Section Objectives Identify factors that affect price strategy. Summarize the marketing objectives related to pricing. Describe the components that go into making price strategy decisions.

Content Vocabulary fixed variable price gouging price fixing Elastic demand Inelastic demand resale price maintenance unit pricing Bait & Switch return on investment

$ Factors Affecting Price costs and expenses supply and demand consumer perceptions technological trends government regulations competition 4

Cost and Expenses In order to stay in business you have to make a profit! Price > Costs + Expenses Fixed costs and expenses, such as rent, utilities, and insurance premiums, affect price. fixed costs and expenses that are not subject to change depending on the number of units sold

Cost and Expenses Variable costs and expenses, such as the cost of goods or services, sales commissions, delivery charges, and advertising, also affect price. variable costs and expenses that are subject to change depending on the number of units sold

Cost and Expenses If you are selling goods, their costs are affected by the pricing structure in the channel of distribution. Each channel member has to make a profit to make handling the goods worthwhile. Their cost and profit together is your cost. NOT the retail price you are going to charge the customer!! If you are selling services (or ideas), you have a direct channel of distribution. So your cost is that of the resources that go into providing the service or idea. If your business is a combination of goods & services, you have the same price structure of selling goods.

Supply and Demand The law of supply and demand also affects price.   When the demand for a product is high and supply is low, you can command a high price. When the demand for a product is low and supply is high, you must set lower prices.

Elastic vs. Inelastic demand Prices are also impacted by the sensitivity of market demand. Some goods/services have an inelastic demand – meaning people will buy the product regardless of the price. Examples include milk and gasoline Other items have elastic demand – meaning people are less likely to buy the product if the price is considered TOO high. Examples include gourmet foods or luxury items.

Consumer Perceptions The price of your products helps create your image in the minds of customers.   If your prices are too low, customers may consider your products inferior. If your prices are too high, you may turn some customers away.

Competition Competition can affect pricing when the target market is price conscious because competitors’ pricing may determine your pricing.   Businesses can charge higher prices than competitors if they offer added value, such as personal attention, credit, and warranties.

Government Regulations Be fair to customers and familiarize yourself with federal and state laws that address pricing, including: price gouging price fixing resale price maintenance unit pricing bait-and switch advertising

Government Regulations A company that engages in price gouging or price fixing is violating federal and state laws. Often happens during a state of emergency. . . Water, food, gasoline and medications. price gouging pricing above the market when no alternative retailer is available price fixing an illegal practice in which competing companies agree, formally or informally, to restrict prices within a specified range The most common items used in price gouging include food, water, gasoline, and medications. Services such as plumbing repair, heating repair, roofing repair, and other services desperately needed by many in a state of emergency, are also subject to price gouging. Price gouging is against the law, though the laws vary by state.

Government Regulations Resale price maintenance is illegal. Unit pricing is required by law. unit pricing the pricing of goods on the basis of cost per unit of measure, such as a pound or an ounce, in addition to the price per item resale price maintenance price fixing imposed by a manufacturer on wholesale or retail resellers of its products to deter price-based competition

Government Regulations bait and switch a deceptive method of selling in which a customer, attracted to a store by a sale-priced item, is told either that the advertised item is unavailable or that it is inferior to a higher-priced item that is available Unethical practices, such as bait and switch, are not only illegal but also unfair to customers.

Technological Trends The Internet and technological trends affect price strategy.   Adapting to technological changes can give an entrepreneur a competitive edge; not adapting can cause some businesses to become obsolete.

Technological Trends Before setting prices, consider the following objectives: obtaining a target return on investment (ROI) – the amount earned as a result of that investment Usually stated in a percentage, i.e. 20% obtaining market share- Can be changed by price, product quality, customer service, promotion and packaging social and ethical concerns meeting the competition’s prices establishing an image survival