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PublishGeraldine Sims Modified over 9 years ago
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Pricing
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Essential Questions/I Can Statements I CAN explain factors that influence price and identify the four areas of pricing I CAN demonstrate my ability to solve cost plus pricing formulas I CAN apply my knowledge of pricing and competitive advantages to a mock business scenario
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What determines Price? Supply and Demand (covered last class) Costs Perceived Value
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Areas of Pricing Cost of goods Overhead expenses Distribution costs Profit margin
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Cost of Goods Costs incurred by a business to produce or purchase goods and services to be sold ▫Examples: Raw materials & Parts, production machinery, labor, etc.
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Overhead Expenses Costs incurred to run a business ▫Examples: Maintenance, Accounting, Advertising, Rent &Utilities, Insurance, Management Salaries, etc.
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Distribution Costs Costs incurred to distribute goods and services ▫Examples: Packaging, Storage, Shipping, Channels of Distribution
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Profit margin The amount of money charged above costs & expenses ▫Factors that effect profit margin: Markups, discounts, competition, supply & demand
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Pricing Based on Cost (Markup) Basic Pricing Formula: COST + MARKUP = RETAIL PRICE Complete Cost Method Pricing Worksheet (group activity)
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Pricing Based on Value Products that are valued highly can be set at a high price (think back to supply and demand) ▫Pharmaceuticals (Health) ▫Rolex (Image) Reference pricing ▫Vaseline lip balm ▫Water bottles
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Michael Porter’s Competitive Advantage Cost Leadership-focuses on providing goods at the lowest possible price to consumers ▫Cost plus pricing ▫Ex: Wal-mart Differentiation-focuses on providing the best or most unique goods to consumers ▫Value Pricing ▫Ex: Rolex Focus-focuses on providing goods to the small segment of consumers whose wants are not being met by general industry ▫Cost plus or value pricing ▫Ex: Gatti’s Pizza (hint: can be combined with either strategy above)
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Hot Dog Activity!
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