1. Unit B Planning and Preparing to Manage a Small Business Competency 5.00 Understand pricing, promotion, and market planning.

2. Pricing 5.01 Develop foundational knowledge of pricing 5.02 Employ pricing strategies to determine optimal prices.

3. Basic Tenants of Pricing  Businesses should set their selling prices at a level that will cover expected markdowns and expenses.  Entrepreneurs should keep track of what others are charging to remain competitive.  Most businesses are flexible: lower prices during hard economic times.  Business owners set ceiling prices based on consumer perception and demand.

4. Factors to consider when setting price  Look at your target market – how do they judge the value of your product?  Sales-oriented pricing objectives are meant to increase total sales.  Some companies set selling prices low to get market share as fast as possible.  The cost of raw materials helps determine the selling price.

5. Pricing in The Product Life Cycle Price skimming = start with high price Penetration pricing = start with low price

6. Introduction  One of two methods is used when introducing a product. Price skimming = start high Price penetration = start low

7. Growth  Sales increase  Unit costs decrease  Adjust prices based on how you started.  Promotion costs increase.

8. Maturity  Try to stabilize product price.  Look for new markets.  Make product improvements.

9. Decline  Cut prices to stimulate sales or  To clear inventory.

10. Calculating Prices  Break-even point = money from product sales equals the costs of making and distributing the product.  How many units will you have to sell?  How much money will you have to make?

11. Break-Even (unit sales price)

12. Example: Calculating how many units need to be sold  A business has total fixed costs of $875,000.  Unit selling price (UPS) = $1200.  Variable cost per unit = $700. $1200 – $700 = $500 $875,000 $500 = 1750 Units

13. Example: Calculating how many dollars it will take to break even  A business has total fixed costs of $875,000.  Unit selling price (UPS) = $1200.  Variable cost per unit = $700. $1200 – $700 = $500 $875,000 $500 = 1750 Units 1750 X $1200 = $2,100,000

14. Discounts  Any amount subtracted from the list price. Price X discount percentage = discounted dollars. Price – discounted dollars = discounted price.