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Finding a Price Like a tug-of-war between buyers and sellers Buyers— Sellers— Goal = finding balance and satisfying both groups
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“Price”
Marketing ToolPricing StrategiesCalculate PriceDiscounts & Allowances
Unit 5
Can create __________ Determines amount of __________ Adjustable and Adaptable Combats Competition Helps Increase Sales
Business Goal in Setting Price:Maximize ProfitAchieve Highest SalesSupport the company image
Price is a Marketing Tool
Conflicting?
Finding a PriceFinding a Price
• Like a tug-of-war between buyers and sellers
Buyers—
Sellers—
• Goal = finding balance and satisfying both groups
Total Cost
$15.00
$25.00
Profit
Maximum price customer will pay
Minimum price company
can chargeOperating Expenses
Production Costs $40.00
$40
Product’s Price Range
$15.00
$100.00
RANGE
How do businesses find the maximum price that customers will pay?
Importance of Pricing • Motivates customers to buy.• Covers the costs of doing business.• Impacts how much profit the business makes.• Helps decide when to adjust prices.
Break Even Point: the quantity that must be sold at a specific price for total revenues = total costs. (see next slide)
Price CalculationsPrice Calculations• COST = amount to be paid in order to get something.• SELLING PRICE = Cost + Desired Profit (Markup Amount)• MARKUP = Cost x Markup % (add this amount to cost for selling price)• MARKDOWN = Selling Price x Markdown % (subtract this amount from selling price to get sale or discount price)• NET PROFIT = Selling Price – Product Costs/Expenses
Importance of Pricing
Quantity
Revenue
Variable Costs
Fixed Costs
Break Even
Bake Sales
Profit
Cost-plus – Take the cost of making the product & add a % for profit; simplest.
Loss Leader – product selling at or below cost to motivate people to come to store.
Predatory – aggressively low pricing intended to drive out competitors; illegal?
Skimming – position as high price in the product category for quicker __________.
Pricing Strategies #1Pricing Strategies #1
Penetration – set artificially low to gain market share; then creep back up.
Prestige or Premium – unique product that has perceived value; luxury items .
Psychological - $99.99 (not $1000.00) Product Line – reflects the benefits of range (Ford
cars = economy, midrange, & luxury) Captive Product – razor is sold cheap but the
blades to fit are expensive.
Pricing Strategies #2Pricing Strategies #2
Product Bundle – combine more than 1 product in same package; adds value and moves slower sellers.
Promotional – “buy 1 get 1 free”, discounts Geographic – shipping & taxes added to price Value – during recession or intense competition;
“more for your dollar” deals
Pricing Strategies #3Pricing Strategies #3
DiscountsDiscounts and Allowances and Allowances
Quantity discount
Seasonal discount
Cash discount
Trade discount
Trade-in allowance
Advertising allowance
Coupon vs Rebate