1. 9.01 Explain factors that affect pricing.
9.00 Explain pricing strategies for making effective pricing decisions.
9.01 Explain factors that affect pricing.
D. MARKETING A SMALL BUSINESS

2. Pricing Terms
Price: The amount charged to customers in exchange for goods and services.
Price communicates value to customers and profit to business owners.
Market Price: The price that prevails in the market for a particular good at a specific time.
For example, the price of gasoline posted at the gas stations around your town reflects the market price.

3. Factors that affect price
Costs
Fixed Costs: Costs that remain constant over a period of time regardless of sales volume.
Insurance
Rent/Mortgage
Salaries
Depreciation
Variable Costs: Costs that vary based on sales volume or changes in business needs.
Commissions
Advertising
Office Supplies
Utilities

4. Factors that affect price
Competition
A rivalry between two or more businesses for scarce consumer dollars.

5. Classifications of Competition
Direct Competition: Competition between businesses that have similar formats and sell similar products.
McDonald’s & Burger King
Coke & Pepsi
Hilton & Marriott
Nike & Reebok
Indirect Competition: Competition between businesses that have dissimilar formats and sell dissimilar products.
A movie theatre & the mall
A restaurant & miniature golf course
An airline & a cruise line

6. Opportunity Costs
The option that is given up when a consumer chooses one product/service over another.
For example, if someone chooses airline travel instead of a cruise, the opportunity cost is not taking the cruise.

7. Two major types of competition
Price Competition: Using price as a means to attract customers.
Non-Price Competition: Using factors other than price as a means to attract customers. Examples: quality, customer services, business image

8. Factors that affect price
Supply and Demand
Demand: The number of products consumers are willing to buy at a given time and at a given price.
Supply: The number of products manufacturers are willing to produce at a given time and at a given price.

9. Factors that affect demand
utility
price
advertising
personal selling
display
fashion
consumer wants/needs

10. Factors that affect supply
cost of production
price
consumer demand
profit goals
competition
government controls
new technology

11. Elastic Demand
A product is said to have elastic demand if demand for the product is sensitive to a change in price.
Non-essential products such as entertainment, specialty foods, fashion

12. Inelastic Demand
A product is said to have inelastic demand if demand for the product is not sensitive to a change in price.
Necessities such as gasoline, milk, bread, electricity

13. Other factors that affect price
Economic conditions: Economic health affects price by affecting consumer buying power.
Government regulation: There are federal, state and local laws that can have an affect on how a business owner must price products.
Channel members: Intermediary fees reach the customer by affecting the cost of products to resellers.
Company Objectives/Strategies: Planners must examine the goals of a company and consider the many elements that interact to make businesses successful.