Pricing and Variable Costs

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Marketing:The Core 5/e
Kerin - Hartley - Rudelius
Chapter 11

1 How would the price equation apply to the purchase price of (a) gasoline, (b) an airline ticket, and (c) a checking account? 2 Under what conditions would a camera manufacturer adopt a skimming price approach for a new product? A penetration approach? 3 What are some similarities and differences between skimming pricing, prestige pricing, and above-market pricing? 4 Touché Toiletries Inc. has developed an addition to its Lizardman Cologne line tentatively branded Ode d’Toade Cologne. Unit variable costs are 45 cents for a 3-ounce bottle, and heavy advertising expenditures in the first year would result in total fixed costs of $900,000. Ode d’Toade Cologne is priced at $7.50 for a 3-ounce bottle. How many bottles of Ode d’Toade must be sold to break even? 5 What would be your response to the statement, “Profit maximization is the only legitimate pricing objective for the firm”?

In starting to set a final price:
1 List two pricing objectives and three pricing constraints. 2 Think about your customers and competitors and set three possible prices. 3 Assume a fixed cost and unit variable cost and (a) calculate the break-even points and (b) plot a break-even chart for the three prices specified in step 2.

1 What factors are most likely to affect the demand for the lines of Washburn guitars (a) bought by a first-time guitar buyer and (b) bought by a sophisticated musician who wants a signature model? 2 For Washburn, what are examples of (a) shifting the demand curve to the righto get a higher price for a guitar line (movement of the demand curve) and (b) pricing decisions involving moving along a demand curve? 3 In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is (a) $349, (b) $389, and (c) $309? Also, (d) if Washburn achieves the sales target of 2,000 units...
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