Pricing April 13, 2016 How much will I charge for MILK? What is Price? What is Unit Comparison? (Give an example) Bell Work:

Pricing ROI & Breakeven Break Even - a point in a business venture when the profits are equal to the costs

April 16, 2015 Pricing Concepts  The three basic pricing concepts involving cost, demand, and competition  The concepts of pricing forward vs. pricing backward  The idea of one-price policy vs. a flexible- price policy  The two polar pricing policies for introducing a new product

Why It's Important After deciding on pricing goals, marketers must establish pricing strategies that are compatible with the rest of the marketing mix.

 markup  cost-plus pricing  one-price policy  flexible-price policy  skimming pricing  penetration pricing

There are three basic pricing concepts that you will want to consider in determining the price for any given product:  cost-oriented pricing  demand-oriented pricing  competition-oriented pricing

Pricing Concepts In cost-oriented pricing, marketers first calculate the costs of acquiring or making a product and their expenses of doing business; then they add their projected profit margin to these figures to arrive at a price. Two common methods are:  markup pricing  cost-plus pricing

Pricing Concepts Cost-Oriented Pricing Cost-plus pricing is used by manufacturers and service companies. Price = all costs + all expenses (fixed and variable) + desired profit Markup pricing is used primarily by wholesalers and retailers who are involved in acquiring goods for resale. The markup must cover the business’s expenses. Price = cost + markup (as percentage)

Pricing Worksheet What is the markup? What is the Cost?

Marketers who use demand-oriented pricing attempt to determine what consumers are willing to pay for given goods and services. Demand-oriented pricing is effective when:  there are few substitutes for an item  there is demand inelasticity

Marketers who study their competitors to determine the prices of their products are using competition-oriented pricing. These marketers may elect to take one of three actions:  price above the competition  price below the competition  price in line with the competition (going-rate pricing) Tender Pricing

A basic pricing decision every business must make is to choose between a one-price policy and a flexible-price policy.  A one-price policy is one in which all customers are charged the same price for the goods and services offered for sale.  A flexible-price policy permits customers to bargain for merchandise.

A business may elect to price a new product above, in-line, or below its competitors. When a going-rate strategy is not used, two polar methods may be used:  skimming pricing  penetration pricing

Pricing Concepts Skimming pricing is a pricing policy that sets a very high price for a new product to capitalize on the initial high demand for a new product.  Advantages: High profit margin; may cover research and development costs.  Disadvantages: Cost must eventually be lowered; attracts competition; if price is too high no one buys. New Product Introduction

Penetration pricing sets the initial price for a product very low to encourage as many people as possible to buy the product. Advantages: Quick market penetration; can capture a large market; blocks competition. Disadvantages: Low demand leads to big losses. New Product Introduction

16 SECTION 26.1 Pricing Concepts Pricing during subsequent periods in a product's life cycle will be determined by which pricing method was originally used— skimming or penetration. At each phase of the life cycle, pricing strategies will work to extend the product's life cycle. Other Product States

A SSESSMENT Reviewing Key Terms and Concepts 1. Name the two most common methods of cost-oriented pricing. 2. Explain how cost-oriented, demand- oriented, and competition-oriented pricing concepts can be combined to determine price. 3. What two methods may manufacturers use when considering the price to charge wholesalers and retailers? How do they differ? Slide 1 of 2

A SSESSMENT Reviewing Key Terms and Concepts 4. What is the difference between a one- price policy and a flexible-price policy? 5. Name and explain two polar pricing methods that may be used when a new product is introduced into the market. Slide 2 of 2

A SSESSMENT Thinking Critically Would you use skimming pricing or penetration pricing to introduce a new cookie called Coconut Surprise? Why?

20 Marketing Essentials End of Section 26.1