Pricing Products and Services Marketing 1

What is Price? The value in money (or it’s equivalent) placed on a good or service Usually expressed in monetary terms May also be expressed in non-monetary terms such as free goods or services in exchange for the purchase of a product Barter system is oldest form of pricing Barter is exchanging one product for another

Customer Value Shapes Price Customer’s perceived value makes difference in how much they will be willing to pay Value is anticipated satisfaction of the customer If consumer believes they will receive higher satisfaction they will more willing to pay higher price

Seller Considerations of Pricing Seller must be able to gauge where the price will rank in customer’s estimation (whether valued highly or not) Seller objective is to set price high enough to make profit for business yet not so high that it exceeds the value perceived by the potential customer

Importance of Price Involved in every marketing exchange (dentist, clothing, toll road or toll bridges, rental of apartment, wages or salaries for employees, etc.) Price is important factor in success or failure of a business Helps establish and maintain firm’s image, competitive edge, and profits Customers make judgments based on price (higher price means better quality…???)

Key Factors In Determining Price Internal Factors and External Factors help determine price!

Internal Factors Cost of Goods Operating Expenses Product Mix (includes product quality, trendiness or consumer liking)

External Factors Supply and Demand Government Regulations Competition Natural Events (Disasters) Economic Events (Recessions)

Difference in Pricing Good and Service Pricing Goods Manufacturing Shipping Packaging Storage Costs Pricing Services Labor Related Product Costs Related Equipment Costs

Summary Price is the value in money (or non-monetary exchange) for the exchange of a good or service Customers’ perception of value of product determines their willingness to pay that exchange Seller must be able to gauge customer perception and price to generate profit but meet customer expectation Pricing is determined by internal and external factors Goods and services have different considerations for pricing Pricing is KEY to business success or failure

Class Assignment Process Questions What are the market factors that affect price? How might each factor affect price? Based on the current economy, how might economists predict trends in pricing? How do the global economy and political climate affect price? How can this be seen in today's market? What effect do expenses have in determining the selling price?  How does price affect place decisions? How does the stage in the life cycle affect pricing the product? How does supply and demand affect price?

Class Activity Identify Price and Break-Even Point You must determine the price you will charge retailers for a box of disposable cleansing cloths, which is a new product. Competing brands retail for between $5.99. Assume your cost of manufacturing and marketing this new product is $2.75 per box. Remember to include a profit margin in the price you will charge retailers. To be competitive, you need to consider the suggested retail price that retailers will charge the final consumer. In this example assume retailers will double the price the pay for the item when calculating the price they charge their customers. You expect to make 200,000 boxes of these disposable cloths at the price you will be charging retailers. What will be your price to the retailer? What will be your “break-even” point? Break-even point is the point at which the sales revenue (income) is equal to the costs of manufacturing, distributing, and marketing the product or service.