1. PRICE PLANNING PART 2 Factors
Copyright, 1996 © Dale Carnegie & Associates, Inc.

2. Four Market Factors Affecting Price
Costs and Expenses
Supply and Demand
Consumer Perceptions
Competition
Costs and
Expenses

3. Responses to Declining Profit Margins
Change Prices
Change Package Sizes
Drop Features that aren’t Valued
Improving Products

4. Responses to Lower Costs/Expenses
Lower prices
Higher profits
Sales!

5. Break-even Points
The break-even point is the point at which sales revenue equals the costs and expenses of making and distributing a product. After reaching this point, businesses make a profit on additional sales.
Break-even Point = Total costs + expenses/Selling price

6. Supply and Demand
Demand for a product goes up as prices go down and demand goes down as prices go up.
If supply is low then prices tend to be high, if supply is high then prices tend to be low.

7. Action Plan
Describe the following (where additional information is needed assign responsibility to the logical person)
Action steps.
Materials needed.
Training needed.
Schedules.
Costs.

8. Demand Elasticity
Elastic Demand means that demand responds to price changes - high prices = low demand; low prices = high demand
Inelastic Demand means that change in price has little effect on demand.

9. The Law of Diminishing Marginal Utility
Consumers will only buy so much of a given product, even though price is low.
Consumers will usually purchase more at lower prices, but not a lot more than they really need or can afford, no matter how low the price.

10. What has Inelastic Demand?
GAS!
Staples
Water
Electricity
Cars
Tires
Oil

11. Factors Affecting Demand Elasticity
Availability of Substitutes
Price Relative to Income
Brand Loyalty
Luxury vs. Necessity
Urgency of Purchase

12. Consumer Perceptions
People pay a price according to their perceived value.
Higher price = Quality
Exclusivity
Customer Service

13. Competition
If consumers are price conscious then price competition is effective.
If consumer perceive the product is unique, price is not as much a factor.
Similar products must be very price competitive to sell their product.

14. Price War
When businesses lower prices to attract customers from the competition, sometimes to the detriment of profits.

15. Price Fixing
When competitors agree to a certain price range to charge customers
Price Fixing is illegal because it eliminates competition.
The Sherman Antitrust Act of outlawed monopolies.

16. Price Discrimination
When a company charges different prices to similar customers in similar situations.
Illegal - The Clayton Antitrust Act of 1914
The Robinson-Patman Act (1936)
You can’t charge small retailers more than large retailers or give large retailers special services not offered to small retailers.

17. When can Price Discrimination be Used?
When products purchased are different
If non-competing buyers are involved
If prices do not hurt competition
If costs justify the differences in prices
If production costs go up
If prices are changed to meet another supplier’s bid

18. Resale Price Maintenance
Manufacturers can’t tell retailers that they cannot sell below a certain price point. It is illegal for manufacturers to coerce retailers to sell at a particular price.
Manufacturers can tell retailers “in advance” that they can’t sell below a certain price, not “coerce”.

19. Minimum Price Laws
Some states have laws against retailers selling goods below cost.
Where there are no laws prohibiting it retailers have “loss leaders”. These are popular items priced below cost (at a loss) to entice customers into the store.

20. Unit Pricing Some states have laws requiring unit pricing.
Unit pricing is when a store puts on the price sticker how much the item is per unit (i.e. 2.3 cents per ounce)
Unit pricing allows consumers to comparison shop to get the best value.

21. Price Advertising FTC has guidelines for advertising prices.
A price reduction can only be advertised if the product was offered to the public at the regular price for a reasonable time.
You must be able to prove your prices are lower than a competitors to advertise it.
A regular price cannot be used for a reference point unless the item has actually sold for that price.
No bait-and-switch advertising.