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The price charged to customers The price charged to customers multiplied by the multiplied by the number of units sold. number of units sold. Revenue minus expenses Revenue minus expenses
Marketers must select a price that is not too high or not too low, a price that equals the perceived value to target consumers
Pricing Objectives
Profit-Oriented Pricing Objectives Profit-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Sales-Oriented Pricing Objectives Status Quo Pricing Objectives Status Quo Pricing Objectives
Profit Maximization: Setting prices so that total revenue is as large as possible relative to total costs Return on Investment: Net profit after taxes divided by total assets
Market Share: A companys product sales as a percentage of total sales for that industry Sales Maximization
Short-term objective to maximize sales Ignores profits, competition, and the marketing environment May be used to sell off excess inventory
Supply Supply
Price Equilibrium
The price at which demand and supply are equal
2.50 2.00 D Surplus S Price Equilibrium S Shortage D
Price
Elasticity of Demand
Consumers responsiveness or sensitivity to changes in price
Elastic Elastic Demand Demand Inelastic Inelastic Demand Demand
Consumers buy more or less of a product when the price changes An increase or decrease in price will not significantly affect demand An increase in sales exactly offsets a decrease in prices, and revenue is unchanged
Elasticity of Demand
Price Goes... Price Goes... Down Down Up Up Up or Down Revenue Goes... Revenue Goes... Up Down Up Down Stays the Same Demand is... Elastic Inelastic Inelastic Elastic Unitary Elasticity
Deviate with changes Deviate with changes in level of output in level of output
Do not deviate Do not deviate as level of output changes as level of output changes
Profit Maximization Profit Maximization Pricing Pricing Break-Even Break-Even Pricing Pricing Target-Return Target-Return Pricing Pricing
Methods Methods Used to Used to Regain Regain Price Control Price Control