Professional Documents
Culture Documents
Chapter Fourteen
Pricing and
Negotiating for Value
McGraw-Hill/Irwin Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved.
PRICING ISSUES: WHY PRICING IS
DIFFICULT
Subjective and
Objective & Explicit
Interpretive
1. DEMAND FACTORS 1. STRATEGY ISSUES
(How much do (Pricing objectives)
customers want) 2. COMPETITIVE
2. COST FACTORS FACTORS
(Actual outlays) (Rivals prices)
3. TRADE FACTORS
(Channel power)
4. LEGAL FACTORS
(Restrictions and
discrimination)
14-3
A MODEL FOR MANAGING PRICE
1 Demand Factors
Elasticity of demand
Cross elasticities
2 Customer value 5 Trade Factors
Cost Factors perceptions Power in the channel
Costs now Traditions and roles
Anticipated costs
Margins
Economic objectives
4 Strategy Issues
Target market
selection
3 Product positioning 6 Legal Factors
Cost Factors Price objectives Vertical restrictions
Structure of competition Marketing program
Barriers to entry Price discrimination
Intent of rivals
Evaluation and
Formation of
Prices & policy
14-4
SUPPLY AND DEMAND
Price
Supply
Demand
Quantity
14-5
ANALYZING MARKET STRUCTURES
Types of
situations
Important Pure Monopolistic
dimensions Competition Oligopoly Competition Monopoly
Uniqueness of each
None None Some Unique
firms product
Size of competitors
(compared to size of Small Large Large to small None
market
Kinked demand
Elasticity of demand Completely
curve (elastic Either Either
facing firm Elastic
and inelastic
Elasticity of industry
Either Inelastic Either Either
demand
14-6
KEY DECISIONS IN MANAGING PRICE
14-7
BREAK-EVEN ANALYSIS
BREAK-EVEN OCCURS WHEN: TOTAL REVENUE=TOTAL COST
BREAK-EVEN IS DONE TO FIND THE LEVEL OF SALES TO COVER ALL
FIXED AND VARIABLE COSTS
14-8
MARGINAL ANALYSIS