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Pricing: Supply & Demand Curve, Pricing Strategy/ Pricing Objectives Overview Mrs. Wonder 10 -26 -2019
Supply and Demand Curve Equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand supply curves in the market intersect.
Choosing a Price Objective Build or Maintain an Image: Price affects the image of a product in consumers’ minds. People may think a lower-priced product is of lower quality than similar items sold at a higher price, for instance. Test your prices with some target customers before launching your business. Ask them what they would be willing to pay for your product or service, and what pricing conveys to them.
Choosing a Price Objective • Increase Sales Volume (Quantity): Prices lower than the competition’s should increase your sales. You can charge a slightly higher price than the competition, though, if your product has more features or benefits.
Choosing a Price Objective Obtain or Expand a Market Share: Sometimes an initial lower price can help a new business attract customers from competitors. After you obtain your target market share, you can try increasing your prices slightly to improve profits.
Choosing a Price Objective • Maximize Profits: If you are introducing a new product into a market, you could charge a high price to maximize profits. Later on, if competitors imitate your product or find some other way to reduce its attraction, you could drop the price.
Selecting a Pricing Strategy • Demand-Based Pricing: This pricing method charges the highest price that an actual customer would be willing to pay. A demandbased pricing strategy is most useful when customers perceive your product as unique or having greater value than similar products. Demand-based pricing would work for a painting or an antique, for example. You can determine a maximum price by surveying potential target customers.
Selecting a Pricing Strategy • Competition-Based Pricing: This pricing method focuses on what the competition charges. After you find out your competitors’ prices, you can decide to charge the same price, slightly more, or slightly less. Because the focus of this strategy is on staying competitive, you will need to regularly review what your competitors are doing and make price adjustments if needed. Walmart has used this strategy by promising to be any competitors advertised price.
Selecting a Pricing Strategy • Cost-Based Pricing: This pricing method sets a product’s price based on what it costs your business to provide it. Keystoning—doubling the wholesale cost to get the retail price—is a common form of cost-based pricing. Cost-plus (or “Markup”) pricing is widely used in retailing.
Price Factors for Services • Time is the primary factor used to determine price for a service. Some services are charged simply by the hour. Vendors such as car mechanics or electricians commonly add a separate fee for materials in addition to their hourly charge. • Another way that businesses charge for services is by a flat fee. Both material costs and time are built into one price for a particular service. Consider a business that performs oil changes in cars.