april 30, 2012. price – the value placed on goods and services being exchanged determines profit...

Phase III: PricingApril 30, 2012

Pricing

Price – The value placed on goods and services being exchanged Determines profit or loss Demand Cost Product Life Cycle Competition

Pricing

Pricing Considerations and Strategies

Prestige Pricing – pricing based on consumer perception

Odd-even pricing – pricing goods with an odd number or an even number to match a product’s image $25.99 $100


Target Pricing – pricing good according to what customers are willing to pay Estimate target price and work

backwards to determine how much to charge customer or intermediaries


Demand Elastic –

change in price will effect demand

Inelastic – product is a necessity, there are no substitutes


Cost Markup – the difference between the

wholesale/retail price and the cost of the item

Represented as dollar value or percentage▪ Cost method▪ Retail method


Cost to produce good = $25 Retail price = $49.99

Markup Value▪ Dollar = $24.99▪ Percentage▪ Cost = 100% ($24.99/$25.00)▪ Retail = 50% ($24.99/$49.99)


Product Line Pricing – setting different markup percentages for each product so average markup is achieved for the entire line of goods Can differ for each product line

Pricing

Cost-Plus Pricing – calculating all costs and expenses and adding desired profits Cost of production Employee Salaries Rent

Overall Pricing Considerations

Newness of Product

Competition

Non-Price Competition Competition based on quality, service ,

and relationships

Your Stadium Pricing

Do some research on stadiums of similar size and/or location, and create a chart mapping out the different price levels they offer.

What types of pricing did you find?

Supply and Demand

Review

Cost-plus Pricing Prestige Pricing Odd Even Pricing Target Pricing Product Line Pricing

Review

Markup – Three Kinds Dollar Percentage – Cost Percentage - Retail

Examples

Bobbleheads are purchased at cost for $10/each and resold at $20.

Calculate the following: Dollar Markup = Cost Markup = Retail Markup =

$10Markup/Cost = 100%Markup/Retail = 50%

Examples

If we buy T-Shirts at $7, and want to add a 50% cost markup, how much should our retail price be?

Cost = $7.0050% of cost = $3.50

$3.50 + $7.00 = $10.50

Examples

If we buy the same T-Shirts at $7, and sell them for $10.50, how much is the retail markup?

Markup = $3.50Retail = $10.50

Markup/Retail = 33.3%

Pricing Objectives and Strategies

Market Share – the percentage of the total sales of all companies that sell the same type of product

Special Pricing Strategies

Price Lining

Bundle Pricing

Loss-leader Pricing

Yield Management Pricing


Price Lining- selling all goods in a product line at specific price points ($39.99, $59.99, $79.99)


Bundle Pricing - Selling several items as a package for a set price


Loss Leader Pricing – pricing an item at cost or below cost to draw customers into the store


Yield-management pricing – pricing items at different prices to maximze revenue when limited capacity is involved

Legal/Regulatory Factors

Price Fixing – an illegal practice where competitors conspire to set the same prices

Predatory Pricing – Setting a very low price in order to drive competitors out of business

Both made illegal by Sherman Anti-Trust Act

Legal/Regulatory Factors

Price Discrimination – charging different prices to similar buyers Originally prohibited by Clayton Act and

the Robinson-Patman Act Today, as long as it doesn’t lessen

competition, it is generally considered legal

Use three from this list…

Cost-plus Pricing Prestige Pricing Odd Even Pricing Target Pricing Product Line Pricing Price Lining Bundle Pricing Loss-leader Pricing Yield Management Pricing

Supply and Demand – 4 Basic Rules

• If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.

• If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.

• If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.

• If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity.

Test Format

Similar to Phase II Multiple Choice Short Answer Short Essay/Case Study

april 30, 2012. price – the value placed on goods and services being exchanged determines profit...

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