11 The Price Strategy Section 11 1 Price

11 The Price Strategy Section 11. 1 Price Strategy Considerations Section 11. 2 Calculating and Changing Prices Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Section Objectives • • • Identify factors that affect price strategy. Summarize the marketing objectives related to pricing. Describe the components that go into making price strategy decisions. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Content Vocabulary fixed variable price gouging price fixing Elastic demand Inelastic demand resale price maintenance unit pricing Bait & Switch return on investment Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

Factors Affecting Price costs and expenses technological trends supply and demand $ government regulations consumer perceptions competition 4

SECTION 11. 1 Price Strategy Considerations Cost and Expenses In order to stay in business you have to make a profit! Price > Costs + Expenses Fixed costs and expenses, such as rent, utilities, and insurance premiums, affect price. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business fixed costs and expenses that are not subject to change depending on the number of units sold

SECTION 11. 1 Price Strategy Considerations Cost and Expenses Variable costs and expenses, such as the cost of goods or services, sales commissions, delivery charges, and advertising, also affect price. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business variable costs and expenses that are subject to change depending on the number of units sold

SECTION 11. 1 Price Strategy Considerations Cost and Expenses If you are selling goods, their costs are affected by the pricing structure in the channel of distribution. Each channel member has to make a profit to make handling the goods worthwhile. Their cost and profit together is your cost. NOT the retail price you are going to charge the customer!! If you are selling services (or ideas), you have a direct channel of distribution. So your cost is that of the resources that go into providing the service or idea. If your business is a combination of goods & services, you have the same price structure of selling goods. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Supply and Demand The law of supply and demand also affects price. When the demand for a product is high and supply is low, you can command a high price. When the demand for a product is low and supply is high, you must set lower prices. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Elastic vs. Inelastic demand Prices are also impacted by the sensitivity of market demand. Some goods/services have an inelastic demand – meaning people will buy the product regardless of the price. Examples include milk and gasoline Other items have elastic demand – meaning people are less likely to buy the product if the price is considered TOO high. Examples include gourmet foods or luxury items. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Consumer Perceptions The price of your products helps create your image in the minds of customers. If your prices are too low, customers may consider your products inferior. If your prices are too high, you may turn some customers away. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Competition can affect pricing when the target market is price conscious because competitors’ pricing may determine your pricing. Businesses can charge higher prices than competitors if they offer added value, such as personal attention, credit, and warranties. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Government Regulations Be fair to customers and familiarize yourself with federal and state laws that address pricing, including: • price gouging • price fixing • resale price maintenance • unit pricing • bait-and switch advertising Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Government Regulations A company that engages in price gouging or price fixing is violating federal and state laws. Often happens during a state of emergency. . . Water, food, gasoline and medications. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business price fixing gouging an illegal pricing above practice the market in whichwhen no alternative retailer competing companies is available agree, formally or informally, to restrict prices within a specified range

SECTION 11. 1 Price Strategy Considerations Government Regulations Resale price maintenance is illegal. Unit pricing is required by law. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business resale unit pricing price maintenance the pricing price fixing of imposed goods on by the a basis manufacturer of cost per unitonofwholesale measure, or such retail as a pound resellers or an of its ounce, products in to deter price-based addition to the price competition per item

SECTION 11. 1 Price Strategy Considerations Government Regulations Unethical practices, such as bait and switch, are not only illegal but also unfair to customers. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business bait and switch a deceptive method of selling in which a customer, attracted to a store by a sale-priced item, is told either that the advertised item is unavailable or that it is inferior to a higher-priced item that is available

SECTION 11. 1 Price Strategy Considerations Technological Trends The Internet and technological trends affect price strategy. Adapting to technological changes can give an entrepreneur a competitive edge; not adapting can cause some businesses to become obsolete. Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business

SECTION 11. 1 Price Strategy Considerations Technological Trends Before setting prices, consider the following objectives: • • • obtaining a target return on investment (ROI) – the amount earned as a result of that investment – Usually stated in a percentage, i. e. 20% obtaining market share- Can be changed by price, product quality, customer service, promotion and packaging social and ethical concerns meeting the competition’s prices establishing an image survival Chapter 11 The Price Strategy Glencoe Entrepreneurship: Building a Business