9.01 Explain factors that affect pricing. 9.00 Explain pricing strategies for making effective pricing decisions. 9.01 Explain factors that affect pricing. D. MARKETING A SMALL BUSINESS

Pricing Terms Price: The amount charged to customers in exchange for goods and services. Price communicates value to customers and profit to business owners. Market Price: The price that prevails in the market for a particular good at a specific time. For example, the price of gasoline posted at the gas stations around your town reflects the market price.

Factors that affect price Costs Fixed Costs: Costs that remain constant over a period of time regardless of sales volume. Insurance Rent/Mortgage Salaries Depreciation Variable Costs: Costs that vary based on sales volume or changes in business needs. Commissions Advertising Office Supplies Utilities

Factors that affect price Competition A rivalry between two or more businesses for scarce consumer dollars.

Classifications of Competition Direct Competition: Competition between businesses that have similar formats and sell similar products. McDonald’s & Burger King Coke & Pepsi Hilton & Marriott Nike & Reebok Indirect Competition: Competition between businesses that have dissimilar formats and sell dissimilar products. A movie theatre & the mall A restaurant & miniature golf course An airline & a cruise line

Opportunity Costs The option that is given up when a consumer chooses one product/service over another. For example, if someone chooses airline travel instead of a cruise, the opportunity cost is not taking the cruise.

Two major types of competition Price Competition: Using price as a means to attract customers. Non-Price Competition: Using factors other than price as a means to attract customers. Examples: quality, customer services, business image

Factors that affect price Supply and Demand Demand: The number of products consumers are willing to buy at a given time and at a given price. Supply: The number of products manufacturers are willing to produce at a given time and at a given price.

Factors that affect demand utility price advertising personal selling display fashion consumer wants/needs

Factors that affect supply cost of production price consumer demand profit goals competition government controls new technology

Elastic Demand A product is said to have elastic demand if demand for the product is sensitive to a change in price. Non-essential products such as entertainment, specialty foods, fashion

Inelastic Demand A product is said to have inelastic demand if demand for the product is not sensitive to a change in price. Necessities such as gasoline, milk, bread, electricity

Other factors that affect price Economic conditions: Economic health affects price by affecting consumer buying power. Government regulation: There are federal, state and local laws that can have an affect on how a business owner must price products. Channel members: Intermediary fees reach the customer by affecting the cost of products to resellers. Company Objectives/Strategies: Planners must examine the goals of a company and consider the many elements that interact to make businesses successful.