Page 373 - Foundations of Marketing

340 Part 4 | Product and Price Decisions

average variable cost of $ 60 per unit, the contribution to fi xed costs is $ 40 . If total fi xed costs
are $ 120,000 , the break-even point in units is determined as follows:

fixed costs
break-even point =
per-unit contrribution to fixed costs

fixed costs
=
price-variable costs
$120,000
=
$40
= ,3 000 units

To calculate the break-even point in terms of dollar sales volume, the seller multiplies the
break-even point in units by the price per unit. In the preceding example, the break-even point
in terms of dollar sales volume is 3,000 (units) times $ 100 , or $ 300,000 .
To use break-even analysis effectively,
a marketer should determine the break-even
point for several alternative prices in order
Where Do You Pay the Most? to compare the relative effects on total rev-
enue, total costs, and the break-even point.
Although this comparative analysis may
Snapshot 23% 46% Brick and mortar charge, it will identify highly undesirable
not tell the marketer exactly what price to
prices that should definitely be avoided.
Break-even analysis is simple and
straightforward. It does assume, however,
Online
that the quantity demanded is basically
The same
fixed (inelastic) and that the major task in
setting prices is to recover costs. It focuses
more on how to break even than on how
31%

to achieve a pricing objective, such as
percentage of market share or return on
investment. Nonetheless, marketing man-
agers can use this concept to determine
whether and when a product will achieve a
Source: Accenture Interactive survey of 1,000 people ages 18 and over. break-even volume.

LO 5 . Examine how marketers EVALUATION OF COMPETITORS’ PRICES
analyze competitors’ prices.
In most cases, marketers are in a better position to establish prices when they know the prices
charged for competing brands, the next step in establishing prices. Learning competitors’
prices should be a regular part of marketing research. Some grocery and department stores
even employ comparative shoppers who systematically collect data on prices. Companies may
also purchase price lists from syndicated marketing research services.
Uncovering competitors’ prices is not always an easy task, especially in producer and
reseller markets where prices are often closely guarded. Even if a marketer has access to com-
petitors’ price lists, they may not reflect the actual prices at which competitive products sell
because negotiation is involved.
Knowing the prices of competing brands is essential for a marketer. Regardless of a
firm’s actual costs, it does not want to sell its product at a price a great deal above com-
petitors’ because products may not sell well, or a great deal below because customers may
believe the product is of a low quality. Particularly in an industry in which price competition

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