1. Pricing Strategy

2.  Focus on the value of your product / service delivers  Value = perceived benefits Price Know your competitor Reward staff for sales Uses markdowns carefully

3. Pricing Objectives  1. Profit Oriented - achieve a target return 2. Sales Oriented - increase volume - maximize share 3. Status Quo - stabilize prices - meet competition

4. Factors Affecting Price  Customer – their perception of value, reference price, habits etc.  Demand – elastic or inelastic  Competitors – how will they respond  Cost – the constraint on price  Mix- consistent with rest of mix  Pricing objectives  Life cycle  Distribution issues.

5. Estimating Demand and Revenue  Is there an expected market price – need to price within that range  Estimate sales volume at different prices

6. Inelastic Demand Curve

7. Inelastic and Elastic Demand

8. Price Elasticity  The impact on quantity demanded for a product given a change in price  Price elasticity = % change in quantity demanded % change in price When a product is inelastic volume is not affected much by a price increase – so when price is increased profits go up – lowering price will hurt margins

9. What makes a product Elastic  Price and availability of other products  The more directly similar products available the more competitive is the price  Other products that meet similar need - compete for the consumer dollar

10. Cost Allocation Methods  1. Full Cost Approach – allocate fixed costs of company on a volume basis (% of sales)  Contribution Margin Approach – focus on variable costs related to the production – all costs are no allocated in all situations

11. New Product Issues  Cannibalization – often a new product will reduce the sales of an exiting product within the company  How does this affect pricing decisions