Price Planning Chapter 25. Sec. 25.1 – Price Planning Considerations The different forms of price The importance of price The goals of pricing The difference.

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Presentation transcript:

Price Planning Chapter 25

Sec – Price Planning Considerations The different forms of price The importance of price The goals of pricing The difference between market share and market position What youll learn

What is Price? Price is the value of money (or its equivalent) placed on a good or service.

Forms of Price Fee you pay for service Amount you pay for food, clothes, etc. Interest on a loan Dues for a membership Tuition for education Wages, salaries paid to workers

Importance of Price Establishes image Maintains competitive edge Determines profits

Projected Effects of Different Prices on Sales Price per item X Quantity Sold = Sales Revenue $50200$10,000 $45250$11,250 $40280$11,200 $35325$11,375 $30400$12,000 $25500$12,500 An increase in the price of an item may not produce an increase in sales revenue. Why is this true?

Goals of Pricing Return on Investment –Calculation to determine relative profitability –The formula to calculate it is Profit / Investment –Profit = Sales – Cost

Return on Investment Your company sells storage bins for $8 each. Your cost to make and market the bins is $6.50. $8 - $6.50 = $1.50/$6.50 =.23 Your rate of return on investment is 23 percent.

Goals of Pricing Gaining market share – a firms % of total sales volume in a given market

Goals of Pricing Meeting the Competition