PRICING OBJECTIVES, POLICIES, STRATEGIES

A. PRICE MUST COVER: 1. COST OF GOODS SOLD –TOTAL AMOUNT SPENT TO PRODUCE OR BUY THE GOODS THAT HAVE BEEN SOLD –SINGLE LARGEST FACTOR IN ESTABLISHING PRICE

A. PRICE MUST COVER: 2. OPERATING EXPENSES –COSTS OF RUNNING THE BUSINESS –2 KINDS: VARIABLE EXPENSES - CHANGE FROM MONTH TO MONTH (ADVERTISING, UTILITIES, PARTTIME EMPLOYEES) FIXED EXPENSES - COSTS REMAIN THE SAME FROM ONE MONTH TO THE NEXT (RENT, LOANS, SALARIES)

A. PRICE MUST COVER: YOUR PROFIT !!!!!!!!!!!!!!! –MONEY A BUSINESS EARNS AFTER ALL COSTS & EXPENSES ARE PAID

B. OTHER PROFIT TERMS 1. SALES INCOME/REVENUE - –$$$ COMING INTO A BUSINESS FROM THE SALE OF GOODS/SERVICES 2. GROSS PROFIT - –INCOME - COST OF GOODS SOLD =PROFIT

B. OTHER PROFIT TERMS 2. NET PROFIT – –DIFFERENCE BETWEEN SELLING PRICE & ALL EXPENSES (GENERALLY 1-5%) –INCOME - COST OF GOODS SOLD - OPERATING EXPENSES =NET PROFIT

PROFIT/LOSS EQUATION + Sales Revenue/Income -Cost of Goods/Services Sold = GROSS PROFIT -OPERATING EXPENSES = NET PROFIT/LOSS

C. TYPES OF PRICING 1. DEMAND ORIENTED PRICING –BASED ON WHAT CURRENT CONSUMERS ARE WILLING TO PAY –WHAT DOES SUPPLY HAVE TO DO W/IT? 2. COMPETITION ORIENTED PRICING –PRICES SET ON WHAT COMPETITORS ARE CHARGING

C. TYPES OF PRICING 3. COST ORIENTED PRICING - –BUSINESSES 1ST DETERMINE THE COST OF PRODUCING OR MARKETING THE PRODUCT, THEN ADD DESIRED PROFIT –2 TYPES: 1. MARK-UP PRICING 2. COST PLUS PRICING

1. MARK-UP PRICING ADDING AN AMOUNT (MARKUP) TO THE COST OF GOODS TO REACH A SELLING PRICE; USUALLY A % OF COST; SIMPLEST FORM

2. COST PLUS PRICING ALL COSTS & EXPENSES ARE ADDED TO A DESIRED PROFIT;EXPENSES ARE CALCULATED SEPARATELY FOR EACH INDIVIDUAL ITEM

D. MARKDOWNS ACTUAL REDUCTIONS IN PRICE RETAIL PRICE X MARKDOWN % = MD $ RETAIL PRICE - MARKDOWN $ = SALE PRICE

E. PSYCHOLOGICAL PRICING & PRICE POLICIES TECHNIQUES THAT CREATE AN ILLUSION FOR CUSTOMERS OR MAKE SHOPPING EASIER 8 TYPES:

TYPES OF PSYCHOLOGICAL PRICING & PRICE POLICIES 1. ODD-EVEN PRICING - –A. IDEA THAT PRICES ENDING IN ODD DIGITS GIVE A BARGAIN IMAGE $79.95 $23,995 $1.49 –B. EVEN PRICES INDICATE QUALITY $ VS. $99.95

TYPES OF PSYCHOLOGICAL PRICING & PRICE POLICIES 2. PRESTIGE PRICING - –SETTING HIGHER THAN AVERAGE PRICE SUGGESTS STATUS, QUALITY OR EXCLUSIVENESS 3. PRICE LINING - –LIMITED # OF PRICES FOR A LINE OF PRIDUCTS –GENERALLY: LOW, MEDIUM, HIGH

TYPES OF PSYCHOLOGICAL PRICING & PRICE POLICIES 4. PROMOTIONAL PRICING - –LOW PRICE - HEAVY ADVERTISING –2 KINDS: A. LOSS LEADERS - –PRICING PRODUCTS AT OR BELOW COST –NOW WHY WOULD YOU DO THAT? B, SPECIAL EVENT PRICING - –“BACK TO SCHOOL SALE” –“DOLLAR DAYS”

TYPES OF PSYCHOLOGICAL PRICING & PRICE POLICIES 5. FLEXIBLE PRICING - –CONSUMER CAN NEGOTIATE ON THE FINAL COST CARS WHAT ELSE? 6. ONE-PRICE POLICY - –CONSUMERS GENERALLY DO NOT NEGOTIATE PRICES

TYPES OF PSYCHOLOGICAL PRICING & PRICE POLICIES 7. PENETRATION PRICING - –SETTING A LOW PRICE ON A NEW PRODUCT –WHY? 8. SKIMMING - –SETTING A VERY HIGH PRICE ON A NEW PRODUCT –WHY?

F. BREAK-EVEN POINT THE POINT AT WHICH SALES REVENUE EQUALS THE COST & EXPENSES OF MAKING & DISTRIBUTING A PRODUCT NO PROFIT HERE…..