Transcript SBE09.01

9.00 Explain pricing strategies for
making effective pricing decisions.
D. MARKETING A
SMALL BUSINESS
9.01 Explain factors
that affect pricing.
Pricing Terms

Price: The amount charged to customers in
exchange for goods and services.
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
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.
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For example, the price of gasoline posted at the gas
stations around your town reflects the market price.
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
Factors that affect price
Competition

A rivalry between
two or more
businesses for
scarce consumer
dollars.
Classifications of Competition

Direct Competition:
Competition between
businesses that have
similar formats and
sell similar products.
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McDonald’s & Burger
King
Coke & Pepsi
Hilton & Marriott
Nike & Reebok
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Indirect Competition:
Competition between
businesses that have
dissimilar formats and
sell dissimilar
products.
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A movie theatre & the
mall
A restaurant & miniature
golf course
An airline & a cruise line
Opportunity Costs

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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.
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
Factors that affect price
Supply and Demand
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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.
Factors that affect demand
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utility
price
advertising
personal selling
display
fashion
consumer
wants/needs
Factors that affect supply
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cost of production
price
consumer demand
profit goals
competition
government
controls
new technology
Elastic Demand
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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
Inelastic Demand
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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
Other factors that affect price
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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.