives.

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 2nd C: Customers

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 Demand Curves

Prestigious products
or services have
upward sloping
curves.

Not all demand

curves are
downward sloping

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 Price Elasticity of Demand (1 of 2)

Elastic
(price sensitive)

Inelastic
(price insensitive)

Consumers are less

sensitive to price
increases for necessities
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 Factors Influencing
Price Elasticity of Demand

Cross-
price Income
elasticity effect

https://www.youtube.com/watch?v=H3TZ-8rhpVQ
Substitution
effect

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 PROGRESS CHECK (2 of 4)

1. What is the difference between elastic demand

and inelastic demand?
2. What are the factors influencing price elasticity?

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 3rd C: Costs

Variable Costs
Vary with production volume

Fixed Costs
Unaffected by production volume

Total Cost
Sum of variable and fixed costs

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 Break-Even Analysis and Decision Making

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 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
Break-Even Point (units) =
Contribution per unit

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 PROGRESS CHECK (3 of 4)

1. What is the difference between fixed costs and

variable costs?
2. How does one calculate the break-even point in
units?

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 4th C: Competition

Jump to Appendix 4 long

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 PROGRESS CHECK (4 of 4)

1. What are the four different types of competitive

environments?

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 5th C: Channel Members

Manufacturers,
wholesalers and
retailers can have
different perspectives
on pricing strategies

Manufactures must
protect against gray
market transactions

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 Marketing
Chapter 14
The End

The End

McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.