Standard 4 PRICING

Pricing: What is it? Pricing is a marketing function in which both a buyer and a seller perceive the most favorable value for a good or service

Price– You get what you pay for… What does that phrase mean to you? Relationship between price and quality Customers are willing to pay according to the amount of value they perceive in the product/service. Quality

Sellers want high prices Pricing Buyers want low prices Sellers want high prices What is the best and most effective price for both buyer and seller???

BREAK-EVEN POINT The point when sales revenue (income) EQUALS the costs/expenses of making & distributing the product. ONLY AFTER this happens can a business make a profit.

SUPPLY and DEMAND SUPPLY: DEMAND: The AMOUNT of goods, producers are willing and able to make and sell. DEMAND: The AMOUNT of goods, Consumers are willing and able to buy.

Supply and Demand GRAPH

Economic LAWS Law of DEMAND As the price of a good or service increases, the quantity demanded will decrease. When the RAZOR Scooter first appeared…it was over $100. Demand was high. Then everyone bought one, and demand decreased, so prices decreased. Now the price of Scooters are HOW MUCH?

Law of Supply As the PRICE of a good or service INCREASES (new products,) the QUANTITY SUPPLIED will increase. Producers will offer more for sale. Flat screen TV: 2005 – Cost $1500 in 2012 $349 Once most households have one, supply piles up and forces retailers to lower cost.

Factors Affecting Profit Term to know: Markup: The amount or percentage charged above a product’s cost. Costs & Expenses – price of supplies, equipment Demand – new product vs older Economic Conditions – unemployed, laid off, natural disaster Government Regulations – OSHA, gas tax, EPA Company Objectives & Strategies –Costco: No advertising vs. WalMart – lots of advertising.

COMPETITION-Biggest Factor Businesses COMPETE against each other for customers…. McDonalds vs Wendy’s

Pricing and Product Decisions Pricing helps DEFINE a company’s IMAGE and reflects what customer’s EXPECT to PAY. Research Materials used in production (mining activity) Profit objectives Customer targets Company image

Pricing Methods Unit Pricing- comparing based on common unit (like weight) Loss Leaders- advertising a product at a loss to get you in the store to buy more. Skimming policy – new product, high price Penetration policy – new product, normal (low) price

Pricing Methods- Continued Psychological Pricing Odd: set the number 99 cents or 88 cents (Walmart)– odd number is supposed to show value. Even: Even numbers (dollar amount) shows quality. Prestige– status. Higher price than average. Rolls-Royce, Grey Poupon EDLP- Every Day Low Pricing- do not have “sales”– just few seasonally, Roll backs more often Multiple Unit pricing- “bundling” Meal deal, car with hotel. 2 for $5