MARK 3321 1st Edition Lecture 13Outline of Last Lecture I. PriceII. Importance of Price to Marketing ManagersIII. Pricing ObjectivesIV. Demand Determinant of PriceV. Factors that affect elasticity of demandVI. Yield Management SystemsVII. The Cost Determinant of PriceVIII. The Break-Even PointOutline of Current Lecture I. Break-Even PricingII. Profit-Maximizing PricingIII. Markup PricingIV. Other Determinants of PriceV. Relationship of Price to QualityVI. How to set a Price on Products/ServicesVII. Price StrategyVIII. Pricing SkimmingIX. Price Penetration X. Legality of Price StrategyXI. Tactics for fine-tuning the base price: Other pricing tacticsXII. Tactics for fine-tuning the base price: Consumer PenaltiesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Current Lecture- Profit Maximizing Pricingo Profit maximization A method of setting prices that occurs when marginal revenue equals marginal costo Marginal revenue (cost) The change in total revenue (cost) with a one-unit change in outputo Understand Table 19.8 in book- Markup Pricingo Markup pricing Uses the cost of buying the product, plus amounts for profit and for expenses not otherwise accounted foro Markup Price = ________Cost__________ 1 – Desired Return on Saleso Keystoning The practice of marking up prices 100% over cost, or doubling the cost Desired return on sales is 50%- Other determinants of Priceo Stages of the product life cycleo Competition’o Distribution strategyo Promotion strategyo Perceived quality- The relationship of price to qualityo Prestige pricing Charging a high price to help promote a high-quality imageCH 20 – Setting the Right Price- How to set a price on a product or serviceo Establish pricing goalso Estimate demand, costs, and profitso Choose a price strategyo Fine tune with pricing tacticso Results lead to the right price- Price strategyo A basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle- Choose a price strategyo Price skimming A firm charges a high introductory price, often coupled with heavy promotiono Penetration pricing A firm charges a relatively low price for a product initially as a way to reach the mass marketo Status quo pricing Charging a price identical to or very close to the competition’s price- Price strategies: Skimming vs. Penetration- Price skimmingo Situations when Price Skimming is Successful Inelastic demand Unique advantages/superior Legal protection of product Technological breakthrough Blocked entry to competitors- Penetration pricingo Can lead to lower costs per unit as production expandso Discourages competition from market entryo Most effective when the market is price sensitiveo Penetration is more risky- The Legality of Price Strategyo Unfair trade practices State laws that prohibit wholesalers and retailers from selling below costo Price fixing An agreement between two or more firms on the price they will charge for a producto Price discrimination The Robinson-Patman act of 1936- Seller defenseso Costo Market conditionso Competitiono Predatory pricing The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market- Tactics for fine-tuning the base price: Other pricing tactics- Tactics for Fine-Tuning the Base Price: Consumer Penaltieso Businesses impose consumer penalties if… An irrevocable loss of revenue is suffered Additional transaction costs are