# Pricing and Variable Costs

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Pricing and Variable Costs
Marketing:The Core 5/e
Kerin - Hartley - Rudelius
Chapter 11

APPLYING MARKETING KNOWLEDGE
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.

VIDEO CASE QUESTIONS
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

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