Pricing Strategy Small Business by fdh69631


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									9.00 Explain pricing strategies for
making effective pricing decisions.

 9.02 Explain pricing policies and
strategies that help businesses meet
         pricing objectives.
                  Steps in
                Setting Price
 Determine pricing objectives: What is your
  purpose in setting a price?
 Study costs: Price planning must include an
  examination of business costs.
 Estimate demand: How many products can
  you sell in a given time period?
                   Steps in
                 Setting Price
 Study the competition: How will you
  respond to competitor’s prices?
 Decide on a pricing strategy: Select the
  strategy with the greatest potential for profit.
 Set your price: Monitor sales, customer
  reactions, and company goals to plan for
  needed changes.
                  Cost Oriented Pricing
                                Mark-up pricing
 Implemented by
                                   Wholesalers & retailers
  carefully examining all
                                   Adds a predetermined
  of the costs associated           percentage to cost of products
  with carrying a product          Same markup applied to all
  and selling it to                 products carried by the business
  consumers then adding         Cost-plus pricing
  the desired profit to            Manufacturers & service
  arrive at a selling price.        organizations
                                   Examines costs then adds
                                    standard markup
                                   Products & services are all
                                    considered individually.
         Demand Oriented Pricing

 Most effective when selling
  products with inelastic
 Requires price planners to
  estimate the value customers
  place on products and set
  prices accordingly
 When selling products with
  elastic demand, an inaccurate
  estimation can undermine the
  success of a business.
Competition Oriented Pricing

              Used by all
               planners to some
              Does not consider
               costs and expenses
               or profit goals in
               the pricing process
       Specific Pricing Techniques

Promotional pricing: Selling a product at a
temporarily lower price to attract customers.
  Loss leaders: Selling a product below cost in an effort to
  increase customer traffic.
  Special event pricing: Sales events designed to attract
  customers and encourage them to buy. Example: Back-
  to-School Sale
Fixed pricing (One-Price Policy): Charging the
same prices to all customers regardless of the
quantity of the purchase.
       Specific Pricing Techniques

Variable pricing (Flexible-Price Policy):
Encourages customers to bargain with sellers in an
effort to obtain the best price.
Price lining: Establishing price points between
products in a product line; used to communicate
differences in quality and/or service to consumers.
Unit pricing: Stating the price of a product per unit
of standard measure.
        Specific Pricing Techniques
Psychological pricing: Used by organizations that
believe that customers base their perceptions of
products on price and that these perceptions affect
customer buying decisions.
  Odd/even cent pricing: Prices ending in odd
  numbers communicate a bargain. Prices ending in
  even numbers communicate quality.
  Prestige pricing: Customers equate high price with
  high quality. This technique sets a higher-than
  average price for products to communicate quality
  and status.
       Specific Pricing Techniques
Pricing for new products: Price planning is a vital
step in ensuring product success for new products.
   Skimming pricing: Setting a high price to capitalize
   on demand when introducing a product that has little
   competition and will appeal to customers who like to
   be the first to have the latest products.
   Penetration pricing: Setting a low price to motivate
   customers to purchase when introducing a product
   into a competitive market and attempting to gain
   customer trial.

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