Sales and Promotion MAKE CENTS - FACTORS AFFECTING SELLING PRICE

 The amount seller charges for a good or service is the selling price.  There are many different types of selling price: 1.Membership dues 2.Insurance premiums 3.College tuition 4.Bus fare 5.Legal fees

 Businesses don’t just pull their prices out of the air, each business must go through its own process for pricing its products.  Components of selling price: 1.Cost 2.Operating expenses 3.Obtain a profit

 Selling price is important to both customers and businesses.  Help customers: 1.Indicate quality 2.Use as a guide in selecting products to buy 3.Decide how to allocate their money

 Selling price is important to businesses because it determines the amount of income from sales each business receives.  Mark-up – the difference between the cost of a product and its selling price  A company’s pricing objectives should be compatible with its marketing objectives.

 Choosing pricing objectives is not a one time job.  Circumstances inside and outside the business can and will change from time to time.  The purpose of sales-oriented pricing objectives is to increase the total amount of income form sales.  Two ways this can be done: 1.Charge low prices to increase sales volume 2.Charge high prices in an effort to increase the dollar value of its sales

 Specific objectives with sales-oriented pricing: 1.Create an image for the business 2.Be more competitive 3.Obtain, maintain, or increase market share  Profit-oriented pricing objectives focus on creating profits for the business.

 Objectives of profit-oriented pricing: 1.Surviving 2.Maximize profits Profit maximization – to make the most possible immediate profit Cash flow – amount of money coming into and going out of the business 3.Earning a return on investment 4.Earning a return on sales Target return the company uses a percentage of profit on its sales as a target or goal

 Factors affecting selling price vary from business to business.  Common factors affecting selling price: 1.Costs Total costs are made up of fixed and variable costs Fixed costs – costs that are not affected by changes in sales volume Variable costs – change according to changes in sales volume

2. Supply and demand 3. Economic conditions - business cycles – ups and downs in economic activity 4. Competition -Pure competitive market – many buyers and sellers of identical products, and marketers have very little control over pricing

- Market price – actual price that prevails in a market at any given time - Monopolistic competitive market – many buyers and sellers, but there is a range of prices rather than one market price - Oligopolistic market – relatively few sellers, and the industry leader usually determines prices

- Pure monopoly – only one seller or provider of a product, and no substitutes are readily available 5. Government regulation - Price fixing – agreeing on a price or price range for a product - Bait and switch advertising – promoting a low- priced item to attract customers to whom they then try to sell a higher priced item

- Unit pricing – shows the price per unit along with the total price of the item  Product life cycle: 1.Introductory stage – usually priced higher to enable the business to recover its investment in the new product 2.Growth stage – prices usually must be reduced to promote sales and to compete with copycat products

3. Maturity stage – the effort is on stabilizing prices to maintain a share of market 4. Obsolescence – sellers reduce prices to get rid of it