Presentation on theme: "Warm-up What factors should be considered when determining the price of a product? Do you have a calculator with you? If you need one, take from bag on."— Presentation transcript:
1 Warm-upWhat factors should be considered when determining the price of a product?Do you have a calculator with you?If you need one, take from bag on my desk
2 Part of the Marketing Mix (Product, Price, Place, Promotion) Pricing StrategiesPart of the Marketing Mix(Product, Price, Place, Promotion)
3 Pricing Objectives Meeting a return on investment or profit Building TrafficAchieving market shareIncreasing salesCreating an imageSocial objectives
4 Pricing StrategiesThree major factors used when determining a price for a productDemandCompetitionCost
5 Markup Pricing Selling Price = Cost x (1 + mark-up percent) Example: Cost-Oriented Pricing Producers calculate the COST of making a product, then add preferred profitMarkup PricingCommonly used by wholesalers & retailersExpressed as a percentageSelling Price = Cost x (1 + mark-up percent)Example:Costs store $7Store seeks a 25 percent markupWhat will the selling price be?7 x 1.25 = 8.75
6 Example 2 Store buys for $12 Sells for $20 What is the mark-up? 20 – 12 = 88/12 = 66%
7 Cost-Plus Pricing Commonly used by manufacturers & service businesses Cost-Oriented Pricing Producers calculate the COST of making a product, then add preferred profitCost-Plus PricingCommonly used by manufacturers & service businessesExpressed as a $ amountExampleJob costs $200 to performAdd $100 as profitCharge $300 to the client= 300
8 Demand Oriented Pricing (Target Pricing) What are consumers willing to spend on a product or service?Price is set in relation to Demand & Supply of the product/serviceLimited SupplyHigh DemandHIGH PRICEPlenty SupplyLow DemandLOW PRICE
9 Product Line PricingPricing a product at various price levels in order to appeal to different segments of the marketExampleAppliance manufacturer creates a dishwasherSells in different versions (basic, midline, and premium)Different prices for each version to appeal to different segments of buyersTargeted at consumers for whom price is important in choosing the model of a product
10 Psychological Pricing Based on the theory that certain prices have a psychological impactRetail prices expressed as "odd prices“ or a little less than a round numberExamples$7.99 vs. $8.00$19.99 vs. $20.00$199 vs. $200
11 Remember these Pricing Strategies Three major factors used when determining a price for a productDemandCompetitionCostLaw of DemandPrice LiningPsychological PricingMarkup PricingCost-Plus Pricing
12 Competition-Oriented Pricing Three Possible Actions Price above competitionPrice below competitionPrice in line with competition (going-rate)
13 Pricing Policies & Product Life Cycle Introducing a new product Sets a HIGH priceUsed when competition is lowLower price after introductionSkimmingSets a LOW priceUsed to build market sharePrice raised laterPenetration
14 Other Price Strategies Everyday Low Pricing (EDLP)Setting prices lower than competitors and never having sales.High-Low StrategySet prices higher than EDLP stores but have many sales.
15 Other Price Strategies Loss LeaderSetting very low prices on certain items in order to build store traffic.Prestige PricingSetting a very high price to create an image of high quality.
17 Pricing Strategies Summary Three major factors used when determining a price for a productDemandCompetitionCostLaw of DemandPrice LiningPsychological PricingMarkup PricingCost-Plus PricingNon-price competitionQualityServiceRelationshipsSkimmingPenetrationGoing rate/in-line with competition
18 Unit Price one unit (P) – Variable cost one unit(VC) Break-Even AnalysisProcess used to determine profitability at various levels of sales.Total Fixed Cost (FC)Unit Price one unit (P) – Variable cost one unit(VC)Break-even point =Fixed Cost = Expenses that remain the same no matter how many units are sold.Variable Cost = Costs that change according to the level of production.Breakeven Point = Point at which sales equal all costs.
19 Determine the Break-Even Point Selling Price = $5Variable Cost = $3Fixed Cost = $50,000