Transcript Lesson 2 - Pricing Factors and Gov`t Regs

Factors Affecting Price
Lesson Objectives
• What are the factors that affect the
selling price of a product?
• What are legal and ethical
considerations of pricing?
• Costs and expenses
»Break-even point
What is the break-even
point?
Point at which sales revenue
equals costs and expenses.
Total costs and expenses/selling price =
break-even point
What would be the break-even
point for a Baseball hat
manufacturer making 100,000
hats @ $4.50 each, and selling
them for $6.00 each?
($4.50 X 100,000)/$6.00 =
450,000/6.00 =
75,000 units
• Costs and expenses – break-even
point
• Consumer Demand – elasticity
What is elasticity?
The degree to which demand
for a product is affected by
its price
DIMINISHING MARGINAL
UTILITY
HOWEVER… consumers will not
buy indefinitely because a
price is low. Other factors
(income, taste and need) play
a role in demand also.
• Costs and expenses – breakeven point
• Consumers’ Demand – elasticity
• Consumer perception –
subjective
• Competition – price wars
• Government regulations
Government Regulations
Price Fixing
Competitors agree on certain price
ranges within which they set their
own prices.
Collusion – communication among
competitors to establish a fixed price
Made illegal by the
Sherman Antitrust Act of 1890
because it eliminates competition
Price Discrimination
Company charges different prices to
similar customers in similar situations
Made illegal by the
Clayton Antitrust Act of 1914
because it creates unfair competition.
Strengthened by the
Robinson-Patman Act of 1936
Resale Price Maintenance
Resulted in the establishment of the
“Manufacturer’s Suggested Retail
Price” (MSRP)
Disallows manufacturers from
forcing retailers to charge a
specific retail price
Minimum Price Laws
Enacted in some states to disallow
retailers from selling below cost
Where allowed, items priced at cost are
called loss leaders.
Purpose is to attract customers in hopes
they will buy other items.
Unit Pricing
Allows consumers to compare similar
goods packaged in various sizes or
forms by using a standard unit of
measure
Price Advertising
• Laws established
by Federal
Trade
Commission
(FTC)
• Bait-and-switch
illegal
Review
• What are some of the factors that
affect pricing?
• What are some of the government
regulations that affect pricing?