The Definition of Price

The Price is Right Match the SUV in the product column with its corresponding MSRP in the price column: What are the features, options, or other differentiations in each SUV that warrants a difference in prices? Product 1.Hummer H2 2.Dodge Durango 3.GMC Envoy 4.Ford Explorer Price A. $27,010.00 B. $26,285.00 C. $48,455.00 D. $28,645.00

Correct Answer: A Base MSRP- $26,285.00 Ford Explorer Correct Answer: A Base MSRP- $26,285.00

Correct Answer: B Base MSRP- $27,010.00 Dodge Durango Correct Answer: B Base MSRP- $27,010.00

Correct Answer: D Base MSRP- $28,645.00 GMC Envoy Correct Answer: D Base MSRP- $28,645.00

Correct Answer: C Base MSRP- $48,455.00 Hummer H2 Correct Answer: C Base MSRP- $48,455.00

Objectives Define Price. Describe the functions of pricing. Identify the importance of price. Discuss the goals of pricing. Describe the factors involved in price planning.

What is Price? Price is the value of money (or its equivalent) placed on a good or service. It is usually expressed in monetary terms. Price is involved in every marketing exchange. Price is the actual cost and the methods of increasing the value of the product to the customers. The oldest form of pricing is the barter system—the exchange of a product or service for another product or service, without the use of money.

What is Price? Price is such an important part of marketing that it is one of the four elements of the marketing mix. As one of the seven functions of marketing, pricing is defined as establishing and communicating the value of products and services to prospective customers. When planning any marketing activity, business people must consider the impact of the cost to the business, the price customers must pay, and the value that is added to the product or service as a result of the activity.

The Importance of Price Price is directly involved in the success or failure of a business. Price is involved in every marketing exchange. It helps establish and maintain a firm's: image competitive edge profits

The Importance of Price To a Company’s Image Many customers use price to make judgments about products and the companies that make them. A higher price means a better quality from an upscale store or company to some customers; to other customers, a lower price means more for their money. Price is a vital component of a business’s image.

The Importance of Price To a Company’s Competitive Edge Price is sometimes the main thrust of a firm’s advertising strategy. Some retailers stress that they offer the lowest prices in town or promise that they will beat any other store’s prices. In such cases, price plays an important role in establishing the edge a firm enjoys over its competition.

The Importance of Price To a Company’s Profits Price helps determine profits. Marketers know that sales revenue is equal to price multiplied by the quantity sold. Sales revenue can be increased either by selling more items or by increasing the price per item, in theory. The number of items sold may not increase or even remain stable if prices are raised.

The Importance of Price To a Company’s Profits An increase in the price of an item may not produce an increase in sales revenue. Why is this true? Are you more likely to buy a higher priced item or a lower priced item? Price per Item x Quantity Sold = Sales Revenue $50 200 $10,000 $45 250 $11,250 $40 280 $11,200 $35 325 $11,375 $30 400 $12,000 $25 500 $12,500

The Goals of Pricing Marketers’ pricing goals include: Gaining market share/ increase sales Achieving a certain return on investment/ maximize profits Meeting the competition Maintain an image

Gaining Market Share/ Increasing Sales A business may engage in price competition to take market share from its competitors, forgoing immediate profits for long-term gains in market share. Sales-based pricing objectives result in prices that achieve the highest possible sales volume. Prices usually will be quite low to encourage customers to buy.

Achieving Return on Investment/ Maximizing Profits Return on investment is a calculation used to determine the relative profitability of a product. The formula for calculating return on investment is ROI = Profit / Investment Companies often price products to produce a certain return on investment. Companies that seek to maximize profits carefully study consumer demand and determine what customers in the target market are willing to pay for their products.

Meeting the Competition Some companies simply aim to meet the prices of their competition, either by following the industry leader or meeting the industry average. Example: Automobiles and soft drinks have similar prices and compete based on other factors.

Maintain an Image Companies can use the prices of products to create an image for the product or company. Some consumers believe that price and quality are related, that higher prices mean better quality while lower prices suggest poorer quality. Also, companies trying to appeal to cost-conscious customers need to keep their prices as low as or lower than competitors’ prices.

Factors Involved in Price Planning Market Factors Affecting Prices Pricing decisions are not necessarily easy. Most price planning begins with an analysis of costs and expenses, many of which are related to current market conditions. An organization's goals also must be considered.

Factors Involved in Price Planning Costs and Expenses Businesses constantly monitor, analyze, and project prices and sales in the light of costs and expenses because sales, costs, and expenses together determine a firm's profit.

Factors Involved in Price Planning Responses to Declining Profit Margins When profits decline, some businesses increase price. Others feel that price is so important in the marketing strategy of a product that instead of making price changes, they will change the product to maintain profit margin.

Factors Involved in Price Planning Responses to Lower Costs/Expenses Prices may occasionally be lowered because of decreased costs and expenses. Improved technology and less expensive materials may help create better-quality products at lower costs.

Factors Involved in Price Planning Break-Even Point The break-even point is the point at which sales revenue equals the costs and expenses of making and distributing a product. This is especially important to consider when marketing a new product or establishing a new price.

Factors Involved in Price Planning Consumer Perceptions Price planning is affected by the following consumer perceptions about price: Some consumers equate quality with price. Some consumers are willing to pay more for status, prestige, and exclusiveness, as well as extra services. Subjective price is the price consumers see as the value they are getting for the price.

Factors Involved in Price Planning Competition Price must be evaluated in relation to the target market and is one of the four Ps of the marketing mix. Companies can compete with: price competition—offering lower prices nonprice competition—attracting customers with prestige, service, or quality

Factors Involved in Price Planning Competition Marketers change prices to reflect: Consumer demand Cost Competition Similar products sometimes differ only in price, so when one company changes its prices, others usually react. Sometimes price wars produce financial losses that can ruin businesses.

Factors Involved in Price Planning Government Regulations Affecting Price Federal and state governments have enacted laws regarding: price fixing price discrimination resale price maintenance minimum pricing unit pricing price advertising

Factors Involved in Price Planning Government Regulations Affecting Price Price fixing occurs when competitors agree on certain price ranges within which they set their own prices. Price discrimination occurs when a firm charges different prices to similar customers in similar situations.

Factors Involved in Price Planning Government Regulations Affecting Price Resale price maintenance occurs when a manufacturer forces retailers to sell an item at a minimum price. Minimum price laws prevent retailers from selling goods below cost plus a percentage for expenses and profit. Some states do not have minimum price laws and allow loss leaders, items sold at cost to attract customers.

Factors Involved in Price Planning Government Regulations Affecting Price Unit pricing allows consumers to compare prices in relation to a standard unit or measure, such as an ounce or a pound. The Federal Trade Commission (FTC) price advertising guidelines forbid fraudulent and misleading pricing advertisements.

Pricing Concept Checkpoint 1. What is bartering? 2. Why is price an important factor in the success or failure of a business? 3. Name three goals of pricing in addition to making a profit. 4. Distinguish between market share and market position. 5. Define and show the formula for return on investment.

Pricing Concept Checkpoint 6. Name four market factors that affect price planning. 7. In response to increased costs and expenses, what three pricing options might a business consider to maintain their profit margins? 8. What is demand elasticity, and how does it apply to the theories of supply and demand? 9. What is the difference between price fixing and price discrimination? What laws govern each?