Price Planning Sports Entertainment Marketing Mrs Wilson What

Price Planning Sports & Entertainment Marketing Mrs. Wilson

What we know… n Price is value n You want to have a top market position n You have a “share” or percentage of the market I want this share of the pie!

Return on Investment Calculation used to determine the relative profitability of a product n Formula is: n n Profit divided by investment ____ PROFIT______ INVESTMENT _

Profit n Another word for return n n Ergo the phrase… return on investment Example: Your sports drink is $8 each n Costs are $6. 50 n Formula: n $8 - $6. 50 1. 25 6. 50 . 23

Rate of return on investment Is 23%

Market Factors Affecting Prices n How do businesses make decisions? n n Planning begins with an analysis of costs and expenses n n Not an easy answer Can these expenses change? Passing the increase on to customers may seem easy, but is it?

List of Factors affecting Price Costs/Expenses Consumer Perceptions Supply/Demand Government Regulations

Costs and Expenses n Businesses constantly monitor, analyze, and project prices and sales in the light of costs and expenses n Doing this helps to determine a firm’s profit

The Big Marketing Question… n What do marketers do when costs increase and sales decline? n How do they maintain their profit margin? n Do they change their prices?

Some answers… Sure they make changes n For example: n How about changing the “size” before they will change the price? n Candy bar size may decrease from 4 to 3. 5 ounces n Therefore the cost of making the bar is reduced and profit remains the same n This ONLY works if the same quantity is sold n

Other answers… n Manufacturers drop features their customers don’t value. In 1994, Reebok stripped down its best-known athletic shoe, the $135 “Shaq Attaq” n Four versions replaced one n n Starting with the basic model priced at $60 ending with an option-packed shoe much like the original $130 version n Thus eliminating features, the company could compete more effectively based on price

Third approach…. n Some manufacturers respond to higher costs and expenses by IMPROVING their products Add more features n Upgrade the materials n Therefore justifying higher prices n n Increase in higher cost is JUSTIFIED!

Goodyear Tire & Rubber Co. Used this approach successfully n Aquatred All-Season Radial Tire n Sold for 10% more than Goodyear’s previous premium-priced tire n Consumers “perceived” the improved tire as having more value because it was for “wet” roads n

Lower Costs/Expenses n On occasion, prices may actually DROP because of decreased costs and expenses n Improved technology and less expensive but better-quality materials may help create better-quality products at lower costs

For example… n Personal Computers… These have fallen in price because of the improved technology of microprocessors n They require LESS wiring and assembly time n Durability and memory has also improved n

What is the Break-even Point? Companies ALWAYS want to make a profit. n Special concerns are when they n n Market a new product n Starbuck’s n Chantico! Try to establish a new price

Starbucks… look at the high/low!

Break-even Defined n A point at which sales and revenue EQUALS the costs and expenses of making and distributing a product. n After this point is reached, we are making PROFIT!!!!

Look at this picture… Dollars Total Revenue Break-even Point Losses Units of Production Total Costs

Tomorrow… Supply & Demand n Now… Let’s work on a handout n Submit it for a grade for this marking period n