1. Objective 3.03 Employ Pricing Strategies to Determine Prices

2. What is a pricing objective?
A goal that guides a business in setting the cost of a product or service to potential consumers.
A pricing objective underlies the pricing process for a product, and it should reflect a company's marketing, financial, strategic and product goals, as well as consumer price expectations and the levels of available stock and production resources.
A sporting event setting ticket prices based on potential customers' ability to pay is an example of a price
Objective

3. When a hockey team sets its ticket prices so it can achieve its goal of increasing its fan base by five percent, the hockey team is establishing a price objective in conjunction with a __________ goal.
Sales

4. A college athletic department sets the football ticket prices so that the organization earns income of $12 per ticket after covering expenses. This is an example of a price objective based on
Profits

5. 6 Steps to Setting a Price Strategy for your Business
1. Select the pricing objective to decide where you want to position your market offering. 2. Determine the demand. 3. Estimate the costs. 4. Analyze competitor costs, prices, offers and possible reactions. 5. Select a pricing method. 6. Finally, select the price
A professional football team that increases ticket prices for next season because the team is on a winning streak is selecting a pricing strategy based on
market

6. What Is the Break-Even Point?
A business reaches its break-even point when its total sales income at a given selling price equals its total costs.

7. Components of Break-Even
Costs
Fixed costs
Examples: taxes, rent or mortgage payments, equipment payments or leases, wages and salaries, insurance, etc.
Variable costs
Examples: cost of goods, promotional costs, sales tax, raw materials, business travel,
Semi-variable costs -Vary to some extent in response to sales
Should be assigned as either fixed or variable for the purpose of calculating break-even

8. Components of Break-Even
Profit and loss
A business does not make a profit until it has passed the break-even point—when total sales revenues are greater than total costs.
What do sales beyond the break-even point provide to a business?
Profit

9. Why Calculate Break-Even?
Calculating the break-even point can serve a number of purposes for a business.
Setting Prices
Relocation of Business
Determining Capital Needs
Offering Incentives

10. Break-Even in Units
Calculating break-even in units determines how many products a business must sell to break even.
Why do sportswear stores calculate break-even in units?
To determine how many products they must sell to break even

11. Calculating Break-Even
A basic formula for calculating break-even for a product is:
BP = FC ÷ VCM
BP—break-even point FC—total fixed costs VCM—variable-cost margin

12. How many hot dogs does vendor need to sell to break even?
The vendor’s fixed costs include a $25 license and $100 for equipment rental.
Variable costs are estimated to be $50 for twelve dozen (144) hot dogs and buns, as well as condiments.
The hot dogs will sell for $1.50 each.
$25 + $100 = $125
$50 ÷ 144 = $0.35
$ $0.35 = $1.15
BP = $125 ÷ $1.15 = 108.7

13. Break-Even in Dollars Break-even can also be expressed in dollars:
After you calculate the number of units you need to sell to break even (109 for the hot dog vendor), multiply that number by the selling price per unit ($1.50 for each hot dog).
This figure is the total dollar sales you need to make to break even.
In the case of the hot dog vendor, s/he needs to make $ in sales to break even:
109 × $1.50 = $163.50

16. Location of store Promotional strategy Competitor prices
Which of the following is the least important factor when selecting a pricing strategy:
Promotional strategy
Competitor prices
Cost of merchandise
Location of store
Location of store

17. performance, which is a(n) __________ factor.
When setting ticket prices for professional baseball games, the organization considers the team's
performance, which is a(n) __________ factor.
situational

18. What is the break-even price per item?
A business purchases a line of items for resale that cost $12.32 each. Expenses total $1.65 per item.
What is the break-even price per item?
$13.97

19. How many cushions must the company sell to break even?
A business decides to produce 10,000 football cushions and sell them for $5.00 each. They cost the company
$3.00 each to produce.
How many cushions must the company sell to break even?
6,000

20. once-in-a-lifetime event? To generate higher ticket prices
Why would an event marketer promote an upcoming celebrity golf tournament at an exclusive course as a
once-in-a-lifetime event?
To generate higher ticket prices

22. Pricing Strategies
Penetration pricing in the introductory stage of a new product's life cycle involves accepting a lower profit margin and pricing relatively low.
Price skimming involves setting the price relatively high to generate a high profit margin.
Premium product generally supports a skimming strategy.

23. Product Mix Pricing Strategies
The product mix is the collection of products and services that a company chooses to offer its market.
Pricing strategies range from being the cost leader to being a high-value, luxury option for consumers.
Cost Plus
Competition Based

24. Discounts and Allowances
Clearance/Closeout Markdowns
to get rid of slow-moving, obsolete merchandise
Promotional Markdowns
To increase sales and promote merchandise
If your goal is to avoid storing or discarding merchandise, what pricing strategy should you select?
Clearance/Closeout Markdowns

25. Psychological Pricing Strategies.
Odd-even pricing
setting prices in odd numbers just below an even price, to make the price appear considerably lower than it is.
Prestige pricing
prices are inflated in order to create a sense of greater value giving the impression that it is a better product.
Promotional pricing
a price is temporarily lowered in order to attract customers.

26. Psychological Pricing Strategies
Multiple pricing
items are bundled together, such as two for $5 rather than $2.50 per item creating a sense of value
Geographical pricing
variations in price in different parts of the world.
Segmentation Pricing
offer the same basic product, but add features that customers are willing to pay for or remove.

27. Price Ceilings and Floors
highest price that is allowed to be charged to survive in an economy,
Price floor
while the price floor is the lowest possible price

28. Demand 2 Types of Demand inelastic elastic inelastic
Demand that increases or decreases as the price of an item goes down or up
inelastic
A situation in which the demand for a product does not increase or decrease correspondingly with a fall or rise in its price.
An increase in ticket prices is most accepted by fans if a sport has a(n) __________ demand for tickets.
inelastic

29. Demand forecasting
Demand forecasting is estimating the quantity of a product or service that consumers will purchase and involves techniques including:
informal methods
such as educated guesses
quantitative methods
use of historical sales data or current data from test markets.

31. A soccer camp provides five leaders at $8 per hour for eight hours a day for five days. If fringe benefits are 20% of the wages and supplies total $650, calculate the cost per person if 40 players attend.
$64.25

32. Calculate the total dollar sales the business needs to break even.
A product's selling price is $430 per unit, and the number of units required to reach the break-even point is 2,100.
Calculate the total dollar sales the business needs to break even.
$903,000

33. Given the following information, calculate the break-even point in dollars:
Total fixed costs = $20,000
Unit selling price = $100
Unit variable cost = $60
BP = FC ÷ VCM
50000

34. variable cost per unit, $20 selling price per unit, $100.
Determine a firm's break-even point in units, given the following information:
total fixed cost, $4,000
variable cost per unit, $20
selling price per unit, $100.
BP = FC ÷ VCM
50 units