Transcript Price Planning

Schedule Overview…
• 1st block:
– Wed., Jan 18th - Ch. 25 Open Note Quiz
& Study Guide Completion
– Fri., Jan. 20th – Ch. 25 Test
• 5th block:
– Tues., Jan 17th - Ch. 25.2 Notes, Break
Even Assignment, PD Point Assignments
– Thurs., Jan. 19th – Ch. 25 Open Note
Quiz and Study Guide Completion
– Mon., Jan. 23rd – Ch. 25 Test
Price Planning
Chapter 25
Marketing I
Sec. 25.1 – Price Planning
Considerations
What you’ll learn
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The different forms of price
The importance of price
The goals of pricing
The difference between market
share and market position
What is Price?
• Price is the value of money (or its
equivalent) placed on a good or service.
Key to Pricing—Product Value
• Understanding the value that buyers place
on a product.
Price a product high enough
for a profit, but not so high
that it exceeds the “VALUE”
customers place on the
product.
Trek - $4949.99
Huffy - $79.87
Forms of Price
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Fee you pay for service
Amount you pay for goods
Interest on a loan
Dues for a membership
Tuition for education
Wages, salaries paid to workers
Importance of Price
• Establishes image
• Maintains competitive edge
• Determines profits
Projected Effects of Different
Prices on Sales
Price per
item X
Quantity
Sold =
Sales
Revenue
$50
200
$10,000
$45
250
$11,250
$40
280
$11,200
$35
325
$11,375
$30
400
$12,000
$25
500
$12,500
An increase in the price of an item may not produce
an increase in sales revenue. Why is this true?
Goals of Pricing
• Gaining market share
• Achieving a certain return on
investment
• Meeting competition
Market Share
• Companies percentage of total
sales volume in a specific
category.
OREO -#1 Brand in
Cookie Category – 42%
CHIPS AHOY -#2 Brand in
Cookie Category – 32%
U.S. Cookie Market Share
Return on Investment
• Will the product be profitable?
– Box of chocolate:
• Sell for $8
• Cost to make & market $6.50
• $8 - $6.50 = $1.50/$6.50…….23%
return
Meeting the Competition
• Some companies simply aim to meet the
prices of their competition.
• They either follow the industry leader or
calculate the average price.
• Examples of products priced in this
manner:
• Automobiles
• Soft drinks
Activity
• Calculate the market share for a product
category of your choice and create a pie
chart representing your findings.
• Link
Warm-Up – Hint: Do this NOW!!
• Chad Foster – Read pages 39-62
• You might want to see me about Internship after you finish! 
• Sit tight when you are through, we will move on shortly!
Section 25.2 Factors Involved
in Price Planning
What you’ll learn
The four market factors that affect price
planning
What demand elasticity is in relation to
supply and demand theory
The government regulations that affect
price planning
Market Factors Affecting Prices
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Costs and Expenses
Supply and Demand
Consumer Perceptions
Competition
Costs and Expenses
What do marketers do when costs or
expenses increase or when sales decline?
• Responses to Declining Profit Margins
• Pass costs on to their consumers
– Examples?
• Reduce size of item
– Examples?
• Drop less important features
– Examples?
• Improving products
– Examples?
Costs and Expenses Examples
Pass costs on to their consumers
When oil prices increase, we often see
an increase in rates charged by airlines
Reduce size of item
Candy manufacturers may decrease
the size of the candy bar, instead of
increasing the price
Drop less important features
Airlines may stop serving meals and
only offer beverages and pretzels
Improving products
Ford designed more comfortable
supercabs on some trucks and
charged more for those models
Break-Even Point
• The point at which sales revenue equals
the cost and expenses of making and
distributing a product.
• To calculate the break-even point, the
manufacturer divides the total amount of
costs and expenses by the selling price
A toy manufacturer plans to make 100,000 dolls that will be
sold for $6 dollars each. The cost of making and marketing the
dolls is $4.50 per unit, or $450,000 for 100,000 dolls.
How many dolls must the company sell to break-even?
$450,000/6= 75,000
Activity
Break-Even Point
Complete the table using the break-even
point equation and answer the critical
thinking questions.
Supply and Demand
• Elastic Demand
– A change in price creates a change in
demand
– Example- If the price of steak were $8 per
pound, few people would buy steak, if the
price were to drop to $5, $3 and finally $2
per pound, demand would increase at
each level
– Law of diminishing marginal utility
– Consumers will only buy so much of a
given product, even though the price is low
Supply and Demand
• Inelastic Demand
–A change in price has very little
effect on demand for a product
–Milk and bread fall into this
category
What determines whether demand for a
product is likely to be elastic or inelastic?
Activity
Now You Buy It, Now You Don’t
- Complete the worksheet reviewing elastic
and inelastic demand (Note: This is a twosided document.)
- Marketing 2 presentations!
Consumer Perceptions
• Equate quality with price
• High price may also suggest prestige,
status, and exclusiveness
– Businesses can create the perception that a
particular product is worth more than others by
limiting the supply of the item (limited editions)
– Personalized service (= higher prices)
Competition
• When products are very similar, price often
becomes the sole basis on which consumers
make their purchase decisions
– When one company changes prices
others usually react
– Price Wars
Government Regulations
Affecting Prices
• Price Fixing -occurs when competitors
agree on certain price ranges within which
they set their own prices
– This eliminates competition
• Sherman Antitrust Act (1890)
– Federal law against price fixing
– Made monopolies illegal
Government Regulations
Affecting Prices
• Price Discrimination
– Occurs when a firm charges different
prices to similar customers in similar
situations
• The Clayton Antitrust Act (1914)
• The Robinson-Patman Act (1936)
– Prohibits sellers from offering different
prices on the same product in similar
situations
Government Regulations
Affecting Prices
• Resale Price Maintenance
– Manufacturers would set a retail price for
an item and force retailers to sell it at
that price.
• Consumer goods Pricing Act (1975)
– Outlawed practice of punishing retailers
Government Regulations
Affecting Prices
• Minimum Price Laws
– Selling goods at a very low price
– Enacted to prevent retailers from selling
goods below cost
– Only a law in some states
• States without this law, use technique
to draw customers into store
–Loss leader (businesses take a loss
on the item)
Government Regulations
Affecting Prices
• Unit Pricing
– Many states have passed laws to make it
easier for consumers to compare similar
goods that are packaged in different
sizes
– Standard unit or measure such as an
ounce or pound
Government Regulations
Affecting Prices
• Price Advertising
– FTC developed guidelines for advertising
prices
• Price reductions
• Claiming prices are lower than
competitors
• Bait and switch
Schedule Overview…
• 1st block:
– Wed., Jan 18th - Ch. 25 Open Note Quiz
& Study Guide Completion
– Fri., Jan. 20th – Ch. 25 Test
• 5th block:
– Tues., Jan 17th - Ch. 25.2 Notes, Break
Even Assignment, PD Point Assignments
– Thurs., Jan. 19th – Ch. 25 Open Note
Quiz and Study Guide Completion
– Mon., Jan. 23rd – Ch. 25 Test