$ Pricing $ –Price Planning –Pricing Strategies –Pricing Math

What would happen if Jimmy Johns started charging customers the same amount it paid for the subs it sold? Take a minute and write your answer on a separate piece of paper turn in for 3 participation points.

Price Planning (Chapter 25) Price is the value of money (or its equivalent) placed on a good or service. Usually expressed in monetary terms Barter system, is the oldest form of pricing. –Involves exchange of a good or service for other goods or services

Relationship of Product Value The key to pricing is understanding the value that buyers place on a product. Value is a matter of anticipated satisfaction – if consumers believe they will gain a great deal of satisfaction from a product, they will place a high value on it.

Sellers and Value Sellers must be able to gauge where a product will rank in the customer’s estimation Sellers objective is to set a price high enough to make a profit and still be within the consumers perceived value

Forms of Price The bill you pay your cellular service provider The fee you pay to register your car and your tags. Price of a membership at a gym Tuition payments for college Wages, salaries, commissions, and bonuses you pay for labor to run your business

Why is price important? It helps establish and maintain a business’s image, competitive edge and profits. Many customers use price to make judgments about products and the companies that make them.

Importance of Price Price may be the main point or theme of a companies,advertising. Price helps determine profits. (Revenue = price X quantity sold) Sales revenue can increase by either increasing sales (quantity sold) or by increasing the price.

Goals of Pricing Gaining market share Meeting and maintaining a acceptable return on investment Meeting the competition

Gaining market share Companies may forgo immediate profits for long-term gains in some other areas –Taking business away from competition and increase their own market share. Market share – a firm’s percentage of the total sales volume generated by all competitors in a given market.

Market Share of Soft Drinks

Market Position Market position – A business relative standing in the market in relation to their competitors. Monitoring market position involves tracking the changing size of the market and the growth of it’s competition.

Relationship of Price to Market Share and Market Position Business constantly watch competition and their price to maintain or improve their own market share. To increase market share businesses will engage in price competition in order to take business away from their competition.

Return on Investment A calculation that is used to determine the relative profitability of a product. Formula: Profit/Investment Profit is another word for return. Example: It costs a company $6.50 to make and market a trash can. The trash can sells for $8.00. The profit is $1.50 divide that by the Investment $6.50 you get return of rate of 23% (1.5/6.5=.23)

Using Price to Determine Return on Investment A business may price products to achieve a certain return on investment. Example: The company that makes the trash cans wants at least a 15% return on investment. The trash can costs $6.50 to make and market. The price would be $6.50 X 1.15 = $7.48. Which is the minimum the business would sell the trash can for.

Meeting the Competition Some companies will follow the industry leader and price similarly Companies may also average out the prices of the competition in the market to establish a price.

Establishing Price without Price Competition Compete on other factors in the marketing mix Such as on quality, uniqueness, convenience, or level of service