“Price”

Marketing ToolPricing StrategiesCalculate PriceDiscounts & Allowances

Unit 5

Can create __________ Determines amount of __________ Adjustable and Adaptable Combats Competition Helps Increase Sales

Business Goal in Setting Price:Maximize ProfitAchieve Highest SalesSupport the company image

Price is a Marketing Tool

Conflicting?

Finding a PriceFinding a Price

• Like a tug-of-war between buyers and sellers

Buyers—

Sellers—

• Goal = finding balance and satisfying both groups

Total Cost

$15.00

$25.00

Profit

Maximum price customer will pay

Minimum price company

can chargeOperating Expenses

Production Costs $40.00

$40

Product’s Price Range

$15.00

$100.00

RANGE

How do businesses find the maximum price that customers will pay?

Importance of Pricing • Motivates customers to buy.• Covers the costs of doing business.• Impacts how much profit the business makes.• Helps decide when to adjust prices.

Break Even Point: the quantity that must be sold at a specific price for total revenues = total costs. (see next slide)

Price CalculationsPrice Calculations• COST = amount to be paid in order to get something.• SELLING PRICE = Cost + Desired Profit (Markup Amount)• MARKUP = Cost x Markup % (add this amount to cost for selling price)• MARKDOWN = Selling Price x Markdown % (subtract this amount from selling price to get sale or discount price)• NET PROFIT = Selling Price – Product Costs/Expenses

Importance of Pricing

Quantity

Revenue

Variable Costs

Fixed Costs

Break Even

Bake Sales

Profit

Cost-plus – Take the cost of making the product & add a % for profit; simplest.

Loss Leader – product selling at or below cost to motivate people to come to store.

Predatory – aggressively low pricing intended to drive out competitors; illegal?

Skimming – position as high price in the product category for quicker __________.

Pricing Strategies #1Pricing Strategies #1

Penetration – set artificially low to gain market share; then creep back up.

Prestige or Premium – unique product that has perceived value; luxury items .

Psychological - $99.99 (not $1000.00) Product Line – reflects the benefits of range (Ford

cars = economy, midrange, & luxury) Captive Product – razor is sold cheap but the

blades to fit are expensive.

Pricing Strategies #2Pricing Strategies #2

Product Bundle – combine more than 1 product in same package; adds value and moves slower sellers.

Promotional – “buy 1 get 1 free”, discounts Geographic – shipping & taxes added to price Value – during recession or intense competition;

“more for your dollar” deals

Pricing Strategies #3Pricing Strategies #3

DiscountsDiscounts and Allowances and Allowances

Quantity discount

Seasonal discount

Cash discount

Trade discount

Trade-in allowance

Advertising allowance

Coupon vs Rebate