s KEEY TERM! L01 price that which is given up in an exchange to acquire a good or service revenue the price charged to customers multiplied by the number of units sold profit revenue minus expenses L0 2 return on investment (ROI) net profit after taxes divided by total assets market share a company's product sales as a percentage of total sales for that industry status quo pricing a pricing objective that maintains existing prices or meets the competition's prices L0 3 demand the quantity of a product that will be sold in the market at various prices for a specified period supply the quantity of a product that will be offered to the market by a supplier at various prices for a specified period price equilibrium the price at which demand and supply are equal elasticity of demand consumers' responsiveness or sensitivity to changes in price elastic demand a situation in which consumer demand is sensitive to changes in price inelastic demand a situation in which an increase or a decrease in price will not significantly affect demand for the product unitary elasticity a situation in which total revenue remains the same when prices change '.'-> 2012 ( Vm;j;h:c I .earning. All Ri KEY CONCERTS Discuss the importance of pricing decisions to the economy and to the individual firm. Pricing plays an integral role in the U.S. economy by allocating goods and services among consumers, governments, and businesses. Pricing is essential in business because it creates revenue, which is the basis of all business activity. In setting prices, marketing managers strive to find a level high enough to produce a satisfactory profit. rivet x sal€s ur/rr= Ktvtitut KMVtf/Ut - COSTS = rKPHT rx&ttrpxjvts qitpwrn, sai~aw ivcKtAsts, Atvt> coKtoKATt ito/tsr/ittrr. List and explain a variety of pricing objectives. Establishing realistic and measurable pricing objectives is a critical part of any firm's marketing strategy. Pricing objectives are commonly classified into three categories: profit oriented, sales oriented, and status quo. Profit-oriented pricing is based on profit maximization, a satisfactory level of profit, or a target return on investment (ROI). The goal of profit maximization is to generate as much revenue as possible in relation to cost. Often, a more practical approach than profit maximization is setting prices to produce profits that will satisfy management and stockholders. The most common profit-oriented strategy is pricing for a specific return on investment relative to a firm's assets. The second type of pricing objective is sales oriented, and it focuses on either maintaining a percentage share of the market or maximizing dollar or unit sales. The third type of pricing objective aims to maintain the status quo by matching competitors' prices. Profit Oriented Sales Oriented Status Quo r" Profit "W k maximization ^L. Satisfactory Profits ~^W Target , A R01 A • Drive down costs • Increase revenue Net profit after tax Total assets ■ ■ '11^ Market Share Sales Maximization ^^M ^ ■■ j H HBBHIj • U n i t ' G e n e r a t e • Revenue cash 1 Meet the competition • Passive policy Explain the role of demand in price determination. Demand is a key determinant of price. When establishing prices, a firm must first determine demand for its product. A typical demand schedule shows an inverse relationship between quantity demanded and price: When price is lowered, sales increase; and when price is increased, the quantity demanded falls. For prestige products, however, there may be a direct relationship between demand and price: The quantity demanded will increase as price increases. Quantity demanded (a) Quantity demanded (b) What affects elasticity? • Availability of substitutes • Price relative to purchasing power • Product durability • Product's other uses . Inflation rate May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.