learning objectives review
LO1 Understand the nature and importance of pricing products and services.
Price is the money or other considerations exchanged for the ownership or use of a product service.
Although price typically involves money, the amount exchanged is often different from the list or
quoted price because of allowances and extra fees.
LO2 Recognize the constraints on a firm’s pricing latitude and the objectives a firm has in setting
Pricing constraints, such as demand, product newness, costs, competitors, other products sold by the
firm, and the type of competitive market, restrict a firm’s pricing latitude. Pricing objectives may
include profit, sales revenue, market share, unit volume, survival, or some socially responsible price
LO3 Explain what a demand curve is and what price elasticity of demand means.
A demand curve is a graph relating the quantity sold and price and shows the maximum number of
product or service units that will be sold at given price. Three demand factors affect price: (a)
consumer tastes, (b) price and availability of other products, and (c) consumer income. These
demand factors determine consumers’ willingness and ability to pay for products and services.
Assuming these demand factors remain unchanged, when the price of a product is lowered or raised,
the quantity demanded for it will increase or decrease, respectively. Price elasticity of demand
measures the responsiveness of units of a product sold to a change in price, which is expressed as
the percentage change in the quantity of a product demanded divided by the percentage change in
price. It provides an indication of how sensitive consumer demand and the firm’s revenue are to
changes in the product’s price.
LO4 Perform a break-even analysis.
Break-even analysis shows the relationship between total revenue and total cost at various quantities
of output for given conditions of price, fixed cost, and variable cost. At the break-even point, total
revenue and total cost are equal.
LO5 Understand approaches to pricing as well as factors considered to establish prices for products
Four general approaches of finding an approximate price level for a product or service are demandoriented,
cost-oriented, profit-oriented, and competition-oriented pricing. Demand-oriented pricing
stresses consumer demand; cost-oriented pricing emphasizes the costs aspects; profit-oriented
pricing focuses on a balance between revenues and costs; and competition-oriented pricing stresses
what competitors or the marketplace are doing. Demand, cost, profit, and competition influence the
initial consideration of the price level for a product or service. To set the list or quoted price, a
marketer must also consider additional factors. First, the marketer must decide whether to follow a
one-price policy or a flexible-price policy. And second, the marketer must consider the effects the
proposed price will have on the company, customer, and competitors. Marketers must also consider
social media effects on pricing because social media, when used effectively, can reduce costs and
increase profitability thus allowing greater latitude in terms of price setting, Finally, list or quoted
prices are often modified through discounts, allowances, and geographical adjustments.
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LO6 Describe basic
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