Price Planning Chapter 25.ppt by hcj


									Schedule Overview…

• 1st block:
   – Wed., Jan 18th - Ch. 25 Open Note Quiz
     & Study Guide Completion
   – Fri., Jan. 20th – Ch. 25 Test

• 5th block:
   – Tues., Jan 17th - Ch. 25.2 Notes, Break
     Even Assignment, PD Point Assignments
   – Thurs., Jan. 19th – Ch. 25 Open Note
     Quiz and Study Guide Completion
   – Mon., Jan. 23rd – Ch. 25 Test
Price Planning
    Chapter 25
    Marketing I
     Sec. 25.1 – Price Planning
What you’ll learn

 •   The different forms of price
 •   The importance of price
 •   The goals of pricing
 •   The difference between market
     share and market position
What is Price?
• Price is the value of money (or its
  equivalent) placed on a good or service.
Key to Pricing—Product Value
• Understanding the value that buyers place
  on a product.

  Price a product high enough     Trek - $4949.99
  for a profit, but not so high
  that it exceeds the “VALUE”
  customers place on the

                                   Huffy - $79.87
    Forms of Price
•   Fee you pay for service
•   Amount you pay for goods
•   Interest on a loan
•   Dues for a membership
•   Tuition for education
•   Wages, salaries paid to workers
 Importance of Price
• Establishes image

• Maintains competitive edge

• Determines profits
Projected Effects of Different
Prices on Sales
    Price per      Quantity       Sales
    item X         Sold =         Revenue
         $50            200          $10,000
         $45            250          $11,250
         $40            280          $11,200
         $35            325          $11,375
         $30            400          $12,000
         $25            500          $12,500

 An increase in the price of an item may not produce
 an increase in sales revenue. Why is this true?
Goals of Pricing
• Gaining market share

• Achieving a certain return on

• Meeting competition
Market Share
• Companies percentage of total
  sales volume in a specific category.

  OREO -#1 Brand in
  Cookie Category – 42%

  CHIPS AHOY -#2 Brand in
  Cookie Category – 32%
U.S. Cookie Market Share
Return on Investment
• Will the product be profitable?
  – Box of chocolate:
      • Sell for $8
      • Cost to make & market $6.50
      • $8 - $6.50 = $1.50/$6.50…….23%
Meeting the Competition
• Some companies simply aim to meet the
  prices of their competition.

• They either follow the industry leader or
  calculate the average price.

• Examples of products priced in this
     • Automobiles
     • Soft drinks
• Calculate the market share for a product
  category of your choice and create a pie
  chart representing your findings.

• Link
Warm-Up – Hint: Do this
• Chad Foster – Read pages 39-62

• You might want to see me about Internship
  after you finish! J

• Sit tight when you are through, we will
  move on shortly!
   Section 25.2 Factors Involved
         in Price Planning
What you’ll learn

=The four market factors that affect price
=What demand elasticity is in relation to
 supply and demand theory
=The government regulations that affect
 price planning
Market Factors Affecting Prices

 •   Costs and Expenses
 •   Supply and Demand
 •   Consumer Perceptions
 •   Competition
Costs and Expenses
What do marketers do when costs or
expenses increase or when sales decline?

• Responses to Declining Profit Margins
     • Pass costs on to their consumers
         – Examples?
     • Reduce size of item
         – Examples?
     • Drop less important features
         – Examples?
     • Improving products
         – Examples?
Costs and Expenses Examples

 Pass costs on to their consumers
       When oil prices increase, we often see
       an increase in rates charged by airlines
 Reduce size of item
       Candy manufacturers may decrease
       the size of the candy bar, instead of
       increasing the price
 Drop less important features
       Airlines may stop serving meals and
       only offer beverages and pretzels
 Improving products
       Ford designed more comfortable
       supercabs on some trucks and
       charged more for those models
Break-Even Point
• The point at which sales revenue equals
  the cost and expenses of making and
  distributing a product.

• To calculate the break-even point, the
  manufacturer divides the total amount of
  costs and expenses by the selling price
  A toy manufacturer plans to make 100,000 dolls that will be
  sold for $6 dollars each. The cost of making and marketing the
  dolls is $4.50 per unit, or $450,000 for 100,000 dolls.

  How many dolls must the company sell to break-even?
                      $450,000/6= 75,000
Break-Even Point

Complete the table using the break-even
 point equation and answer the critical
 thinking questions.
Supply and Demand
• Elastic Demand
  – A change in price creates a change in
        – Example- If the price of steak were $8 per
          pound, few people would buy steak, if the
          price were to drop to $5, $3 and finally $2
          per pound, demand would increase at each
  – Law of diminishing marginal utility
        – Consumers will only buy so much of a
          given product, even though the price is low
Supply and Demand
• Inelastic Demand
        –A change in price has very little
          effect on demand for a product
        –Milk and bread fall into this

  What determines whether demand for a
  product is likely to be elastic or inelastic?
Now You Buy It, Now You Don’t

- Complete the worksheet reviewing elastic
  and inelastic demand (Note: This is a two-
  sided document.)
- Marketing 2 presentations!
Consumer Perceptions
• Equate quality with price

• High price may also suggest prestige,
  status, and exclusiveness
  – Businesses can create the perception that a
    particular product is worth more than others by
    limiting the supply of the item (limited editions)
  – Personalized service (= higher prices)
• When products are very similar, price often
  becomes the sole basis on which consumers
  make their purchase decisions

  – When one company changes prices
    others usually react

  – Price Wars
Government Regulations
Affecting Prices
• Price Fixing -occurs when competitors
  agree on certain price ranges within which
  they set their own prices
   – This eliminates competition

• Sherman Antitrust Act (1890)
  – Federal law against price fixing
  – Made monopolies illegal
Government Regulations
Affecting Prices
• Price Discrimination
  – Occurs when a firm charges different
    prices to similar customers in similar

• The Clayton Antitrust Act (1914)
• The Robinson-Patman Act (1936)
   – Prohibits sellers from offering different
     prices on the same product in similar
Government Regulations
Affecting Prices
• Resale Price Maintenance
  – Manufacturers would set a retail price for
    an item and force retailers to sell it at
    that price.

• Consumer goods Pricing Act (1975)
  – Outlawed practice of punishing retailers
Government Regulations
Affecting Prices
• Minimum Price Laws
  – Selling goods at a very low price
  – Enacted to prevent retailers from selling
    goods below cost
  – Only a law in some states
     • States without this law, use technique
       to draw customers into store
         –Loss leader (businesses take a loss
          on the item)
Government Regulations
Affecting Prices
• Unit Pricing
  – Many states have passed laws to make
    it easier for consumers to compare
    similar goods that are packaged in
    different sizes
  – Standard unit or measure such as an
    ounce or pound
Government Regulations
Affecting Prices
• Price Advertising
  – FTC developed guidelines for advertising
      • Price reductions
      • Claiming prices are lower than
      • Bait and switch
Schedule Overview…

• 1st block:
   – Wed., Jan 18th - Ch. 25 Open Note Quiz
     & Study Guide Completion
   – Fri., Jan. 20th – Ch. 25 Test

• 5th block:
   – Tues., Jan 17th - Ch. 25.2 Notes, Break
     Even Assignment, PD Point Assignments
   – Thurs., Jan. 19th – Ch. 25 Open Note
     Quiz and Study Guide Completion
   – Mon., Jan. 23rd – Ch. 25 Test

To top