Price

What factors influence price? Class Brainstorm

Other names for price Rent Wage Commission Tuition Dues Salary Fee Bonus Interest

Factors which determine price Profit the company hopes to make Cost of doing business Laws Product positioning Consumer demand Competition

Activity (in small groups 1-3) Choose a product from the provided flyer or an item you find on your phone Evaluate the product and price List as many reasons as possible why the product costs that much

Goals of Pricing Making a profit or getting return on investment Gaining market shares Meeting the competition

Return on investment Is a calculation that is used to determine the relative profitability of a product 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛=𝑃𝑟𝑜𝑓𝑖𝑡÷𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 Example you sell watches to retailers for $9 each. They cost you $7.50 per unit to make and market. 𝑃𝑟𝑜𝑓𝑖𝑡=𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒−𝑐𝑜𝑠𝑡 or $9−$7.50=$1.50 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛=$1.50÷$7.50=.20 or 20%

Gaining Market Shares Sometimes a business will forgo making profit for such reasons as To gain market shares To change market position (their standing in comparison to their competitors)

Meeting the Competition Simply following the competitors lead

Mark Up (Also know as ROI) Why do retailers mark up the cost of a product from the manufacturer’s price? What do they use this extra money for? Is it all profit? What is Foot Locker’s ROI? Manufacturer sells a pair of sneakers to Foot Locker for $30 Foot Locker sells sneakers to the customer for $45 Customer is expected to pay $45 + tax

Activity (to be done individually) EB Games store buys a PlayStation 4 from the manufacturer for $350 and sells it to the customer for $429.99. What is the ROI EB Games uses to determine the selling price? Suppose the manufacturer changes the price to $300, calculate the new mark up

Variable Costs Are costs that go up or down depending on the amount of product made or service provided

Fixed costs Are costs that never change regardless of how many products are produced by a company

Gross Profit Is the money left over after raw materials and packaging have been paid for 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡=𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒−𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠

Break-Even Analysis Is the first step in calculating the price at which to sell a product or service to determine how many units must be sold at a given price to cover operating costs such as rent, salaries, etc.

Activity (in small groups) Look at the companies listed at the end of today’s worksheet. List variable and fixed costs they would have. We will then share our answers with the class, each group is expected to share their answers.