1. Price Planning Chapter 29 Marketing I

2. What is Price? (value of money placed on a good) b Product Value to customers features in relation to other products seller’s objective is to set high enough to make a profit yet not to exceed value perceived by customers b Price comes in many forms rent, dues at a club, fees, interest, salaries, tuition

3. Importance of Price b Success or failure of a business b Establishes & maintains a firm’s image, competitive edge, & profits b Main thrust of advertising strategy

4. Goals of Pricing b Gaining market share(firm’s % of total sales generated by all competitors) need to watch competitors to maintain market position(relative standing in relation to competitors) and market share, may lower price to increase themneed to watch competitors to maintain market position(relative standing in relation to competitors) and market share, may lower price to increase them b Return on Investment=profit/investment If you are given a certain ROI, you would work the formula backwardsIf you are given a certain ROI, you would work the formula backwards b Meeting the Competition follow industry leader or calculate average price of all competitors (automobiles, soft drinks)follow industry leader or calculate average price of all competitors (automobiles, soft drinks)

5. Market Factors Affecting Prices b Costs and Expenses Responses to Declining Profit MarginsResponses to Declining Profit Margins –smaller size, drop features not valued, improving product to justify increase in price Responses to Lower Costs/ExpensesResponses to Lower Costs/Expenses –take higher profit, lower price, improve product and keep same price Break-even PointBreak-even Point –Figured when marketing a new product or establishing new price –total costs/selling price=break even point

6. Market Factors Affecting Prices b b Supply and Demand Elastic demand(change in price creates change in demand) – –Availability of substitutes – –Price Relative to Income – –Brand loyalty – –Luxury vs. Necessity – –Urgency of Purchase Inelastic demand (change in price creates little change in demand) b b Consumer Perceptions (subjective price) Equate quality with price (status, prestige) Personalized service

7. Market Factors Affecting Price b Competition Price conscious target market means you must you price competition Not price conscious means you can use nonprice competition In price competition, change prices to reflect demand, cost or competition Price war (fast food, airlines)

8. Government Regulations b Price Fixing(competitors agree on certain price ranges) Need collusion to prove, that means communication took place between competing firms (Sherman Antitrust Act)Need collusion to prove, that means communication took place between competing firms (Sherman Antitrust Act) b Price Discrimination cannot sell to one customer at one price and another at another price in similar situations (Clayton Antitrust Act)cannot sell to one customer at one price and another at another price in similar situations (Clayton Antitrust Act)

9. Government Regulations b Resale Price Maintenance manufacturers unable to tell retailers what to sell for, can only offer suggested pricesmanufacturers unable to tell retailers what to sell for, can only offer suggested prices Can tell retailers in advance that they will not be able to sell product if they don’t adhereCan tell retailers in advance that they will not be able to sell product if they don’t adhere b Minimum Price laws prevents retailers from selling goods below cost plus a % for expense and profitprevents retailers from selling goods below cost plus a % for expense and profit In states with out these laws, retailers use loss leaders(item priced at cost to draw customers in) to pull in customersIn states with out these laws, retailers use loss leaders(item priced at cost to draw customers in) to pull in customers

10. Government Regulations b Unit Pricing Consumers must be able to compare similar products based on a cost per standard unit of measureConsumers must be able to compare similar products based on a cost per standard unit of measure b Price Advertising Must offer product at original price before advertising reductionMust offer product at original price before advertising reduction May not say prices are lower without proofMay not say prices are lower without proof Pre-marked price cannot be used if not sold at that pricePre-marked price cannot be used if not sold at that price Bait-and-switch advertising is illegalBait-and-switch advertising is illegal

11. Pricing Strategies Part I

13. Basic Pricing Concepts b Cost-Oriented Pricing Markup pricing- difference b/t a price of an item and its cost. Usually a percentage, must include cost and expected profit Cost-plus pricing- expenses calculated for each good and then profit added, mainly used by manufacturers and service providers

14. Computing Cost-plus Pricing b Print Job 40 reams paper=$40040 reams paper=$400 labor=$100labor=$100 materials=$60materials=$60 artwork=$140artwork=$140 expenses=$50expenses=$50 profit=$50profit=$50 Total price to customer=$800Total price to customer=$800

15. Basic Pricing Concepts Demand Oriented Pricing Determine what customers will & pay for product Based on perceived value Effective when few substitutes available Same product different price based on demand— stadium seating

16. Basic Pricing Concepts b Competition Oriented Pricing Competitive Bid pricing- government agencies, schoolsCompetitive Bid pricing- government agencies, schools Going-Rate Pricing-almost all firms do this, studying competitors to keep in-lineGoing-Rate Pricing-almost all firms do this, studying competitors to keep in-line

17. Combining Pricing Considerations Most marketers use all three to determine prices Cost-oriented used to determine the floor price Demand oriented used to determine the range Competition used to determine final price matches relation firm wants to have to competitors

18. Pricing Considerations Need to look at what retailers and wholesalers will charge b Pricing backward from retail price 1st-retail price set, then markups desired by wholesalers & retailers, finally manufacturer’s price set1st-retail price set, then markups desired by wholesalers & retailers, finally manufacturer’s price set b Pricing forward from manufacturer’s cost 1st-wholesaler & retailer markups added, then retailers markup added, look at demand & competition, set final price1st-wholesaler & retailer markups added, then retailers markup added, look at demand & competition, set final price

19. Pricing Policies b One-Price- all customers charged the same. Prices quoted by means of signs and price tags, no deviations b Flexible- Price -price quoted by buyer or seller, bargaining starts (cars, houses, antiques)

20. Product Life Cycle New Product Introduction Skimming-Skimming-Set price high, earn high profit margin, can lower price and not insult target market, attracts competition though, may be set too high and lose sales Penetration-Penetration-set initial price low to generate trial purchase of product, need mass production, promotion and distribution to be effective, block competition by capturing market, lure away from competition who is priced higher, if demand not high=losses

21. Product Life Cycle Pricing Other Stages pricing in subsequent stages determined by initial pricing strategypricing in subsequent stages determined by initial pricing strategy goal during growth-keep in this stage as long as possiblegoal during growth-keep in this stage as long as possible goal during maturity-look for new market segmentsgoal during maturity-look for new market segments goal during decline-maintain profitabilitygoal during decline-maintain profitability

22. Pricing Strategies Part II

23. Psychological Pricing- Psychological Pricing- techniques that create an illusion for customers b Odd-Even Pricing-setting prices that end in odd or even numbers (odd=bargain image, even=quality image) When using round numbers, don’t use cents Price $3-4 higher than round amts. Price slightly lower, when below round numbers

24. Psychological Pricing b Prestige Pricing Setting higher than average pricesSetting higher than average prices suggest statussuggest status b Many customers assume that higher prices mean higher quality b Avoid exceeding customer limits, do your research

25. Psychological Pricing Multiple pricing-suggests a bargain, will sell more at 3 for.99 than at.33 each Promotional Pricing-temporary loss leader-at cost to draw to store special-event pricing-reduced in price for short period of time (24-hour sale) rebates, coupons, discounts Price Lining-all product in a given category at certain price level(need a low, middle and high level)

26. Discount Pricing-offering reductions off the usual price b Cash discounts-offered to encourage quick payment of bills (2/10, net 30) b Quantity discounts-encourage large orders which have lower selling costs noncumulative-one ordernoncumulative-one order cumulative-all orders over specified period of timecumulative-all orders over specified period of time

27. Discount Pricing b Trade discounts-way manufacturers quote discounts to wholesalers and retailers based on list price b Seasonal Discounts-offered to encourage buying before or after a product’s peak season b Promotional discounts-willing to promote or advertise certain product

28. Steps in Setting the Price Step 1-Determine Pricing Objectives volume or revenue, image Step 2-Study Costs Step 3-Estimate Demand market research Step 4-Study Competition range, floor price, ceiling price Step 5-Decide on a Pricing Strategy Step 6-Set Price