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Chapter 13: Pricing, Promoting, and Distributing ProductsLO-1: Identify the various pricing objectivesthat govern pricing decisions, and describe the price-setting tools used in making these decisions. pricing: process of determining what the customer pays and the seller receives in exchange fora product> Pricing to Meet Business Objectives: - pricing objectives: the goals that sellers hope to achieve in pricing products for sale 1.Profit-Maximizing Objectives- Revenue = Selling price X units sold- set price to generate highest possible total profits - managers weigh revenue against costs for materials, labour, capital resources, marketing costs2.Market-Share (Penetration) Objectives- market share (penetration): a company’s percentage of the total industry sales for a specific product type- set objectives based on events e.g. declining share - Toyota cut prices to regain lost market share after millions of cars recalled > Price-Setting Tools: 1.Cost-Oriented Pricing - pricing that considers a firm’s desire to make a profit and its need to cover production costs - Selling price = Seller’s costs + Profit-markup: amount added to an item’s purchase cost to sell it at a profit- Markup percentage = out of every $1.00 taken in, $0.xx will be gross profit2.Breakeven Analysis: Cost-Volume-Profit Relationships - firm will cover variable costs: costs that change with quantity produced and sold - firms pay fixed costs:costs incurred regardless of quantity - breakeven analysis:for a particular selling price, assessment of the seller’s costs versus revenues at various sales volumes - breakeven point:sales volume at which total revenues equals total costs (fixed+variable)- Breakeven point = - Profit = Total Revenue – (Total F.C. + Total V.C.)
LO-2: Discuss pricing strategiesthat can be used for different competitive situations and identify the pricing tacticsthat can be used for setting prices.> Pricing Strategies 1.Pricing Existing Products:a) pricing aboveprevailing market prices for similar products (higher price = higher quality) b) pricing belowmarket prices, product of comparable quality to higher-priced competitors c) pricing at or nearmarket prices 2.Pricing New Products:- price skimming:setting an initially high price to cover new product costs + generate profit - penetration pricing: setting an initially low price to establish new product in market3.Fixed vs. Dynamic Pricing for Online Businesses: