1. Marketing Factors Affecting Price
What are some things you feel can affect the price of goods and services?

2. Objectives Identify the four market factors that affect price planning
Discuss what demand elasticity is and the difference between elastic and inelastic demand
Know some of the factors that can cause demand elasticity to vary.

3. Four Factors Affecting Prices
Costs and Expenses
Supply and Demand
Consumer Perceptions
Competition

4. Cost and Expenses
Businesses constantly monitor, analyze, and project prices and sales in the light of cost and expenses.
This is done because sales, costs, and expenses together determine a firm’s profit.

5. Cost and Expenses con’t
What do marketers do when costs or expenses increase or when sales decline?
Pass the costs to their customers
Reduce the size of an item
Drop features their customers do not value
Improving their products (i.E. Add more features, upgrade the materials, etc.)
A candy manufacturer might reduce a candy m 4 to 3.5 oz rather than increase its price. This would reduce the cost of making the candy bar, so a profit can still be made.

6. Supply and Demand
Demand is the amount of a product that consumers are willing and able to purchase at a given price.
Only when products can actually be sold at a given price is demand said to exist.
Demand and price changes interact.
If demand for a product increases, the price will usually increase because the supply is limited.
If the demand for a product decreases, the price often goes down.

7. Supply and Demand con’t
Supply is the quantity of a product offered on the market at a specified price.
The supply of a product includes only the amount available for sale at a certain time.
Supply and price changes interact
If supply of a product increases, the price will tend to decrease.
If the supply of a product decreases, the price often goes up.

8. How Changes in Demand and Supply Affect Price
Increase
No Change
Higher
Decreased
Lower
Decrease

9. Consumer Perceptions
Consumer perceptions about the relationship between price and quality or other values also play a role in price planning.
Some business create the perception that a particular product is worth more than others by limiting the supply of the item in the market.
Personalized service can add to the consumer’s perceptions about price
Some customers equate quality w/ price; they believe high price reflects high quality
Ex: when you see a commercial for a bentley? What does a high price for this car suggest?
status, prestige, and exclusiveness

10. Competition
A company can use a lower price to appeal to a target market if the target market is price conscious.
When its target market is not price conscious, a company can resort to various forms of nonprice competition.
Nonprice competition minimizes price as a reason for purchase; instead, it creates a distinctive product through such means as product availability and customer service.
Marketers change prices to reflect consumer demand, cost, or competition.
*Benefits the consumer b/c lowers prices
Shoppers are more likely to buy the less expensive brand if they see no difference between Maxwell House Coffee and Hills Brothers Coffee; When manufacturer of Tide detergent reduces its price, its competitors are likely to do the same

11. Demand Elasticity
The degree to which demand for a product is affected by its price is called demand elasticity.
Products are said to have either elastic demand or inelastic demand.
Elastic demand-refers to situations in which a change in price creates a change in demand.
Inelastic demand-refers to situations in which a change in price has very little effect on demand for a product.
E.D.-changes in price of steak can serve s an example; If steak were $8 per lb., few people would buy-steak; if the price dropped to $5, $3, $2 per pound, demand would increase at each price level

12. Demand Elasticity con’t
Demand elasticity varies with five factors
Brand Loyalty
Price Relative to Income
Availability of Substitutes
Luxury vs. Necessity
Urgency of Purchase
I.D. certain food products, such as milk and bread fall in this category. Most people would not buy less milk or bread if prices were to increase sharply. Same would be true if prices decreased sharply b/c only so much bread and milk we can use