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Price Planning Chapter 25
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Sec. 25.1 – 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 you’ll learn
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What is Price? Price is the value of money (or its equivalent) placed on a good or service. Bartering involves the exchange of a product or service for another product or service, without the use of money.
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Forms of Price Price is involved in every marketing exchange. 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
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Importance of Price Price is important factor in the success or failure of a business. Establishes image Maintains competitive edge Determines profits
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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?
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Gaining Market Share A business may forgo immediate profits for long term gains in some other area. Market share is a firm’s percentage of the total sales volume generated by all competitors in a given market. Marketers are interested in their relative standing in relation to their competitors, or their, market position.
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Goals of Pricing Gaining market share – a firm’s % of total sales volume in a given market
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Goals of Pricing Return on Investment –Calculation to determine relative profitability –The formula to calculate it is Profit / Investment –Profit = Sales – Cost
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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.
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Goals of Pricing Meeting the Competition – not just about price –Uniqueness of product –Convenience of business locations or hours –Level of service
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