1. Pricing and Strategies
Section 5.2

2. Pricing
Price: the value placed on the goods or services being exchanged

3. Pricing and Profit
Price is important in a business because it helps determine a companies profit or loss
A company sells 1,000 baseball bats
They are sold at $175
The company bought them for $90 each
Cost of goods sold equals $90,000
Cost of operating business is $60,000
How much profit did they make?

4. Pricing and Profit
$175,000-$150,000
$25,000 in profit

5. Pricing and the Marketing Mix
What a person in the target market is willing to pay becomes a major question
Lower price attracts value oriented
Higher price attracts serious buyers

6. Pricing Considerations and Strategies
Consumer Perception
Many consumers believe the higher the priced item the better the quality
A very good quality product at a low price may not sell as well as it would at a higher price
Attract people that have this perception

7. Consumer Perception
Prestige Pricing: pricing based on consumer perception
Very expensive sports watches, sports equipment, apparel priced above the average market price to attract customers who may judge a product’s quality by its price

8. Consumer Perception
Odd-even pricing: pricing goods with either an odd number or an even number to match a product’s image
$ Odd pricing indicates “bargain”
$100 Even priced items reflect a quality item

9. Consumer Perception
Target Pricing: pricing goods according to what the customer is willing to pay
Manufactures estimate this price and then work backward to determine how much to charge wholesalers and retailers

10. Demand Demand is related to price in many ways
High demand and limited supply=price will be high
Popular sporting events
Limited edition baseball cards
Low demand and a lot of supply of the product=price will decrease
Lower the price of the item to increase the demand for it
Retailers do at the end of the season to get rid of merchandise

11. Demand
As a general rule, demand will be lower for a higher-priced item, because fewer people can afford to buy it

12. Cost
The price of an item must be higher than the cost a business paid for it
Two pricing strategies
Markup: the difference between the retail or wholesale price and the cost of an item
Must be high enough to cover expenses and ensure a profit

13. Cost
Cost-plus pricing: pricing products by calculating all costs and expenses and adding desired profit
The cost of making the item or providing the service is determined first

14. Newness of the Product
When introducing a new product, a company may decide to price the item high to recover the costs of development
Or they may price the product low to stimulate demand

15. Competition
Businesses find out what their competitors are charging for the same items they are selling
If a company does not want to compete on price they use non-price competition
Competition between businesses based on quality, service and relationships

16. Pricing Objectives and Strategies
Pricing objectives are the goals that a company wants to achieve through pricing
Two common pricing objectives involve
Increasing profit
Improving market share

17. Profit Objective
A company usually has an objective to earn a higher profit
Sometimes costs increase but a company knows that it cannot increase the price
Introduce surcharges
Reduce some unneeded features or size of the product

18. Market Share Objective
Market Share: the percentage of the total sales of all companies that sell the same type of product
Gatorade
80% market share of sports drink industry

19. Special Pricing Strategies
Price Lining: selling all goods in a product line at specific price points
$39.99, $59,99 and $79.99
Makes it easier for customers to make purchasing decisions

20. Special Pricing Strategies
Loss-leader pricing: pricing an item at cost or below cost to draw customers into the store
They will then buy other products while at the store
Total of shopping visit will more than cover money lost on lost leader item

21. Special Pricing Strategies
Yield-Management Pricing: pricing items at different prices to maximize revenue when limited capacity is involved
Some seats being priced higher than others
Best seats cost more
Tiered Pricing: charging more for tickets to home games against more competitive opponents

22. Price Adjustments and Regulations
Discounts and Allowances: may be used to change a published price
Offer discounts for buying in large quantities
Or buying prior to the buying season
Regulatory Factors
Sherman Anti-Trust Act
Prohibits price fixing and predatory pricing
Price Fixing: illegal practice whereby competitors conspire to set the same prices
Predatory Pricing: setting a very low price in order to drive competition out of business

23. Pricing Regulations
Price Discrimination: The practice of charging different prices to similar buyers
Is legal as long as the price discrimination does not lesson competition
Was originally prohibited by the Clayton Act