Standard 4 PRICING Pricing What is it Pricing

Standard 4 PRICING

Pricing: What is it? • Pricing is a marketing function in which both a buyer and a seller perceive the most favorable value for a good or service 2

Price– You get what you pay for… y t i l a u • Customers are willing. Qto pay according to the • What does that phrase mean to you? • Relationship between price and quality amount of value they perceive in the product/service. 3

Pricing • Buyers want low prices • Sellers want high prices • What is the best and most effective price for both buyer and seller? ? ? 4

BREAK-EVEN POINT The point when sales revenue (income) EQUALS the costs/expenses of making & distributing the product. ONLY AFTER this happens can a business make a profit. 5

SUPPLY and DEMAND • SUPPLY: – The AMOUNT of goods, producers are willing and able to make and sell. • DEMAND: – The AMOUNT of goods, Consumers are willing and able to buy. 6

Supply and Demand GRAPH 7

Economic LAWS Law of DEMAND As the price of a good or service increases, the quantity demanded will decrease. When the RAZOR Scooter first appeared…it was over $100. Demand was high. Then everyone bought one, and demand decreased, so prices decreased. Now the price of Scooters are HOW MUCH?

Law of Supply As the PRICE of a good or service INCREASES (new products, ) the QUANTITY SUPPLIED will increase. Producers will offer more for sale. Flat screen TV: 2005 – Cost in 2012 $1500 $349 Once most households have one, supply piles up and forces retailers to lower cost. 9

Factors Affecting Profit Term to know: Markup: The amount or percentage charged above a product’s cost. • Costs & Expenses – price of supplies, equipment • Demand – new product vs older • Economic Conditions – unemployed, laid off, natural disaster • Government Regulations – OSHA, gas tax, EPA • Company Objectives & Strategies –Costco: No advertising vs. Wal. Mart – lots of advertising. 10

COMPETITION-Biggest Factor • Businesses COMPETE against each other for customers…. • Mc. Donalds vs Wendy’s 11

Pricing and Product Decisions Pricing helps DEFINE a company’s IMAGE and reflects what customer’s EXPECT to PAY. • • • Research Materials used in production (mining activity) Profit objectives Customer targets Company image 12

Pricing Methods • Unit Pricing- comparing based on common unit (like weight) • Loss Leaders- advertising a product at a loss to get you in the store to buy more. • Skimming policy – new product, high price • Penetration policy – new product, normal (low) price 13

Pricing Methods- Continued Psychological Pricing • Odd: set the number 99 cents or 88 cents (Walmart)– odd number is supposed to show value. • Even: Even numbers (dollar amount) shows quality. • Prestige– status. Higher price than average. Rolls. Royce, Grey Poupon • EDLP- Every Day Low Pricing- do not have “sales”– just few seasonally, Roll backs more often • Multiple Unit pricing- “bundling” Meal deal, car with hotel. 2 for $5 14