1. Unit 7

2. WHERE DOES PRICE FIT IN? WHY IS IT SO IMPORTANT? NOTE: PRICE X QUANTITY SOLD = REVENUE REVENUE – EXPENSES = PROFIT PROFIT SUSTAINS THE BUSINESS.

3. PRICE: THE AGREED UPON MONETARY VALUE OF A GOOD AND/OR SERVICE BETWEEN A SELLER AND A BUYER. MUST CONSIDER: EXPORTING/IMPORTING COSTS; TRANSPORTATION FORIEGN CURRENCY VALUES INSURANCE ETC

4. Price EXAMPLE: (COST-PLUS PRICING) FRENCH JAMS FOR UPSCALE EMPORIUM IN CANADA YOU HIRE A PURCHASING AGENT IN FRANCE TO LOCATE THE JAMS WHICH IS FOUND AT 1.5 EUROS PER JAR. ONE EURO = $1.39 CAD INITIAL COST = $2.085 CAD (CONCERNS RE EXCHANGE RATE FLUCTUATIONS) CAN “BUY FORWARD” ; PURCHASE CURRENCY AT SAME TIME ORDER PLACED.

5. Price NOW, NEED TO SECURE “LETTER OF CREDIT” FROM LOCAL BANK (CONFIRMS FUNDS ARE AVAILABLE.) TARIFFS/DUTIES. CANADA HAS FAVOURED NATION STATUS WITH FRANCE. BUT WILL STILL TAX 8.5% TO PROTECT DOMESTIC COMPANIES (E.G., E.D. SMITH & SONS)

6. Price $2.08 X 8.5% = $2.26 CAD PER JAR TRANSPORT: AIR0,33 CAD PER JAR OCEAN0.16 CAD PER JAR CONTAINER*0.01 CAD PER JAR (* SHARED)

7. Price E.G., OCEAN 2.26 CAD + 0.16 = $2.42. EXTRA COSTS: PURCHASING AGENT FREIGHT FORWARDERS LETTER OF CREDIT CURRENCY CONVERSIONS INSURANCE DAMAGES/LOSS ADDITIONAL TRANSPORT CANADIAN EXPECTIONS ONLY 12 X 24 = 288 JARS TO COVER ALL COSTS. FINAL LANDED COST = ABOUT $3.25 PER JAR. RETAILER DOUBLES PRICE TO $6.50 PER JAR. COMPETITIVE???????

8. MUST ALSO CONSIDER AS WELL: CONSUMER DEMAND GIVEN PRICE; COMPETITION (BOTH DOMESTIC AND FORIEGN).

9. PRICING APPROACHES AND STRATEGICES: APPROACHES: COST –PLUS PRICING: DETERMINING THE COST TO MAKE AN INDIVIDUAL UNIT (COST ACCOUNTING) AND ADDING A MARK-UP. (e.g., bacon and cheese sandwich) COMPETITIVE PRICING: PRICES AMONG COMPETITORS ARE SIMILAR TO ONE ANOTHER. MUST COMPETE ON OTHER FACTORS: UNIQUE FEATURES; ADVERTISING.

10. STRATEGIES: SKIM PRICING: THIS OCCURS WHEN THE PRODUCT IS THE FIRST OF ITS KIND AND HAS NO DIRECT COMPETITION. VERY HIGH PRICES ARE SET TO RECOVER PRODUCT DEVELOPMENT COSTS AND MAKE A PROFIT. WHEN COMPETITORS ENTER THE MARKET, PRICES WILL BE REDUCED. E.G., CALCULATORS IN 1972 WERE $399.00 VCR’S IN 1980 WERE $1500.00 DVD’S IN 1995 WERE $800.00

11. PENETRATION PRICING: OFFER YOUR PRODUCT AT CONSIDERABLY REDUCED PRICE TO “PENETRATE” THE MARKET AND STEAL MARKET SHARE. INTEREST-FREE PRICING; “DON’T PAY A CENT FOR TWO YEARS”

12. PSYCHOLOGICAL PRICING: FOR SOME REASON, $1.99 APPEARS MUCH CHEAPER THAN $2.00. VARIATIONS: WAL-MART GASOLINE RESTUARANTS

13. LOSS LEADER PRICING: SELECTED PRODUCTS ARE SOLD AT COST OR LESS TO ATTRACT CUSTOMERS INTO THE STORE. E.G., SHOES, CARS.

14. DECEPTIVE PRICING PRACTICES: DOUBLE TICKETING( PRODUCT HAS TWO PRICES; HIGHER PRICE CHARGED) BAIT AND SWITCH PRICING. FALSE SALES PRICING WHERE RETAILER PRETENDS PRODUCT ON SALE.