1. Section 25.1 The Steps of Price Planning
Marketing Essentials
n Chapter 25 Price Planning
Section The Steps of Price Planning

2. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
What You'll Learn
The different forms of price
The importance of price
The goals of pricing
The difference between market share and market position

3. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Why It's Important
Price is one of the four Ps of the marketing mix and is an essential element in marketing a product to the correct target market. The goals of company and government regulations are two issues that must be considered in the pricing process. Understanding the steps involved in determining the price of a product is essential for business success.

4. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Key Terms
price
share
market position
return on investment

5. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
What Is Price?
Price is the value of money (or its equivalent) placed on a good or service. It is usually expressed in monetary terms.
The oldest form of pricing is the barter system—the exchange of a product or service for another product or service, without the use of money.

6. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Importance of Price
Price is involved in every marketing exchange. It helps establish and maintain a firm's:
image—to some customers, high price equals quality
competitive edge—a business can attract customers by guaranteeing low prices
profits—sales price is directly related to the price and number of items sold

7. Price per Item x Quantity Sold = Sales Revenue
SECTION 25.1
The Steps of Price Planning
Projected Effects of Different Prices on Sales
Price per Item x Quantity Sold = Sales Revenue
An increase in the price of an item may not produce an increase in sales revenue. Why is this true? Are you more likely to buy a higher priced item or a lower priced item?
$ $10,000
$ $11,250
$ $11,200
$ $11,375
$ $12,000
$ $12,500

8. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Goals of Pricing
Marketers’ pricing goals include:
gaining market share
achieving a certain return on investment
meeting the competition

9. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Gaining Market Share
A business may engage in price competition to take market share from its competitors, forgoing immediate profits for long-term gains in market share.

10. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Market Share
Market share is a firm's percentage of the total sales volume generated by all competitors in a given market. Which brand has the largest share of the digital camera market? If total sales for this market are $3 billion, what is the sales revenue for the market leader? Do you have more confidence in a company that has a large market share?

11. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Market Position
Market position is the relative standing a competitor has in a given market in comparison to its competitors. Which brand is the market leader in the U.S. cookie market? Given total sales of $1,221 (in millions) for the U.S. cookie market, what is the leader's market share? Are you more inclined to buy a product if you know it is the market leader? Why?

12. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Return on Investment
Return on investment is a calculation used to determine the relative profitability of a product. The formula for calculating return on investment is
Profit
Investment
Companies often price products to produce a certain return on investment.

13. The Steps of Price Planning
SECTION 25.1
The Steps of Price Planning
Meeting the Competition
Some companies simply aim to meet the prices of their competition, either by following the industry leader or meeting the industry average.
Example: Automobiles and soft drinks have similar prices and compete based on other factors.

14. Reviewing Key Terms and Concepts
ASSESSMENT
25.1
Reviewing Key Terms and Concepts
1. What is bartering?
2. Why is price an important factor in the success or failure of a business?
3. Name three goals of pricing in addition to making a profit.
4. Distinguish between market share and market position.
5. Define and show the formula for return on investment.

15. ASSESSMENT Thinking Critically 25.1
Setting prices higher than the competition will put your business on a fast track to failure. Is this statement true or false? Explain the reasons for your answer.

16. Marketing Essentials
End of Section 25.1