1. Factors Affecting Selling Price
Make Cents
Factors Affecting Selling Price
Pricing LAP 3

2. Explain the importance of selling price.
Discuss pricing objectives.
Discuss factors affecting selling price.

3. Explain the importance of selling price.

4. What do you ask yourself when you want to:
Buy lunch at a local restaurant?
Purchase a new e-reader?
Book a plane ticket?

5. You probably ask “How much?”
Can you pay the price and do you want to?

6. You probably don’t spend much time thinking:
How was the selling price determined?
Why is the price important to the seller?

7. What Is Selling Price?
The amount a seller charges for a good or service
Examples:
Dollar figure shown on a price tag
Membership dues
Insurance premiums

8. What Is Selling Price?
The amount a seller charges for a good or service
Examples:
College tuition
Bus fare
Legal fees

9. What Is Selling Price?
Businesses go through their own pricing process.
The selling prices fluctuate.

10. The Components of Selling Price
Costs of the product
Operating expenses
A profit

11. Importance of Selling Price
To customers
Helps to compare products when making buying decisions
Indication of quality
A guide in selecting the products they buy
Helps to decide how to allocate their money
Few people can buy everything they want.
Selling price helps them to decide what they can afford.

12. Importance of Selling Price
To businesses
Determines income from sales
May determine a business’s success or failure
Should include enough mark-up to pay current expenses and to provide for future growth
Mark-up—the difference between the cost of a product and its selling price
Is a tool that businesses can use in achieving their goals

13. Describe pricing objectives.

14. Pricing Objective Basics
Should be compatible with marketing objectives
The business must know where it wants to go before it can choose selling prices that will help it to get there.

15. Pricing Objective Basics
Choosing them isn’t a one-time job.
As circumstances change, or the business changes its goals, pricing objectives may also need to be changed.

16. Sales-Oriented Pricing Objectives
Purpose—to increase the total amount of income from sales
Two ways a business can do this:
Charge low prices in an effort to increase sales volume
Charge high prices in an effort to increase the dollar value of sales

17. Sales-Oriented Pricing Objectives
Achievements of using sales-oriented pricing:
Creating a business image (discount or exclusive)

18. Sales-Oriented Pricing Objectives
Achievements of using sales-oriented pricing:
Being more competitive
Matching competitors’ prices—often happens in industries where products are quite similar
Pricing above the competition—works when customers see the product as more valuable than other, similar products
Pricing below the competition—to still make a profit, the business has to keep tight control over its costs.

19. Sales-Oriented Pricing Objectives
Achievements of using sales-oriented pricing:
Obtaining, maintaining, or increasing market share
Size of market share used as a measure of success
May set low prices to get as much of the market as possible right from the start

20. Sales-Oriented Pricing Objectives
Achievements of using sales-oriented pricing:
Obtaining, maintaining, or increasing market share
Established companies may lower prices to enlarge their market share.
Other companies stabilize selling prices to maintain the market share they have.

21. Profit-Oriented Pricing Objectives
Purpose—to create profits for the business
Prices chosen to provide largest profit.
Other businesses want to recover their costs and earn a reasonable amount of profit.
Specific objectives a business might achieve by using profit-oriented pricing:
Surviving

22. Profit-Oriented Pricing Objectives
Specific objectives a business might achieve by using profit-oriented pricing:
Maximizing profits—making the most possible immediate profit
To improve cash flow
To maximize profits

23. Profit-Oriented Pricing Objectives
Specific objectives a business might achieve by using profit-oriented pricing:
Earning a return on investment
Capital investment is needed to start and operate any business.
All businesses need to earn income, or return, from that investment.
Some companies base needed profit on the amount of their capital investment (often expressed as a specific percentage).
The business sets prices that it hopes will provide enough profit to give the firm that percentage of return.

24. Profit-Oriented Pricing Objectives
Specific objectives a business might achieve by using profit-oriented pricing:
Earning a return on sales
Called target return because the company uses a percentage of profit on its sales as a target or goal
Often used by companies that don’t want to be accused of unfair trade practices or of earning too much profit

25. Discuss factors affecting selling price.

26. Factors Affecting Selling Price
Costs
Business needs to recover product costs.
Total costs are made up of two kinds of costs—fixed and variable.
Fixed costs are not affected by changes in sales volume.
Variable costs change according to changes in sales volume.

27. Factors Affecting Selling Price
Supply and demand
Information needed by marketers for pricing when they are engaged in pricing.
Obtained by:
Monitoring current business and economic conditions
Trying to predict how those conditions will change
Estimating the way those changes will affect their product demands

28. Factors Affecting Selling Price
Supply and demand
Supply and demand are determined by what people want and by what they can afford to buy.
When consumer demand increases, producers make more.
When supply increases, the selling price goes down.

29. Factors Affecting Selling Price
Supply and demand
As supply increases, the number of buyers may decrease.
Sellers will have to reduce prices to get the product off the shelves.
When the producer is not able to increase production, and the supply does not increase, the price may go up.

30. Factors Affecting Selling Price
Supply and demand
Customers may pay the higher price to obtain the product.
If the selling price goes too high, customers may stop buying.
Demand will drop.

31. Factors Affecting Selling Price
Economic conditions
Always changing
Ups and downs in economic activity are business cycles.
Monitored to predict whether business conditions will get better or worse
Prices adjusted according to the changes in the economy

32. Factors Affecting Selling Price
Competition
Customers compare prices to get the best buys.
Businesses may adjust prices to remain competitive or to become more competitive.
The kind of market in which the business operates determines what kind of pricing will help the business to be more competitive.

33. Factors Affecting Selling Price
Competition (cont’d)
Each one affects pricing in a different way:
Pure competition:
A great many buyers and sellers of nearly identical products
Very little control over pricing
Most competitive kind of market
Most products are sold at market price—the actual price in a market at any particular moment.

34. Factors Affecting Selling Price
Competition (cont’d)
Each one affects pricing in a different way:
Monopolistic competition:
Many buyers and sellers
A range of prices rather than one market price
Customers choose products based on differences from other products.

35. Factors Affecting Selling Price
Competition (cont’d)
Each one affects pricing in a different way:
Oligopoly
Relatively few sellers
Industry leader usually determines prices.
Fairly stable prices
Not many new firms can afford to enter the market.

36. Factors Affecting Selling Price
Competition (cont’d)
Each one affects pricing in a different way:
Monopoly
Only one seller or provider of a product
No substitutes readily available
Almost eliminated by the federal government because monopolies control the pricing of their products

37. Factors Affecting Selling Price
Government regulation
Both state and federal laws affect pricing.
The major purposes are to promote competition and to prevent monopolies.

38. Factors Affecting Selling Price
Government regulation
Examples of pricing areas regulated by law:
Price fixing:
Agreeing on a price or price range for a product
Forbidden because it limits competition
Price discrimination—prohibits businesses from charging different prices to similar customers in similar situations if doing so would damage competition
Price advertising—prevents any kind of customer deception

39. Factors Affecting Selling Price
Government regulation
Examples of pricing areas regulated by law:
Unit pricing:
Shows the price per unit along with the total price of the item
Makes it easy for consumers to compare product values

40. Factors Affecting Selling Price
Channel members
Affect pricing because all channel members try to make a profit on the products they sell
Expect producers to provide support such as sales and service training
Cost of the supports considered when producers price their products

41. Factors Affecting Selling Price
Channel members
Price increases are usually passed through the channel to customers.
Channel members may absorb part of the increase rather than pass all of it on to customers due to fear of reduced sales.

42. Factors Affecting Selling Price
Company objectives and strategies
Product mix
A company with a large product mix does not have to rely on any one unit for its income.
In a company with a small product mix, the price of each product has more effect on the firm’s total income.

43. Factors Affecting Selling Price
Company objectives and strategies (cont’d)
Product life cycle
Product Life Cycle Curve
Introduction
Maturity
Decline
Growth
Sales
Time

44. Factors Affecting Selling Price
Company objectives and strategies (cont’d)
Product life cycle
Introductory stage: Products are usually priced higher to enable the business to recover its investment in the new product.
Growth stage: Prices usually must be reduced to promote sales and to compete with copycat products that have entered the market.
Maturity stage: The effort is on stabilizing prices to maintain a share of the market.
Obsolescence: Sellers reduce prices to get rid of it.

45. Factors Affecting Selling Price
Company objectives and strategies (cont’d)
Target market
Affects pricing because customers in different markets view prices differently
Price is often a more important factor for high-ticket items that aren’t bought frequently.
Most marketers price according to the way their customers view the product.

46. Factors Affecting Selling Price
Company objectives and strategies (cont’d)
Target market
Customers’ judgment of the value received may determine whether or not they buy the product.
Even within the same market, not all customers see price from the same point of view.

47. Think of a purchase you’ve made within the past week.
How much did you pay for it?
How do you think the selling price was influenced by costs?
By supply and demand?
By economic conditions?
By competition?
By government regulation?

48. Do you think you paid a fair price for the product?
Why or why not?

49. Jamie has four tickets to next weekend’s concert.
She is taking her friend and planning to sell the other two tickets.
The concert is sold out.
Lots of students at Jamie’s school are dying to attend.
When one classmate offers her $75 each for the tickets, she tells him that another classmate has promised $85 each.

50. The price continues to climb.
Is Jamie treating her peers unfairly by asking for more money than she originally paid for the tickets?
Or, is she just getting market price?
What do you think?
Are Jamie’s actions ethical or unethical?

51. Digital-based photography sources:
Microsoft Clip Gallery
Various clipart used in conjunction with Microsoft PowerPoint. All rights reserved One Microsoft Way Redmond, WA USA
ThinkStock Photos
Various images used in this presentation are ©2011 ThinkStock Photos. All rights reserved

52. MBAResearch Acknowledgments Original Developers
Lelia Ventling, Sarah Bartlett Borich, MBAResearch
Version 1.0
Copyright © 2011
MBA Research and Curriculum Center®

53. Copyright:
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