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.
Trang 1
Price Setting
in the
Business World
Trang 2Key Factors That Influence Price Setting
Pricing objectives
Discounts and allowances
Legal environment
Price flexibility
Demand
Cost
Price of other products in the line
Price settin g
Trang 330.00
50.00
Cost = 24.00 = 80%
Markup = 6.00 = 20%
Cost = 21.60 = 90%
Markup = 20.00 = 40%
Markup Chain and Channel Pricing
Exhibit 182
Trang 4Six Types of Costs
Total Cost
Average Fixed Cost
Total Variable
Cost
Average Variable Cost Total Fixed
Cost
Trang 5Total 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
$66,000 = $1.65 x 40,000
$75,000 = $1.50 x 50,000
$72,000 = $1.20 x 60,000
Quantity (000)
$3.00
2.00 1.90
1.65 1.50 1.20
Prices Along the Demand Curve
Trang 6Variable cost per unit
Estimated quantity to
be sold
Average fixed cost
per unit
Quantity demanded
at selling price
?
Summary of Relationships
Affecting Price
Trang 7Break-Even Analysis
Units of Production
Break-Even Point
Profit Area
Total Fixed Costs
Total Variable Costs
Total Cost Curve Total Revenue Curve
Loss Area
More
0
Higher
Exhibit 188
Trang 8Demand-Oriented Pricing
Value-in-Use
Demand-Backward
Types of Demand-Oriented
Pricing
Trang 9Full-Line Pricing
Product-Bundling
Pricing?
Product-Bundling
Pricing?
Complementary
Pricing?
Complementary
Pricing?
Market- or Firm Oriented?
Market- or Firm Oriented?
?????
?????
?????
?????
?????
Trang 10Bid pricing means offering a specific price for each possible job. Determining costs is a complicated
process.
Negotiated pricing involves
Bid and Negotiated Pricing