1. 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 my desk

2. Part of the Marketing Mix (Product, Price, Place, Promotion)
Pricing Strategies
Part of the Marketing Mix
(Product, Price, Place, Promotion)

3. Pricing Objectives Meeting a return on investment or profit
Building Traffic
Achieving market share
Increasing sales
Creating an image
Social objectives

4. Pricing Strategies
Three major factors used when determining a price for a product
Demand
Competition
Cost

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 profit
Markup Pricing
Commonly used by wholesalers & retailers
Expressed as a percentage
Selling Price = Cost x (1 + mark-up percent)
Example:
Costs store $7
Store seeks a 25 percent markup
What 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 = 8
8/12 = 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 profit
Cost-Plus Pricing
Commonly used by manufacturers & service businesses
Expressed as a $ amount
Example
Job costs $200 to perform
Add $100 as profit
Charge $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/service
Limited Supply
High Demand
HIGH PRICE
Plenty Supply
Low Demand
LOW PRICE

9. Product Line Pricing
Pricing a product at various price levels in order to appeal to different segments of the market
Example
Appliance manufacturer creates a dishwasher
Sells in different versions (basic, midline, and premium)
Different prices for each version to appeal to different segments of buyers
Targeted 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 impact
Retail prices expressed as "odd prices“ or a little less than a round number
Examples
$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 product
Demand
Competition
Cost
Law of Demand
Price Lining
Psychological Pricing
Markup Pricing
Cost-Plus Pricing

12. Competition-Oriented Pricing Three Possible Actions
Price above competition
Price below competition
Price in line with competition (going-rate)

13. Pricing Policies & Product Life Cycle Introducing a new product
Sets a HIGH price
Used when competition is low
Lower price after introduction
Skimming
Sets a LOW price
Used to build market share
Price raised later
Penetration

14. Other Price Strategies
Everyday Low Pricing (EDLP)
Setting prices lower than competitors and never having sales.
High-Low Strategy
Set prices higher than EDLP stores but have many sales.

15. Other Price Strategies
Loss Leader
Setting very low prices on certain items in order to build store traffic.
Prestige Pricing
Setting a very high price to create an image of high quality.

16. Non-Price Competition
Quality
Service
Relationship

17. Pricing Strategies Summary
Three major factors used when determining a price for a product
Demand
Competition
Cost
Law of Demand
Price Lining
Psychological Pricing
Markup Pricing
Cost-Plus Pricing
Non-price competition
Quality
Service
Relationships
Skimming
Penetration
Going rate/in-line with competition

18. Unit Price one unit (P) – Variable cost one unit(VC)
Break-Even Analysis
Process 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 = $5
Variable Cost = $3
Fixed Cost = $50,000