“Price” Marketing Tool Pricing Strategies Calculate Price Discounts & Allowances Unit 5

Can create __________ Determines amount of __________ Adjustable and Adaptable Combats Competition Helps Increase Sales Business Goal in Setting Price: Maximize Profit Achieve Highest Sales Support the company image Price is a Marketing Tool Conflicting?

Finding a Price Like a tug-of-war between buyers and sellers  Buyers—  Sellers— Goal = finding balance and satisfying both groups

Total Cost $15.00 $25.00 Profit Maximum price customer will pay Minimum price company can charge Operating Expenses Production Costs $40.00 $40 Product’s Price Range $15.00 $ Selling Price RANGE How do businesses find the maximum price that customers will pay?

Importance of Pricing Motivates customers to buy. Covers the costs of doing business. Impacts how much profit the business makes. Helps decide when to adjust prices.

Break Even Point: the quantity that must be sold at a specific price for total revenues = total costs. (see next slide) Price Calculations COST = amount to be paid in order to get something. SELLING PRICE = Cost + Desired Profit (Markup Amount) MARKUP = Cost x Markup % (add this amount to cost for selling price) MARKDOWN = Selling Price x Markdown % (subtract this amount from selling price to get sale or discount price) NET PROFIT = Selling Price – Product Costs/Expenses $ or %

Importance of Pricing

Quantity RevenueRevenue Variable Costs Fixed Costs Break Even Bake Sales Expenses Profit

Cost-plus – Take the cost of making the product & add a % for profit; simplest. Loss Leader – product selling at or below cost to motivate people to come to store. Predatory – aggressively low pricing intended to drive out competitors; illegal? Skimming – position as high price in the product category for quicker __________. Pricing Strategies #1

Penetration – set artificially low to gain market share; then creep back up. Prestige or Premium – unique product that has perceived value; luxury items. Psychological - $99.99 (not $ ) Product Line – reflects the benefits of range (Ford cars = economy, midrange, & luxury) Captive Product – razor is sold cheap but the blades to fit are expensive. Pricing Strategies #2

Product Bundle – combine more than 1 product in same package; adds value and moves slower sellers. Promotional – “buy 1 get 1 free”, discounts Geographic – shipping & taxes added to price Value – during recession or intense competition; “more for your dollar” deals Pricing Strategies #3

Discounts and Allowances Quantity discount Seasonal discount Cash discount Trade discount Trade-in allowance Advertising allowance Coupon vs Rebate