Opening Question One sheet of notebook paper for table You will use for opening question and an activity later on Question: How does distribution impact the prices that consumers pay?

Unit 7: Pricing Products CHAPTER 14 10/12/2018 Unit 7: Pricing Products Mrs. Brink Marketing Principles MARKETING

Today’s Topics… Defining price Economics and Pricing Unethical pricing

Price as a Marketing Tool The importance of price What is price? is the value of money (or its equivalent) placed on a good or service It is involved in EVERY marketing exchange

Pricing as an Economic Concept Economic utility Effects how consumers view the value of a product Elasticity of demand Elastic: products effected by changes in pricing—higher price customers usually buy less Inelastic: products not effected by changes in pricing—people will still buy despite changes in price

Supply and Demand Affect Price At a price of $3, demand (90) is greater than supply (30). At a price of $7, supply (90) is greater than demand (30). At a price of $5, supply equals demand (60), and the market is in equilibrium.

Inelastic Demand Price of a Dozen Eggs Quantity Sold Total Revenue $0.65 305 $198.25 $0.68 300 $204.00 $0.71 292 $207.32 $0.74 285 $210.90 $0.77 277 $213.29 $0.80 264 $211.20

Elastic Demand Price of a Gallon of Ice Cream Quantity Sold Total Revenue $3.65 180 $657.00 $3.70 165 $610.50 $3.75 158 $592.50 $3.80 147 $558.60 $3.85 136 $523.60 $3.90 122 $475.80

Government’s Effect on Prices Regulating competition Competition creates lower prices NO MONOPOLIES unless created by the government Regulating prices Laws and regulations Taxation Local, State, Federal Can reduce sales or help increase sales

Unethical Pricing What is ethics? Price Fixing: companies come together and agree on a price Bait and Switch: cannot lure people in with low price product and then not have them available False Price Advertising: cannot mislead about price in ads Price Discrimination: manufacturers have to sell for a standard rate to businesses Price gouging: seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable

Table Activity Work with your group to find a company that has been accused of unethical pricing practices. Answer the following questions: What company is being accused of being unethical? How where they using unethical pricing practices? How might this impact the business? Next activity: Comparison Shopping

Developing Prices

Steps to Developing Prices Setting an objective Determining a price range Selecting a strategy DO THE MATH!

Setting Price Objectives Set goals for pricing based on one of the following Maximize profits Increase sales Maintain an image Survival Market Share

Determining a Price Range Once you set a goal have to determine a price range: Maximum price: highest price the target market will accept Minimum price: the lowest price that does not allow the business to lose money This is done by looking at current product offering and competition!

Pricing Strategies Based on… the stage in product lifecycle Brand value Competition!

Product Life Cycle Delete or Reinvent Maturity Decline Growth Introduction Delete or Reinvent What do we do when a product declines? How does this impact price?

Pricing Strategies Assignment! You will work with group to complete assignment Write down your assigned strategy on handout Divide and conquer! Come up with a plan for tomorrow!

Strategies Assignment Table 1 —Skimming Pricing Table 2—Mark-Up Pricing Table 3—Penetration Pricing Table 4—Premium Pricing Table 5—Time-Based Pricing Table 6—Target Pricing Table 7—Odd Pricing Table 8—Bundle Pricing Edmodo

The Math of Pricing

When Pricing a Product We must know the costs of a product How much the materials cost How much it costs to manufacture How much it costs to distribute Fixed Costs: business costs that are constant whatever the quantity of goods or services produced. Variable Costs: a cost that varies with the level of production

TOTAL COSTS = TOTAL REVENUE Breaking Even Most of the time marketers start by finding a break even point The price and quantity at which you do not make money but you do not lose money TOTAL COSTS = TOTAL REVENUE

Let’s Take a Break! Breaking Even Activity Total fixed cost Price – Variable costs per unit Chapter 14

Sample Activity Jane owns a flower company. She knows that she wants to sell her new product for $14.00 and that her total fixed cost are $85,000. Her variable costs per unit are $2.80. What is her break even point? Answer: 7,589 at $14.00 @$10 @$18

Breakeven Analysis for New Gardening Product Variable Total Units Costs Variable Fixed Total Total Sold per Unit Costs + Costs = Costs Price Revenue 5,522 $2.80 $15,462 + $85,000 = $100,462 $14 $77,308 6,054 $2.80 $16,951 + $85,000 = $101,951 $14 $84,756 6,998 $2.80 $19,594 + $85,000 = $104,594 $14 $97,972 7,589 $2.80 $21,249 + $85,000 = $106,249 $14 $106,246 8,225 $2.80 $23,030 + $85,000 = $108,030 $14 $115,150 9,110 $2.80 $25,508 + $85,000 = $110,508 $14 $127,540

Mark Up Pricing Mark Up Pricing is used in combination with other pricing strategies “What’s your mark up?” Take cost of item and add on a % Sales Price = Cost x Markup Percentage + Cost Mark up %=(Price-cost)/cost

Examples of Mark Up For Example: Example 2: Snickers bar at cost is $0.48 Add on a 100% mark up $0.48+ $0.48=$0.96 Add on Odd Pricing--$0.99 Example 2: Cost to product iPhone Costs $200 Mark up 350% What is the sales price?

Profit The amount of the price that is profit Revenue-Cost of goods=profit Price of item-cost of item=profit margin= Margin means 1 UNIT Example: An iPhone costs $200 to make and the price of the item is $700. What is the profit margin? Revenue from iPhone 5 was 54 billion and costs of goods was 33 billion. What was the profit?

Mini Project Individual “Mini Project” ON THE WEBSITE This is a formal MLA report Cover page, Subheadings Company Ideas: Target Nike Macy’s BMW Apple Michael Khors Cover Girl REI Chick-Fil-A McDonalds

Pricing Services

What are we paying for with services? The products used to complete the service The person performing the service PERCEIVED VALUE OF SERVICE

Covering Costs with Prices Price of a service must cover Materials Labor costs People working Overhead Fixed costs

How to charge for services Hourly Rate Best for services that don’t require a lot of materials Typical for consulting businesses Should be based on experience and should cover travel Flat Fee Charging the same fee no matter the time invested Sometimes include additional fees to compensate Variable Pricing Using a combination of hourly and flat Most times this is used with a service will take over a certain amount of time

Now it is your turn!