factors affecting price by wanghonghx

VIEWS: 6 PAGES: 17

									FACTORS AFFECTING PRICE




           BMI – Marketing Mix
PRICING TERMINOLOGY

   Markup
    –   The amount of money added to the original cost
        of a product (percentage based on cost)
   Margin
    –   The percentage of the price charged to the
        consumer that is not used to pay for the cost of
        the item
   Profit
    –   Money left over after expenses are paid
So far we have discussed the following
factors that affect price…

   Perceived value by consumers
   Profit motive by businesses
   Supply & Demand
   Pricing Strategy and stage in the PLC
Another Factor – Breakeven Point

   Variable Costs
    –   Vary with production. Examples …
   Fixed Costs
    –   Are constant and independent of production.
        Examples…
   Gross Profit
    –   Selling price minus variable costs
    –   Also called Contribution Margin
BREAKEVEN POINT


 The  number of units that a
  business must sell at a given price
  to cover its costs
 Must cover variable and fixed costs
FORMULA

# of units sold   =    ___Total Fixed Costs_
to break even          Selling Price – Variable Costs/unit


Example:
  A business sells widgets for $500 / unit
  Variable costs per unit are $300
  Total Fixed Costs are $1 000 000
Calculation

   Breakeven point:

= _1,000,000__
   500 – 300

    BEP = 5,000 units
Additional Factors Affecting Price:
LAWS

   The Competition Act protects consumers
    against unethical business activities:
    –   Price Fixing: businesses can’t decide as a group
        what to charge
    –   Retail Price Maintenance: no company can
        force another to charge a particular price for a
        product it has provided, but it can give a MSRP.
LAWS (cont’d)

–   Deceptive Pricing Practices
        Double Ticketing: placing 2 prices
         on the same product and charging
         the higher
        Bait-and-Switch: offering a low
         price (bait) to attract and then
         convincing the consumer to buy a
         more expensive product (switch)
        False Sale Prices: advertising a
         regular price as a sale price
OTHER GOVERNMENT INFLUENCES

   Federal Government
    –   GST (currently 5% tax on goods
        and services)
    –   Price regulations on services (ex.
        CRTC)
   Provincial Government
    –   PST (currently 8%)
    –   Luxury taxes on alcohol,
        cigarettes, gasoline

    Now of course combined to the HST
Additional Factors Affecting Price:
MARKETING BOARDS

   Coordinate the marketing and
    selling of commodities (primarily
    agricultural)
    –   Develop promotional campaigns
        (“Get Cracking”)
    –   Provide market research for
        members
    –   Negotiate selling prices with food
        processors
    –   Manage supply of product through
        national quotas (ex. Eggs)
Additional Factors Affecting Price:
PRODUCT POSITIONING, CONSUMER
DEMAND, COMPETITION

   Product Positioning
    –   Premium or discount pricing
   Consumer Demand
    –   How much consumers will pay for an item – not
        just calculating a markup
   Competition
    –   Same or similar products must remain close in
        price
Pricing Strategies

   Market Skimming – setting an initially high
    price before competitors enter the market
    –   Can limit demand (may be necessary if
        manufacturer can only produce limited amount)
    –   Allows competitors to enter at a lower cost, as
        they can benefit from the R & D of the original
        manufacturer
Pricing Strategies

   Penetration Pricing – initially setting a low
    price to attract customers
    –   Can be risky, must ensure that they can break
        even and cover fixed costs
    –   Initial low price may discourage competitors
Pricing Strategies

   Competitive Pricing – most popular strategy,
    were you match or follow the price of
    competitors
    –   Leader may set a benchmark price, others follow
    –   Some retailers advertise that they will not be
        undersold
Activity – Match the Pricing Policy

   Match the pricing policy with it’s definition
Assignment – Marketing Plan

   Complete the section of the Marketing Plan
    on Pricing. Consider the following:
Factors:           Strategies:       Policies:
                                     Leader Pricing
Break-even point   Market Skimming
                                     Price Lining
Laws               Penetration       Everyday Low Prices
Marketing Boards   Pricing           Super Sizing
Product            Competitive       Negotiated Pricing
Positioning        Pricing           Interest-Free Pricing
Consumer           (benchmarks)      Combo Pricing
Demand                               Psychological Pricing
Competition                          Return on Investment
                                     Purchase Discounts

								
To top