Essentials of Marketing 7th Edition by Charles Lamb,Joe Hair,Carl McDaniel

Exercise 9

Describe cost-oriented pricing strategies. The other major determinant of price is cost. Marketers use several cost-oriented pricing strategies. To cover their own expenses and obtain a profit, wholesalers and retailers commonly use markup pricing: They tack an extra amount onto the manufacturer's original price. Another pricing technique is to maximize profits by setting price where marginal revenue equals marginal cost. Still another pricing strategy determines how much a firm must sell to break even and uses this amount as a reference point for adjusting price.
5.1 Your firm has based its pricing strictly on cost in the past. As the newly hired marketing manager, you believe this policy should change. Write the president a memo explaining your reasons.
5.2 Why is it important for managers to understand the concept of break-even points? Are there any drawbacks?