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Powerpoint Slides With Teaching Notes
Power Point Slide Teaching Notes
14-1: Pricing Concepts for Establishing
Value
14-2: Learning Objectives These are the learning objectives for this
chapter.
14-3: The 5 C’s of Pricing Ask students What’s the most you will pay for
laundry detergent?
Ask students why they will pay the prices
they mention? It really comes down to the
benefits and value they place on their favorite
laundry detergent.
14-4: The 5 C’s of Pricing The following slides discuss each C in detail;
alternatively, you can use this graph as a basis
for a shortened discussion.
14-5: 1st C: Company Objectives Each firm has a specific orientation in the
marketplace that dominates its pricing strategy.
Profit-oriented firms do not use value as a
consideration but rather focus on generating a
set level of profit from each sale.
14-6: Profit Orientation Ask students: What are the issues with a profit
orientation?
Answer: The key issue is that it does not take
into consideration the value customers have for
the product.
This may lead to prices being set below and
optimal level.
14-7: Sales Orientation Firms that want to attain market leadership set
prices at less profitable levels to gain market
share.
Ask Students: Why would firms adopt this
orientation?
Many first adopt this orientation to establish a
position in the market by getting the most price
sensitive consumers to change brands.
14-8: Competitor Orientation This strategy is particularly common among
smaller firms that lack knowledge or
experience in setting prices. Non-market leader
firms also use it to signal they are similar to
the market leader.
Ask students: What are the benefits of a
competitor strategy?
For example, can a new hotel chain indicate its
level of service through price?
The answer is yes. In many instances new
brands will set price equal to the competitors
they wish to be compared with knowing that
consumers use reference prices to indicate
quality
14-9: Customer Orientation A recent study indicates that a variety of
retailers sell one-carat diamonds, but
consumers pay vastly different prices at Costco
versus Tiffany’s.
The diamonds are a commodity; they must
meet the same standards and are rated the
same.
Ask students: Why would a consumer spend
thousands more to buy a stone at Tiffany’s?
This web link is to automotive.com website
where consumers can shop for the lowest gas
price around.
With prices at over $3 a gallon at some times,
many consumers are price sensitive enough to
search for cheaper gas.
14-10: Check Yourself 1 The five Cs of pricing are Company
Objectives, Customers, Costs, Competition,
and Channel Members.
2 The four types of company objectives are
Profit Orientation, Sales Orientation,
Competitor Orientation, and Customer
Orientation.
14-11: What are they trying to accomplish
with this ad?
Consumers have an expectation of a rental car
costing a lot of money. They don’t realize they
can rent the car for under $10 an hour.
Because Zipcar is a new product, they need to
set customer’s expectations. To help
consumer’s relate to the price, they compare it
to a purchase very familiar to the consumer.
14-12: 2nd C: Customers The following slides address different parts of
this graph; this slide serves as an introduction
to the topic of demand curves.
14-13: Demand Curves and Pricing This information should be a review from
students’ micro-economics coursework, so
they should be familiar with the concept, but
this discussion applies it in a slightly different
way.
Ask students to discuss their demand of online
music and videos.
Video: “E-Book Readers Face Sticker Shock”
Ask students as a consumer, how readily to
you buy e-books versus hard cover books?
Ask students to discuss the potential collusion
that could have occurred between the book
publishers.
14-14: Demand Curves Ask students to name a prestige product.
Why do they think people are willing to pay a
higher price?
For example, why will someone pay a higher
price for a BMW than a Kia?
They will mention product quality but also
branding issues including the esteem offered to
the owner from the BMW.
14-15: Price Elasticity of Demand For pricing, elasticity is a crucial concept.
14-16: Price Elasticity of Demand Ask students: In what circumstances will
raising the price NOT result in an increase in
revenue? In what circumstances will raising
the price result in an increase in revenue?
In elastic markets, depending on the level of
elasticity, a price increase can increase
revenues, but if the increase drives consumers
out of the market, demand falls, and a loss of
revenue may result.
In contrast, in inelastic markets, a price
increase almost always increases revenues,
because the relationship between price and
demand is weak. Pharmaceuticals provide a
good example; even if the price of a cancer
drug increases, consumers still demand it, so
the firm generates more revenue.
14-17: Factors Influencing Price Elasticity
of Demand
In this YouTube ad (always check link before
class)
Wal-Mart stresses good service in the holiday
season, but as always, ends their ad with
messaging related to their low price offerings
AND the importance of low price (live better).
14-18: Substitution Effect Discuss the case of Pete and how the income
and substitution effects alter his buying
behavior.
As a college student, he prefers a less
expensive substitute deodorant, because it
demands less of his total income.
Ask students: When Pete graduates and gets a
high-paying job, will he worry as much about
the cost of deodorant?
Do you expect him to switch back to Old
Spice? Why or why not?
14-19: Cross-Price Elasticity Just like Kendra, many people buy products
without considering the price of necessary
peripherals.
Kendra is caught in a cross-elasticity trap,
because her demand for one product generated
demand for the other.
Group activity: Brainstorm a list of other
products that exhibit cross-price elasticity.
14-20: Check Yourself 1 Fixed costs are those costs that remain
essentially at the same level, regardless of
any changes in the volume of production.
While variable costs are those costs,
primarily labor and materials, that vary
with production volume.
2 To determine the break-even point in units
mathematically, we must introduce one
more variable, the contribution per unit,
which is the price less the variable cost per
unit. Therefore, the break-even point
becomes Break-even point (units) = fixed
costs/contribution per unit.
14-21: 3rd C: Costs No discussion of price would be complete
without a discussion of cost.
The price must at least cover the cost of the
item.
However, as students may have learned in their
finance courses, understanding costs is rarely
easy.
14-22: Break Even Analysis and Decision
Making
Students might have discussed break-even in
previous classes – ask them what it is. In
many cases it is hard for students to define.
14-23: Break Even Analysis Although profit, which represents the
difference between the total cost and the total
revenue (total revenue or sales = selling price
of each unit sold number of units sold), can
indicate how much money the firm is making
or losing at a single period of time, it cannot
tell managers how many units a firm must
produce and sell before it stops losing money
and at least breaks even.
14-24: Check Yourself 1 Fixed costs are those costs that remain
essentially at the same level, regardless of
any changes in the volume of production.
While variable costs are those costs,
primarily labor and materials, that vary
with production volume.
2 To determine the break-even point in units
mathematically, we must introduce one
more variable, the contribution per unit,
which is the price less the variable cost per
unit. Therefore, the break-even point
becomes Break-even point (units) = fixed
costs/contribution per unit.
14-25: 4th C: Competition Group activity: List a product or service
market that demonstrates each type of
competition.
Monopoly: Microsoft software products.
Oligopolistic: Cable TV firms.
Pure: Most frequently purchased consumer
goods such as soft drinks.
Ask students if this price promotion has
motivated them to visit subway?
14-26: Subway This you tube ad is for a $5 foot long
commercial for Subway (always check link
before class). Students will be familiar with
this promotion.
Ask students if this price promotion has
motivated them to visit subway?
Note: Please make sure that the video file is
located in the same folder as the PowerPoint
slides.
14-27: Check Yourself 1 There are four levels of competition—
monopoly, oligopolistic competition,
monopolistic competition, and pure
competition.
14-28: 5th C: Channel Members Ask students: have you ever bought books
marked “Instructor Copy: Not for Resale,” or
“International Student Edition?”
Is the bookstore engaging in unethical
behavior? Whom does this gray market
benefit? Whom does it hurt?
Answer: The purchase of gray market
textbooks hurt the publisher and authors.
These books do not help recover the costs of
all the ancillary packages that are provided to
instructors.
