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 |  Marketing A McGraw Hill and QUT Custom Publication
Building the Price Foundation
Learning ObjectivesChapter 10 - Outline
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
- Identify the elements that make up a price.
- Recognize the constraints on a firm's pricing latitude and the objectives a firm has in setting prices.
- Explain what a demand curve is and how it affects a firm's total and marginal revenue.
- Recognize what price elasticity of demand means to a manager facing a pricing decision.
- Explain the role of costs in pricing decisions.
- Calculate a break-even point for various combinations of price, fixed cost, and unit variable cost.
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Chapter 10 - Summary
- Price is the money or other considerations exchanged for the ownership or use of a product or service. Although price typically involves money, the amount exchanged is often different from the list or quoted price because of allowances and extra fees.
- Consumers use price as an indicator of value when it is paired with the perceived benefits of a good or service. Sometimes price influences consumer perceptions of quality itself and at other times consumers make value assessments by comparing the costs and benefits of substitute items.
- Pricing constraints such as demand, product newness, costs, competitors, other products sold by the firm, and the type of competitive market restrict a firm's pricing latitude.
- Pricing objectives, which specify the role of price in a firm's marketing strategy, may include pricing for profit, sales revenue, market share, unit sales, survival, or some socially responsible price level.
- A demand curve shows the maximum number of products consumers will buy at a given price and for a given set of (a) consumer tastes, (b) price and availability of other products, and (c) consumer income. When any of these change, there is a shift of the demand curve.
- Important revenue concepts include total revenue, average revenue, and marginal revenue.
- Price elasticity of demand measures the sensitivity of units sold to a change in price. When demand is elastic, a reduction in price is more than offset by an increase in units sold, so that total revenue increases.
- It is necessary to consider cost behavior when making pricing decisions. Important cost concepts include total cost, variable cost, fixed cost, and marginal cost.
- Break-even analysis shows the relationship between total revenue and total cost at various quantities of output for given conditions of price, fixed cost, and variable cost. The break-even point is where total revenue and total cost are equal.
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2003 McGraw-Hill Higher Education