Price • Price: the value of money placed on a good or service • Forms of price: • fees to dentist • $ for new shoes • taxi fairs • Rent • dues for DECA • tuition
Importance of Price • Helps establish an image, competitive edge or profits • Walmart • lowes • Customer’s judge products based upon price • Ford Focus $8,000 • Cadillac Escalade $50,000
Importance of Price • Flexibility – can be changed much more quickly than other marketing decisions (design, package, location)
Pricing Objectives • Maximize Profit • Maximize Sales • Meet the competition • Achieve a ROI
Maximize Profit • Goal: Make $$$ • Charge highest price possible • Done when you have monopoly on items • Ball Park
Maximize Sales • Goal: Most Customers • Charge the Lowest price possible • Done with NEW products • Mountain Dew LIVEWIRE • 2/$1.00
Meeting the Competition • Follow the leader in price • Calculate price and adjust accordingly • Gas stations • How do you compete without price competition? • Quality, uniqueness, convenience
Setting Prices Don’t forget: You can copy-paste this slide into other presentations, and move or resize the poll.
Return on Investment • Determines relative profitability of a product • __Profit__ investment Many companies price products to achieve a certain return on investment Convenience – 30% Retail 15% Gasoline 6-10%
ROI-Return On Investment • PROFIT (Sales – Expenses) Investment #9 .35-.25 = ___ .25 = . Or ___%
#13 • Dolls… • Sales 18,000 x75=1,350,000 1,350,000-1,245,500 = ___________ 1,245,500 = . _____ or _______%
Beverage Project • With Partner, start on page 3 • How is it different…. • Features/Benefits • Ideal shape of containers • Bottle • Carrying case
Olympic Winners Source: Thomson Reuters NIKE (NKE) Sponsors top Olympic athletes, including Apolo Ohno % change since Olympics started +2.6% Olympic sponsors pay millions to showcase brands during the Games. But do those sponsorships help raise stock prices? Suprisingly, yes. The Dow Jones Summer/Winter Games Index, which tracks 36 sponsors and suppliers, has risen 36% since the start of 2009, compared to the S&P 500’s gain of 18.9% in the same period. That’s a medal-worthy performance, indeed. • Nike • 25 Billion Dollar Company • +2% = 500,000,000 • Is it worth 10 million to be a sponsor of the Olympics? • ROI of % • =5000% GENERAL ELECTRIC (GE) Supplies games with generators and medical equipment % change since Olympics started +2.6% VISA (V) “The only card accepted” at the Olympic Games % change since Olympics started +1.6% COCA-COLA (KO) The longest continuous corporate Olympic sponsor % change since Olympics started +1.6% MCDONALD’S (MCD) Sells its food in the athlete’s village % change since Olympics started +2.0%
Pricing Techniques • Customers often feel price is a reflection of quality. Only $19.99 On Sale for $700
Pricing Techniques • Psychological Pricing – creates an illusion that appeals to particular market segments • 7 Methods • Discount Pricing – offering reductions from the usual price • 5 Methods
Psychological Pricing • Odd- Even Pricing -.99, 2.99, 11.95 • Prestige pricing • Multiple-Unit Pricing • Bundle Pricing • Promotional Pricing - Loss leader, Sale • Everyday Low Prices • Price Lining
Discount Pricing • Cash Discounts • Quantity Discounts • Trade Discounts • Seasonal Discounts • Promotional Discounts
Case Study • Setting prices for T-Shirts
What Pricing Strategy? Bundle
What Pricing Strategy? Multiple Unit
What Pricing Strategy? Prestige
What Pricing Strategy? Multiple Unit
Bait and Switch Advertising • Offering a low price on a product that you don't intend on selling and switching a customer to a more expensive product.
Pricing Laws • Sherman Antitrust act outlaws monopolies--Collusion-Company must have been proven to have been in contact with each other. (of 1890 -.) (example) • Clayton Act-Outlaws Price Fixing -competitors agree on certain price ranges within which they set their own prices. • Can the NFL limit production of team apparel? • example
Robinson-Patman Act • Defines price discrimination and states that it creates unfair competition. • Price discrimination- when a firm charges different prices to similar customers in similar situations.
Price Advertising laws • FTC developed guidelines • Sale - A company can not advertise a price reduction unless the original price was offered to the public on a regular basis. • May not say they have lower prices than competition without specific proof.
Break Even • Tells a business the number of units needed to sell to start making a profit. • If I buy 72 Sweatshirts at $22 each. I sell them for $30 each. How many do I need to sell to break even? • Total amount of Cost + Expenses Selling Price
Break Even • A firm expects to sell 10,000 widgets at $10 each. The cost of manufacturing and marketing them is $7.50 each. Calculate the break even point for the widgets. • Costs + Expenses Selling Price / Unit • 7.5x10,000 / $10 = 7,500 • What does this mean for the manufacturer?
Mark up Pricing • Mark Up- the amount of profit desired by a business. • Cost + Markup = Price • I buy Pop Tarts for $.60 each. I want to make $.40 each. What is my SP? MU?
REVIEW • Get a piece of Paper out! • Last year we sold $13,000 worth of product in April. This year we setting a goal to increase sales by 13 percent. What are our planned sales for April?
Review-Pricing • 2. What is Mutiple Unit Pricing • Item a,b,c,d all for $20 • Item a sells for $10, b for $20 and c for $30 • If you buy 3 items for $15 • Items a is $10
Review-Pricing • 3. What is Odd Unit Pricing • Item a,b,c,d all for $20 • Item a sells for $10, b for $20 and c for $30 • If you buy 3 items for $15 • Items a is $9.99
Review - BE 4. I purchase 100 Dolls. They cost me $24 each and I anticipate selling them for $36 each. How many do I need to sell to break even?
Mark up 5. If a swim suit costs the store $13.50 and the retailer has mark up of $11.75 how much is the Retail Price.
Review…ROI 6. Jim and Jeni decide to sell lemonade to make some extra money. It costs them $.17 per glass to make lemonade. They decide to sell the lemonade for $.75 a cup. What is their ROI…(return on investment).
ANSWERS • 1. 14690 • 2. C • 3. D • 4. 67 • 5. 25.25 • 6. 341%