1. 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?

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

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

4. 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

5. 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

6. 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.

7. Inelastic Demand Price of a Dozen Eggs Quantity Sold Total Revenue
$ $198.25
$ $204.00
$ $207.32
$ $210.90
$ $213.29
$ $211.20

8. Elastic Demand
Price of a
Gallon of Ice Cream Quantity Sold Total Revenue
$ $657.00
$ $610.50
$ $592.50
$ $558.60
$ $523.60
$ $475.80

9. 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

10. 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

11. 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

12. Developing Prices

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

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

15. 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!

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

17. 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?

18. 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!

19. 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

20. The Math of Pricing

21. 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

22. 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

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

24. 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

25. 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, $85,000 = $108,030 $14 $115,150
9,110 $2.80 $25, $85,000 = $110,508 $14 $127,540

26. 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

27. 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?

28. 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?

29. 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

30. Pricing Services

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

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

33. 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

34. Now it is your turn!