April 11

1. Pricing April 11 How much will I charge for MILK? • Eagle Challenge • Pricing Day #2 • Worksheet • Due Thursday • End of Class Assignment Weebly LT: Define the nature and scope of Pricing

2. A small manufacturer of specialty dolls and dolls accessories invests $1,000,000 in materials and labor to make 25,000 dolls. The cost to package, advertise, sell and ship the dolls amounts to $245,500. What is the doll manufacturer’s return on investment if only 18,000 dolls sell this year at $75 each?

3. A retail buyer purchases 50,000 scarves at $12.50 each. Advertising and promotional expenses attributed to the scarves total $1,250. If half the scarves sell for $25, one-fifth sell for $20, one-eighth sell for $17.50, and the remainder sell for $13, what is the return on investment for these scarves?

4. Importance of Price • Image • competitive edge • profits Goals of Pricing • gaining market share • achieving a certain return on investment • meeting the competition

5. Pricing Concepts • The three basic pricing concepts involving cost, demand, and competition • The concepts of pricing forward vs. pricing backward • The idea of one-price policy vs. a flexible-price policy • The two polar pricing policies for introducing a new product

6. Pricing Concepts Why It's Important • After deciding on pricing goals, marketers must establish pricing strategies that are compatible with the rest of the marketing mix. Another term for Marketing Mix?

7. Vocab for Today • markup • cost-plus pricing • one-price policy • flexible-price policy • skimming pricing • penetration pricing

8. Basic Pricing Concepts • There are three basic pricing concepts that you will want to consider in determining the price for any given product: • cost-oriented pricing • demand-oriented pricing • competition-oriented pricing

9. Pricing Concepts Cost-Oriented Pricing • In cost-oriented pricing, marketers first calculate the costs of acquiring or making a product and their expenses of doing business; then they add their projected profit margin to these figures to arrive at a price. Two common methods are: • markup pricing • cost-plus pricing

10. Pricing Concepts Cost-Oriented Pricing • Markup pricing is used primarily by wholesalers and retailers who are involved in acquiring goods for resale. The markup must cover the business’s expenses. • Price = cost + markup (as percentage) • Cost-plus pricingis used by manufacturers and service companies. • Price = all costs + all expenses (fixed and variable) + desired profit

11. Pricing Concepts Demand-Oriented Pricing • Marketers who use demand-oriented pricing attempt to determine what consumers are willing to pay for given goods and services. Demand-oriented pricing is effective when: • there are few substitutes for an item • there is demand inelasticity

12. Pricing Concepts Competition-Oriented Pricing • Marketers who study their competitors to determine the prices of their products are using competition-oriented pricing. These marketers may elect to take one of three actions: • price above the competition • price below the competition • price in line with the competition (going-rate pricing) Tender Pricing

13. Pricing Concepts Pricing Policies • A basic pricing decision every business must make is to choose between a one-price policy and a flexible-price policy. • A one-price policy is one in which all customers are charged the same price for the goods and services offered for sale. • A flexible-price policy permits customers to bargain for merchandise.

14. Pricing Concepts New Product Introduction • A business may elect to price a new product above, in-line, or below its competitors. When a going-rate strategy is not used, two polar methods may be used: • skimming pricing • penetration pricing

15. Pricing Concepts New Product Introduction • Skimming pricing is a pricing policy that sets a very high price for a new product to capitalize on the initial high demand for a new product. • Advantages: High profit margin; may cover research and development costs. • Disadvantages: Cost must eventually be lowered; attracts competition; if price is too high no one buys.

16. New Product Introduction • Penetration pricing sets the initial price for a product very low to encourage as many people as possible to buy the product. • Advantages: Quick market penetration; can capture a large market; blocks competition. • Disadvantages: Low demand leads to big losses.

17. Break-Even Point (BEP) is the point of balance making neither a profit nor a loss. The term originates in finance, but the concept has been applied widely since.  Worksheet