Unit 5 Price Marketing Tool Pricing Strategies Calculate

Unit 5 “Price” Marketing Tool Pricing Strategies Calculate Price Discounts & Allowances

Price is a Marketing Tool Can create _____ l Determines amount of _____ l Adjustable and Adaptable l Combats Competition l Helps Increase Sales l Business Goal in Setting Price: Maximize Profit Conflicting? l Achieve Highest Sales l Support the company image l

Finding a Price • Like a tug-of-war between buyers and sellers Ø Buyers— Ø Sellers— • Goal = finding balance and satisfying both groups

Product’s Price Range How do businesses find the maximum price that customers will pay? $100. 00 Maximum price customer will pay Selling Price RANGE $15. 00 Profit $15. 00 Operating Expenses $25. 00 Production Costs $40 Minimum price company can charge Total Cost $40. 00

Importance of Pricing • Motivates customers to buy. • Covers the costs of doing business. • Impacts how much profit the business makes. • Helps decide when to adjust prices.

Price Calculations • COST = amount to be paid in order to get something. • SELLING PRICE = Cost + Desired Profit (Markup Amount) • MARKUP = Cost x Markup % (add this amount to cost for selling price) • MARKDOWN = Selling Price x Markdown % (subtract this amount from selling price to get sale or discount price) • NET PROFIT = Selling Price – Product Costs/Expenses l Break Even Point: the quantity that must be sold at a specific price for total revenues = total costs. (see next slide)

Importance of Pricing

Bake Sales R e v e n u e le b ria Va Break Even ts s o C Profit Fixed Costs Expenses 0 Quantity

Pricing Strategies #1 l l Cost-plus – Take the cost of making the product & add a % for profit; simplest. Loss Leader – product selling at or below cost to motivate people to come to store. Predatory – aggressively low pricing intended to drive out competitors; illegal? Skimming – position as high price in the product category for quicker _____.

Pricing Strategies #2 l l l Penetration – set artificially low to gain market share; then creep back up. Prestige or Premium – unique product that has perceived value; luxury items. Psychological - $99. 99 (not $1000. 00) Product Line – reflects the benefits of range (Ford cars = economy, midrange, & luxury) Captive Product – razor is sold cheap but the blades to fit are expensive.

Pricing Strategies #3 l l Product Bundle – combine more than 1 product in same package; adds value and moves slower sellers. Promotional – “buy 1 get 1 free”, discounts Geographic – shipping & taxes added to price Value – during recession or intense competition; “more for your dollar” deals

Discounts and Allowances l Quantity discount l Seasonal discount l Cash discount l Trade-in allowance l Advertising allowance l Coupon vs Rebate