1. Types of Pricing Strategies Penetration pricing strategyPenetration pricing strategy Skimming pricing strategySkimming pricing strategy Variable pricing strategyVariable pricing strategy

2. Mark-up Pricing Mark-up Based on Cost Example: Good cost 6.00 50% markup 3.00 Selling price 9.00

3. Market Assessment Pricing 6% buy 4 at 3.50 each6% buy 4 at 3.50 each 10% buy 4 at 3.00 each10% buy 4 at 3.00 each 13% buy 4 at 2.50 each13% buy 4 at 2.50 each Target population is 10,000

4. Market Assessment Pricing Customers(X4)SoldPriceSalesVar.CostGrossMarg. 60024003.508,4004,8003,600

5. Customers(X4)SoldPriceSalesVar.CostGrossMarg. 60024003.508,4004,8003,600 100040003.0012,0008,0004,000 130052002.5013,00010,4002,600

6. Breakeven Analysis Fixed Costs (FC) – Do not vary with salesFixed Costs (FC) – Do not vary with sales Variable Costs (VC) – Vary with salesVariable Costs (VC) – Vary with salesBreakeven: Sales = FC + VC (profits = 0)

7. Breakeven Analysis Breakeven: Sales = FC + VC (profits = 0) Example: Revenue = $3 per cappuccino VC = $2 per cappuccino FC = $2000/month

8. Breakeven Analysis Breakeven: Sales = FC + VC (profits = 0) Example: Revenue = $3 per cappuccino VC = $2 per cappuccino FC = $2000/month 3X = 2X + 2000 X = 2000 units x $3 = $6000 in sales

9. Breakeven Representation Fixed Costs Breakeven point Total cost Revenue Loss Profit

10. Breakeven Analysis Breakeven: Sales = FC + VC (profits = 0) Example: Revenue = $3 per cappuccino VC = $2.50 per cappuccino FC = $500/month 3X = 2.5X + 500 X = 1000 units x $3 = $3000 in sales

11. Discounts Rate of interest on 2/10, net 30 Discount paid if received 20 days early 2% x (360 days/20 days) = 36%!

12. Small Business Management, 11th edition Longenecker, Moore, and Petty © 2000 South-Western College Publishing Hypothetical Aging Schedule for Accounts Receivable Customer Account Number Account Status001002003004005 Total Days past due 120 days$50,000 $50,000 90 days$10,000 $10,000 60 days$40,000 $40,000 30 days$20,000$20,000 $40,000 15 days$50,000$10,000 $60,000 Total overdue$50,000$30,000$80,000$40,000$ 0 $200,000 Not due (beyond discount period)$30,000$10,000$ 0$10,000$130,000$180,000 Not due (still in discount period)$20,000 $100,000$ 0$90,000$220,000$430,000 Credit ratingABCAA