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The price equation is price = list price - (incentives and allowances) + extra fees. The final price of a car = list price-(rebates, cash discounts, old car trade-in) + (financing charges, special accessories, destination charges).AACSB: 3LL: 2Learning Objective: 13-01 Identify the elements that make up a price13-221
Chapter 13 - Building the Price Foundation267.(p. 323)How do consumers use price as an indicator of value? From a consumer's standpoint, price is often used to indicate value when it is compared with the perceived benefits such as quality, durability, and so on of a product or service. This relationship is described in the definition of value: Value = Perceived Benefits / Price. So, for a given price, as perceived benefits increase, value increases.AACSB: 3LL: 2Learning Objective: 13-01 Identify the elements that make up a price268.(p. 324)What are the six major steps involved in setting prices? 1. Identify pricing objectives and constraints.2. Estimate demand and revenue.3. Determine cost, volume, and profit relationships.4. Select an approximate price level.5. Set list or quoted price.6. Make special adjustments to list or quoted price.AACSB: 3LL: 1Learning Objective: 13-01 Identify the elements that make up a price269.(p. 324)Step 1 of the pricing process is identifying pricing objectives and constraints. Describe the reasons these objectives may change and give examples of objectives a firm may set. Pricing objectives involve specifying the role of price in an organization's marketing and strategic plans. The objectives may change depending on the financial position of the company as a whole, the success of its products, or the segments in which it is doing business. The firm may set profit, sales, market share, unit volume, survival, and/or social responsibility objectives.AACSB: 3LL: 2Learning Objective: 13-02 Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge13-222
Chapter 13 - Building the Price Foundation270.(p. 324)Step 1 of the pricing process is identifying pricing objectives and constraints. Describe the constraints a firm is likely to face. Pricing constraints are factors that limit the latitude of prices a firm may set. Consumer demand for the product class, product, and brand clearly affects the price that can be charged. Other constraints are set by factors within the organization: newness of the product (stage in the product life cycle), whether it is part of a product line or a single product, and cost of producing and marketing the product, cost of changing prices and time period they apply, and type of competitive markets. Competitive factors such as the nature of competition and prices set by competitors also restrict an organization's ability to set price.AACSB: 3LL: 2Learning Objective: 13-02 Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge271.