Transcript PRICE PLANNING PART 2

PRICE PLANNING
PART 2
Factors
Copyright, 1996 © Dale Carnegie & Associates, Inc.
Four Market Factors Affecting
Price
• Costs and Expenses
• Supply and Demand
• Consumer Perceptions
• Competition
Costs and
Expenses
Responses to Declining Profit
Margins
• Change Prices
• Change Package Sizes
• Drop Features that aren’t Valued
• Improving Products
Responses to Lower
Costs/Expenses
• Lower prices
• Higher profits
Sales!
Break-even Points
• The break-even point is the point at
which sales revenue equals the costs and
expenses of making and distributing a
product. After reaching this point,
businesses make a profit on additional
sales.
• Break-even Point = Total costs +
expenses/Selling price
Supply and Demand
• Demand for a product goes up as prices
go down and demand goes down as
prices go up.
• If supply is low then prices tend to be
high, if supply is high then prices tend to
be low.
Action Plan
• Describe the following (where additional
information is needed assign
responsibility to the logical person)
– Action steps.
– Materials needed.
– Training needed.
– Schedules.
– Costs.
Demand Elasticity
• Elastic Demand means that demand
responds to price changes - high prices =
low demand; low prices = high demand
• Inelastic Demand means that change in
price has little effect on demand.
The Law of Diminishing
Marginal Utility
• Consumers will only buy so much of a
given product, even though price is low.
• Consumers will usually purchase more at
lower prices, but not a lot more than
they really need or can afford, no matter
how low the price.
What has Inelastic Demand?
• GAS!
• Staples
• Water
• Electricity
• Cars
• Tires
• Oil
Factors Affecting Demand
Elasticity
• Availability of
Substitutes
• Price Relative to
Income
• Brand Loyalty
• Luxury vs. Necessity
• Urgency of Purchase
Consumer Perceptions
• People pay a price
according to their
perceived value.
• Higher price =
Quality
• Exclusivity
• Customer Service
Competition
• If consumers are price conscious then
price competition is effective.
• If consumer perceive the product is
unique, price is not as much a factor.
• Similar products must be very price
competitive to sell their product.
Price War
• When businesses
lower prices to
attract customers
from the competition,
sometimes to the
detriment of profits.
Price Fixing
• When competitors agree to a certain
price range to charge customers
• Price Fixing is illegal because it eliminates
competition.
• The Sherman Antitrust Act of 1890
outlawed monopolies.
Price Discrimination
• When a company charges different prices
to similar customers in similar situations.
• Illegal - The Clayton Antitrust Act of 1914
• The Robinson-Patman Act (1936)
• You can’t charge small retailers more
than large retailers or give large retailers
special services not offered to small
retailers.
When can Price Discrimination
be Used?
• When products purchased are different
• If non-competing buyers are involved
• If prices do not hurt competition
• If costs justify the differences in prices
• If production costs go up
• If prices are changed to meet another
supplier’s bid
Resale Price Maintenance
• Manufacturers can’t tell retailers that
they cannot sell below a certain price
point. It is illegal for manufacturers to
coerce retailers to sell at a particular
price.
• Manufacturers can tell retailers “in
advance” that they can’t sell below a
certain price, not “coerce”.
Minimum Price Laws
• Some states have laws against retailers
selling goods below cost.
• Where there are no laws prohibiting it
retailers have “loss leaders”. These are
popular items priced below cost (at a
loss) to entice customers into the store.
Unit Pricing
• Some states have laws requiring unit
pricing.
• Unit pricing is when a store puts on the
price sticker how much the item is per
unit (i.e. 2.3 cents per ounce)
• Unit pricing allows consumers to
comparison shop to get the best value.
Price Advertising
• FTC has guidelines for advertising prices.
– A price reduction can only be advertised if
the product was offered to the public at the
regular price for a reasonable time.
– You must be able to prove your prices are
lower than a competitors to advertise it.
– A regular price cannot be used for a
reference point unless the item has actually
sold for that price.
– No bait-and-switch advertising.