Chapter 14
Pricing Concepts for Establishing Value
Tools For Instructors
Brief Chapter Outline
Learning Objectives
Extended Chapter Outline with Teaching Tips
PowerPoint Slides with Teaching Notes
Additional Teaching Tips
Brief Chapter Outline
The Five Cs of Pricing
Pricing Strategies
Learning Objectives
LO 14-1 List the four pricing orientations.
A profit-oriented pricing strategy focuses on maximizing, or at least reaching a target, profit for
accordingly.
LO 14-2 Explain the relationship between price and quantity sold.
LO 14-3 Explain price elasticity.
Changes in price generally affect demand; price elasticity measures the extent of this effect. It is
LO 14-4 Describe how to calculate a product’s break-even point.
Because the break-even point occurs when the units sold generate just enough profit to cover the
LO 14-5 Indicate the four types of price competitive levels.
In a monopoly setting, one firm controls the market and sets the price. In an oligopolistic
competitive market, a few firms dominate and tend to set prices according to a
laws of supply and demand.
LO 14-6 Describe the difference between an everyday low price strategy (EDLP) and a
high/low strategy.
An everyday low pricing strategy is maintained when a product’s price stays relatively constant
regular price, and then a very price sensitive customer that pays the low price.
LO 14-7 Describe the pricing strategies used when introducing a new product.
When firms use a price skimming strategy, the product or service must be perceived as breaking
new ground or customers will not pay more than what they pay for other products. Firms use
typically results in lowered costs as the firm gains experience making the product or delivering
the service.
LO 14-8 List the pricing practices that are illegal or unethical
There are almost as many ways to get into trouble by setting or changing a price as there are
pricing strategies and tactics. Some common legal issues pertain to advertising deceptive prices.
to really sell any at that price. Collusion among firms to fix prices is always illegal.
Extended Chapter Outline With Teaching Tips
I. The Five Cs of Pricing (PPT slide 14-4)
A. Company Objectives (PPT slide 14-5)
1. Profit Orientation (PPT slide 14-6)
4. Customer Orientation (PPT slide 14-9)
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-10)
1. What are the five Cs of pricing?
and Channel Members.
2. Identify the four types of company objectives.
Competitor Orientation, and Customer Orientation.
B. Customers (PPT slide 14-12)
1. Demand Curves and Pricing (PPT slide 14-13, 14)
c) Cross-Price Elasticity (PPT slide 14-19)
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-20)
1. What is the difference between elastic demand and inelastic demand?
Answer: Elastic demand is when relatively small changes in price will generate fairly
about the lower price.
2. What are the factors influencing price elasticity?
C. Costs (PPT slide 14-21)
D. Break-Even Analysis and Decision Making (PPT slide 14-22, 23)
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-24)
1. What is the difference between fixed costs and variable costs?
Answer: Fixed costs are those costs that remain essentially at the same level, regardless
2. How does one calculate the break-even point in units?
Answer: To determine the break-even point in units mathematically, we must introduce
E. Competition (PPT slide 14-25)
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-27)
1. What are the four different types of competitive environments?
Answer: There are four levels of competition—monopoly, oligopolistic competition,
F. Channel Members (PPT slide 14-28)
II. Pricing Strategies (PPT slide 14-29)
A. Everyday Low Pricing (EDLP) (PPT slide 14-29)
2. Price Skimming
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-31)
1. Explain the difference between EDLP and high/low pricing.
2. What pricing strategies should be considered when introducing a new product?
III. Legal and Ethical Aspects of Pricing (PPT slide 14-32)
A. Deceptive or Illegal Price Advertising (PPT slide 14-33)
1. Deceptive Reference Prices
1. Horizontal Price Fixing
2. Vertical Price Fixing
Check Yourself: Several questions are offered for students to check their understanding of core
concepts. (PPT slide 14-38)
1. What common pricing practices are considered to be illegal or unethical?