Market Factors Affecting Price
MKT-FMRE-7
Utilize pricing strategies to maximize return on merchandising efforts and
meet customers’ perception of value.
Terms
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Price
Couture
Bridge lines
Better garments
Moderate lines
Budget lines
Markup
Break even point
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Odd/even pricing
Inelastic demand
Elastic demand
Revenue
Variable costs
Fixed costs
Penetration pricing
Price fixing
Terms
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Price – the amount the consumer pays for
merchandise.
Couture
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– custom made designs
–
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Highest priced category
Elie Saab
Bridge lines
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Secondary lines of well-known designers priced
between couture and better categories.
Also known as diffusion line
Zac Posen collection for
David’s Bridal
Better garments
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Reasonably priced garments that maintain
high quality.
–
Found in specialty stores and department stores
like Chaps by Ralph Lauren.
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Michael Kors @ macys.com
Moderate Lines
Medium priced garments with well-known
brand names like Levi’s and private brands in
department stores.
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INC international concepts
Budget lines
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Least expensive category
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Knockoffs
Downscaled duplications
Target - Sweater Back Vest Navy
Xhilaration
Markup
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It’s the difference between the cost of a good
or service and its selling price.
A markup is added onto the total cost
incurred by the producer of a good or service
in order to cover the costs of doing business
and create a profit.
Break even point
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The point at which cost or expenses and
revenue are equal: there is no net loss or
gain, and one has "broken even."
Odd/even pricing
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A psychological pricing strategy used to
attract a price conscious and prestiguous
market.
$299 – odd
$300 - even
Inelastic demand
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A situation in which the demand for a product
does not increase or decrease
correspondingly with a fall or rise in its price.
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An example of a product with inelastic
demand is gasoline.
Elastic demand
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Demand that increases or decreases as
the price of an item goes down or up.
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clothing
Revenue
Money that is made by or paid to a business or
an organization.
Fixed costs
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Fixed costs remain constant throughout the
given time period. It often includes rent,
buildings, machinery, etc.
Variable costs
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Variable costs are costs that vary with output.
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Variable costs may include wages, utilities,
materials used in production, etc.
Penetration pricing
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The practice of offering a low price for a new
product or service during its initial offering in
order to attract customers away from
competitors.
Price fixing
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Price fixing is an agreement among
competitors that raises, lowers, or stabilizes
prices.
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The antitrust laws require that each
company establish prices and other terms on
its own, without agreeing with a competitor.
EQ:
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What is price (selling price, retail price)?
Objectives
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Define Price and Pricing
List the four market factors that affect price
Identify and discuss each market factor
Define elastic demand and inelastic demand
List the 5 factors that contribute to demand
elasticity
Identify and discuss each factor
Price & Pricing
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Price: the money a customer must pay for a
product or service.
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Part of the Marketing Mix
Pricing: establishing and communicating
the value of products and services to
potential customers.
Four Major Market Factors
That Affect Price
1.
2.
3.
4.
Costs and Expenses
Supply and Demand
Consumer Perceptions
Competition
1. Costs and Expenses
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Increasing costs and expenses lead
companies to:
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Increase price of product or service
Reduce size of product or service
Drop service that is not valued
Add to their product or service
Costs and Expenses contd.
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Lower costs and expenses lead
companies to:
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Decrease prices of products and services
Improved technology and less
expensive materials help companies
produce better-quality products at lower
prices.
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Example: the price of computers
2. Supply and Demand
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With most products:
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This does not apply to some products
Demand Elasticity
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Demand increases with lower prices
Demand decreases with higher prices
The degree to which demand for a product is affected
by its price
Products have either elastic or inelastic
demand
Elastic Demand
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When a change in price creates a
change in demand.
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Example: Price of Steak
Law of Diminishing Marginal Utility
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Consumers will only buy so much of a product
even if the price is low.
Example: Price of Laundry Detergent
Inelastic Demand
When a change in price has very little
effect on demand for a product
 Example:
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Milk
Bread
Demand Elasticity
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The demand elasticity depends on five
factors:
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Brand Loyalty
Availability of Substitutes
Price Relative to Income
Luxury vs. Necessity
Urgency of Purchase
Brand Loyalty
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When a customer
will not buy a
substitute product
over a brand name
of their choice.
In this case brand
is inelastic.
Availability of Substitutes
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When there are a
variety of
substitutes that will
do the same job,
the demand
becomes elastic.
Example:
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Laundry Detergent
Price Relative to Income
If a price increases dramatically and it
is beyond a customer’s budget, they
are less likely to buy it.
 In this situation the demand will be
elastic.
 Example:
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A diamond ring
Luxury vs. Necessity
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When a consumer feels that a product is a
necessity, the demand becomes inelastic.
Example:
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medicine
When a consumer feels that a product is a
luxury, the demand becomes elastic.
Example:
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automobile
Urgency of Purchase
If a purchase must be made
immediately then the demand will be
inelastic.
 Example:
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Running out of gas
3. Consumer Perceptions
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Price planning involves
what the consumers
perceive
Some consumers
associate quality with
price
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High price equals high
quality
High price equals status,
prestige, and
exclusiveness
3. Consumer Perceptions
Businesses limit a supply on the market
to make the consumer think that it is
worth more.
 Example:
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Limited Edition
Personalized service can also add to a
customer’s perception.
4. Competition
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2 Forms:
– Non-Price Competition
– Price Competition
Non-price competition minimizes price as a
reason for purchase. The more unusual a
product, the greater the freedom to set prices
above those of competitors.
Price competition allows a company to gain
target market appeal by lowering prices.
4. Competition
Companies are constantly watching each
other. If one lowers their price, their
competitors will lower their price too.
 Benefit: lower prices for consumers
 Price Wars:
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When a company lowers their price to the point that
they lose profits. Can cause financial trouble.
Summary
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Defined Price and Pricing
Listed the four market factors that affect price
Identified and discussed each market factor
Defined elastic demand and inelastic
demand
Listed the 5 factors that contribute to demand
elasticity
Identified and discussed each factor