1. Market Factors Affecting Price

2. Objectives Define Price and Pricing
List the four market factors that affect price
Identify and discuss each market factor
Define elastic demand and inelastic demand
List the 5 factors that contribute to demand elasticity
Identify and discuss each factor

3. Price & Pricing
Price: the money a customer must pay for a product or service.
Part of the Marketing Mix
Pricing: establishing and communicating the value of products and services to potential customers.

4. Four Major Market Factors That Affect Price
Costs and Expenses
Supply and Demand
Consumer Perceptions
Competition

5. 1. Costs and Expenses Sales + Costs + Expenses = Profit
Increasing costs and expenses lead companies to:
Increase price of product or service
Reduce size of product or service
Drop service that is not valued
Add to their product or service

6. 1. Costs and Expenses Lower costs and expenses lead companies to:
Decrease prices of products and services
Improved technology and less expensive materials help companies produce better-quality products at lower prices.
Example: the price of computers

7. 2. Supply and Demand With most products:
Demand increases with lower prices
Demand decreases with higher prices
This does not apply to some products
Demand Elasticity
The degree to which demand for a product is affected by its price
Products have either elastic or inelastic demand

8. Elastic Demand When a change in price creates a change in demand.
Example: Price of Steak
Law of Diminishing Marginal Utility
Consumers will only buy so much of a product even if the price is low.
Example: Price of Laundry Detergent

9. Inelastic Demand
When a change in price has very little effect on demand for a product
Example:
Milk
Bread

10. Demand Elasticity The demand elasticity depends on five factors:
Brand Loyalty
Availability of Substitutes
Price Relative to Income
Luxury vs. Necessity
Urgency of Purchase.

11. Brand Loyalty
When a customer will not buy a substitute product over a brand name of their choice.
In this case brand is inelastic.

12. Availability of Substitutes
When there are a variety of substitutes that will do the same job, the demand becomes elastic.
Example:
Laundry Detergent

13. Price Relative to Income
If a price increases dramatically and it is beyond a customer’s budget, they are less likely to buy it.
In this situation the demand will be elastic.
Example:
A diamond ring

14. Luxury vs. Necessity
When a consumer feels that a product is a necessity, the demand becomes inelastic.
Example:
medicine
When a consumer feels that a product is a luxury, the demand becomes elastic.
automobile

15. Urgency of Purchase
If a purchase must be made immediately then the demand will be inelastic.
Example:
Running out of gas

16. 3. Consumer Perceptions
Price planning involves what the consumers perceive
Some consumers associate quality with price
High price equals high quality
High price equals status, prestige, and exclusiveness

17. 3. Consumer Perceptions
Businesses limit a supply on the market to make the consumer think that it is worth more.
Example:
Limited Edition
Personalized service can also add to a customer’s perception.

18. 4. Competition 2 Forms: Non-Price Competition Price Competition
Non-price competition minimizes price as a reason for purchase. The more unusual a product, the greater the freedom to set prices above those of competitors.
Price competition allows a company to gain target market appeal by lowering prices.

19. 4. Competition
Companies are constantly watching each other. If one lowers their price, their competitors will lower their price too.
The benefit is lower prices for consumers.
Price Wars:
When a company lowers their price to the point that they lose profits. Can cause financial trouble.

20. Summary Defined Price and Pricing
Listed the four market factors that affect price
Identified and discussed each market factor
Defined elastic demand and inelastic demand
Listed the 5 factors that contribute to demand elasticity
Identified and discussed each factor

21. References
Boone, Louis E. & Kurtz, David L. (2001) Contemporary Marketing (10th Edition). USA: South-Western Thomason Learning.
Burrow, James L. (2002). Marketing (Instructor’s Wraparound Edition). USA: South-Western Thomason Learning.
Farese, L.S, Kimbrell, G. & Woloszyk, C.A (2002). Marketing Essentials (3rd Edition) New York: McGraw-Hill.