1. Standard 4 - Pricing Standard 4 Day 1

2. Explain the nature and scope of the pricing function –Understand the concept of break-even point What you’ll learn

3. What is Price? Price is the value of money (or its equivalent) placed on a good or service.

4. Forms of Price Fee you pay for service Amount you pay for food, clothes, etc. Interest on a loan Dues for a membership Tuition for education Wages, salaries paid to workers

5. Importance of Price Establishes image Maintains competitive edge Determines profits

6. Projected Effects of Different Prices on Sales Price per item X Quantity Sold = Sales Revenue $50200$10,000 $45250$11,250 $40280$11,200 $35325$11,375 $30400$12,000 $25500$12,500 An increase in the price of an item may not produce an increase in sales revenue. Why is this true?

7. Goals of Pricing Return on Investment (ROI) –Calculation used to determine the relative profitability of an investment –The formula to calculate it is Profit / Investment –Profit = Sales – Cost

8. Return on Investment Your company sells storage bins for $8 each. Your cost to make and market the bins is $6.50. $8 - $6.50 = $1.50/$6.50 =.23 Your rate of return on investment is 23 percent. Profit

9. Goals of Pricing Gaining market share – a firm’s % of total sales volume in a given market

10. Goals of Pricing Exceed the Break-even Point –The point at which cost or expenses and revenue are equal. Profit has not been realized but costs have been covered. Fixed Costs / (Price – Cost of Goods Sold) Fixed Costs / Profit $10,000 / ($12 - $7) $10,000 / $5 = 2,000 unit need to be sold to reach the break-even point.

11. Standard 4 Day 2 Understand how basic economic principles affect pricing

12. Standard 4 Day 2 Understand how basic economic principles affect pricing –Explain the principles of supply and demand –Identify factors affecting a business’s profit –Explain the concept of competition What you’ll learn

13. Supply & Demand Supply Supply – The amount of goods producers are willing to make and sell. Demand Demand – The amount of goods consumers are willing and able to buy.

14. Supply & Demand Graph

15. Economic Laws Law of Demand Law of Demand – As the price of a good or service increases, the quantity demanded will decrease. Law of Supply Law of Supply – As the price of a good or service increases, the quantity supplied will increase.

16. Steps for Determining Prices Establish Pricing Objectives –Increase sales volume? –Prestigious image? –Increase market share?

17. Steps for Determining Prices Study CostsStudy Costs –Can you make a profit? –Can you reduce costs without affecting quality or image?

18. Steps for Determining Prices Estimate Demand –What do customers expect to pay? –Prices usually are directly related to demand.

19. Steps for Determining Prices Study Competition

20. Steps for Determining Prices Decide on a Pricing Strategy –Price higher than the competition because your product is superior. –Price lower, then raise it once your product is accepted. –Pricing VideoPricing Video Start at 1:17Start at 1:17

21. Steps for Determining Prices Set Price –Monitor and evaluate its effectiveness as conditions in the market change.

22. Pricing Technology Smart Pricing – decisions are based on an enormous amount of data that Web-based pricing technology crunches into timely, usable information. Communicating Prices to Customers – electronic gadgets that provide real-time pricing information such as electronic shelves, digital price labels

23. Pricing Technology RFID Technology – wireless technology that involves tiny chips imbedded in products. The chip has an antenna, a battery, and a memory chip filled with a description of the item.

24. Illegal Pricing Strategies (Competition can lead to unethical decisions) Price Fixing –Illegal activity when competitors agree on setting prices Loss-leader –Setting the price of a product at or below cost to entice customer to come into the store. It’s often used with… Bait-and-Switch –Advertising one product at a super-low price then claiming to be out of stock and selling a different one.