Entrepreneurship Mr. Bernstein Pricing Strategy, pp October 2015

Factors Affecting Price Costs – Fixed or Variable Supply and Demand Consumer Perceptions Competition What are your objectives? Return on Investment Gaining Market Share Cash Flow / Survival 2 Entrepreneurship Mr. Bernstein

Pricing Strategy Approaches Cost-Based Pricing Cost plus markup Demand-Based Pricing “What the market will bear” Competition-Based Pricing “Price Takers” Flexible or One-Price Policy What approach(es) would you use? Why? 3 Entrepreneurship Mr. Bernstein

Pricing Techniques Psychological pricing: Prestige pricing Odd/even pricing Promotional pricing Multiple Unit discounts Bundle pricing Price lining What are examples of each? 4 Entrepreneurship Mr. Bernstein

Analyzing Pricing Break-even Analysis: Number of units that must be sold to cover fixed costs Fixed Costs / (Unit Selling Price – Variable Costs) = Break-Even Point 5 Entrepreneurship Mr. Bernstein

Analyzing Pricing Markup: Amount added to the cost of an item Cost + Markup = Price Markup / Cost = Percentage Markup AKA “Gross Margin”; doesn’t include overhead costs 6 Entrepreneurship Mr. Bernstein

How often should pricing be revised? Elastic demand – revise often Do you compete primarily on price, service or quality? 7 Entrepreneurship Mr. Bernstein