1. Factors Affecting Price

2. Lesson Objectives What are the factors that affect the selling price of a product? What are legal and ethical considerations of pricing?

3. Costs and expenses »Break-even point

4. What is the break-even point? Point at which sales revenue equals costs and expenses. Total costs and expenses/selling price = break-even point

5. What would be the break-even point for a Baseball hat manufacturer making 100,000 hats @ $4.50 each, and selling them for $6.00 each? ($4.50 X 100,000)/$6.00 = 450,000/6.00 = 75,000 units

6. Costs and expenses – break-even point Consumer Demand – elasticity

7. What is elasticity? The degree to which demand for a product is affected by its price

8. DIMINISHING MARGINAL UTILITY HOWEVER… consumers will not buy indefinitely because a price is low. Other factors (income, taste and need) play a role in demand also.

9. Costs and expenses – break- even point Consumers’ Demand – elasticity Consumer perception – subjective Competition – price wars Government regulations

10. Government Regulations

11. Price Fixing Competitors agree on certain price ranges within which they set their own prices. Collusion – communication among competitors to establish a fixed price Made illegal by the Sherman Antitrust Act of 1890 because it eliminates competition

12. Price Discrimination Company charges different prices to similar customers in similar situations Made illegal by the Clayton Antitrust Act of 1914 because it creates unfair competition. Strengthened by the Robinson-Patman Act of 1936

13. Resale Price Maintenance Resulted in the establishment of the “Manufacturer’s Suggested Retail Price” (MSRP) Disallows manufacturers from forcing retailers to charge a specific retail price

14. Minimum Price Laws Enacted in some states to disallow retailers from selling below cost Where allowed, items priced at cost are called loss leaders. Purpose is to attract customers in hopes they will buy other items.

15. Unit Pricing Allows consumers to compare similar goods packaged in various sizes or forms by using a standard unit of measure

16. Price Advertising Laws established by Federal Trade Commission (FTC) Bait-and-switch illegal

17. Review What are some of the factors that affect pricing? What are some of the government regulations that affect pricing?