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  1. Goals • Identify pricing objectives for a business. • Calculate the price for products using various methods. • Discuss factors to consider when pricing services. • List and describe various pricing techniques. Price

  2. return on investment • market share • demand-based pricing • cost-based pricing • competition-based pricing • psychological pricing • discount pricing Terms

  3. price • the amount a customer pays for a product or service • needs to be low enough that customers buy from you • needs to be high enough so revenues exceed expenses Set Pricing Objectives

  4. Objectives for a pricing program should be established prior to selecting a pricing strategy. • Objectives might include: • maximize sales • discourage competition • establish an image • increase profits • attract customers Set Pricing Objectives

  5. investment • the costs of making and marketing a product • return on investment (ROI) • amount earned as a result of the investment (usually expressed as a percentage) Return on Investment

  6. market share • a business’s percentage of the total sales generated by all companies in the same market • The total market for a product must be known in order for market share to be determined. Market Share

  7. Amount of Sales ÷ Total Market Size • Market Share =

  8. lowering prices • advertising and promotion • networking with potential customers • There are multiple ways to increase market share including:

  9. Why is it important to determine pricing objectives before pricing goods and services?

  10. There is usually more than one price that can be charged for a product. Determine a Price for a Product

  11. demand-based pricing • pricing that is determined by how much customers are willing to pay for a product or service • Survey customers to determine what they would be willing to pay for a product. • The highest price identified is the maximum price that can be charged. Demand-Based Pricing

  12. cost-based pricing • determined by using the wholesale cost of an item as the basis for the price charged • markup price • determined by adding a percentage amount to the wholesale cost of an item Cost-Based Pricing

  13. Wholesale cost × Percentage markup • Retail Price = Wholesale cost + Markup amount • Markup amount =

  14. determined by subtracting a percentage amount from the retail price • markdown price

  15. Retail price × Percentage markdown • Markdown Price = Retail Price - Markdown amount • Markdown amount =

  16. competition-based pricing • pricing that is determined by considering what competitors charge for the same good or service Competition-Based Pricing

  17. To set a price for a service, consider the following: • the cost of items used in providing the service • the amount of time required to produce the service Price a Service

  18. The amount of time it takes to complete a service will be the basis for determining the price of the service. • Providers must decide whether the cost of materials will be: • included in the price • listed as a separate charge Time-Based Pricing

  19. bundled pricing • when all services are combined under one charge Bundling

  20. Which method would be the best for a housepainter to use to price services? Why? Chapter 5

  21. Pricing can make or break a business. • Pricing techniques may change over time. Pricing Techniques

  22. price skimming • used for products that are new and unique • a high price is charged to cover product development costs • penetration pricing • a low introductory price is charged to build a strong customer base • discourages competition Introductory Pricing

  23. psychological pricing • certain prices have an impact on how customers perceive a product • used most commonly in retail Psychological Pricing Chapter 5

  24. Techniques used in psychological pricing include the following: • prestige pricing • a high price to create a feeling of superiority • odd/even pricing • prices ending in odd numbers are perceived to be bargains

  25. price lining • for a specific category of products • offering different prices • based on specific features and qualities • promotional pricing • temporarily offering lower prices to increase sales • multiple-unit pricing • pricing items in multiples • consumers buy more units if they perceive a bargain

  26. discount pricing • offers customers a reduced price • encourages purchases Discount Pricing

  27. Techniques used in discount pricing include the following: • cash discounts • encourages early payment of invoices • quantity discounts (volume discounts) • offers lower prices based on the purchase of a large quantity

  28. Trade Discount • when a manufacturer offers a discount to wholesaler or buyer in the same trade • seasonal discounts • used to sell seasonal merchandise out of season Chapter 5