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Warm-up

Warm-up. What factors should be considered when determining the price of a product?. Do you have a calculator with you? If you need one, take from bag on my desk. Pricing Strategies. Part of the Marketing Mix (Product, Price, Place, Promotion). Pricing Objectives.

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Warm-up

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  1. Warm-up What factors should be considered when determining the price of a product? Do you have a calculator with you? If you need one, take from bag on my desk

  2. Pricing Strategies Part of theMarketing Mix (Product, Price, Place, Promotion)

  3. Pricing Objectives Meeting a return on investment or profit Building Traffic Achieving market share Increasing sales Creating an image Social objectives

  4. Pricing Strategies Three major factors used when determining a price for a product

  5. Markup Pricing Cost-Oriented PricingProducers calculate the COST of making a product, then add preferred profit • Commonly used by wholesalers & retailers • Expressed as a percentage Selling Price = Cost x (1 + mark-up percent) Example: • Costs store $7 • Store seeks a 25 percent markup • What will the selling price be? • 7 x 1.25 = 8.75

  6. Example 2 Store buys for $12 Sells for $20 What is the mark-up? 20 – 12 = 8 8/12 = 66%

  7. Cost-Plus Pricing Cost-Oriented PricingProducers calculate the COST of making a product, then add preferred profit • Commonly used by manufacturers & service businesses • Expressed as a $ amount • Example • Job costs $200 to perform • Add $100 as profit • Charge $300 to the client • 200 + 100 = 300

  8. Demand Oriented Pricing (Target Pricing)What are consumers willing to spend on a product or service? Price is set in relation to Demand & Supply of the product/service

  9. Product Line Pricing • Pricing a product at various price levels in order to appeal to different segments of the market • Example • Appliance manufacturer creates a dishwasher • Sells in different versions (basic, midline, and premium) • Different prices for each version to appeal to different segments of buyers • Targeted at consumers for whom price is important in choosing the model of a product

  10. Psychological Pricing Based on the theory that certain prices have a psychological impact Retail prices expressed as "odd prices“ or a little less than a round number • Examples • $7.99 vs. $8.00 • $19.99 vs. $20.00 • $199 vs. $200

  11. Remember these Pricing Strategies Three major factors used when determining a price for a product Law of Demand Price Lining Psychological Pricing Markup Pricing Cost-Plus Pricing

  12. Competition-Oriented PricingThree Possible Actions

  13. Pricing Policies & Product Life CycleIntroducing a new product

  14. Other Price Strategies Everyday Low Pricing (EDLP) Setting prices lower than competitors and never having sales. High-Low Strategy Set prices higher than EDLP stores but have many sales.

  15. Other Price Strategies Loss Leader Setting very low prices on certain items in order to build store traffic. Prestige Pricing Setting a very high price to create an image of high quality.

  16. Non-Price Competition

  17. Pricing Strategies Summary Three major factors used when determining a price for a product Law of Demand Price Lining Psychological Pricing Markup Pricing Cost-Plus Pricing Non-price competition Quality Service Relationships Skimming Penetration Going rate/in-line with competition

  18. Break-Even Analysis Process used to determine profitability at various levels of sales. Total Fixed Cost (FC) Unit Price one unit (P) – Variable cost one unit(VC) Break-even point = Fixed Cost = Expenses that remain the same no matter how many units are sold. Variable Cost = Costs that change according to the level of production. Breakeven Point = Point at which sales equal all costs.

  19. Determine the Break-Even Point Selling Price = $5 Variable Cost = $3 Fixed Cost = $50,000

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