Makes Cents
Scott Barnes
Nikita Brown
Casey Browning
Brittney Jones
Definitions
• Selling price – the amount a seller charges for a good
or service
• Mark-up – the difference between the cost of a
product and its selling price
• Sales-oriented pricing objectives – increases the total
amount of income from sales
• Maximization – objective of a firm to make the most
possible immediate profit
• Cash flow – the amount of money coming and going
out of the business
• Target return – amount of money businesses want to
earn on their sales
Definitions cont.
• Total cost – fixed and variable cost
• Fixed cost – costs that are not affected by
changes in sales volume
• Variable costs – cost that change according to
changes in sales volume
• Business cycles – ups and downs in economic
activity
• Pure competitive market – when markets have
very little control over pricing
Cont.
• Market price – controlled by supply and demand there
are relatively
• Oligopolistic market - few sellers, and the industry
leader usually determines prices.
• Pure Monopoly- there is only one seller or provider of
a product, and no substitutes are readily available
• Price Fixing- agreeing on a price or price range for a
product.
• Bait-and-Switch advertising-promoting a low-priced
item to attract customers to whom they then try to sell
a higher priced item.
continued
• Unit Pricing- the price per unit (ounce, pound,
etc.) along with the total price of the item.
The Power of Price
• People often think of selling price as the dollar
figure shown on a price tag. However, there
are many other kinds of selling prices, such as:
• Membership dues
• College tuition
• Legal fees
• Insurance premiums
• Bus fare
The Power of Price
• Some people think that a business gets to
keep all the money that a customer pays for a
product. From the selling price, the business
must
• Pay all the costs of the product.
• Pay all of its operating expenses.
• Obtain a profit for the business.
Price It Right
• The purpose of sales-oriented pricing
objectives is to increase the total amount of
income from sales. There are two ways a
business can do this. One way is to charge low
prices in an effort to increase sales volume.
The other is for the business to charge high
prices in an effort to increase the dollar value
of its sales.
Price It Right
• Some specific objectives a business might
achieve by using sales-oriented pricing
include:
• Creating an image for the business.
• Being more competitive.
• Obtaining, maintaining, or increasing
• market share.
Price It Right
• Profit-oriented pricing objectives focus on
creating profits for the business. Some
businesses choose prices that will result in the
greatest possible amount of profit, but most
businesses simply want to recover their costs
and earn a reasonable amount of profit.
Price It Right
• Some of the objectives a business might
achieve through profit-oriented pricing
include:
• Surviving
• Maximizing profits.
• Earning a return on investment.
• Earning a return on sales.
Pick a Price
• Knowing the total costs of a product is very
important in setting selling prices because the
business needs to recover those costs.
• Total costs are made up of two kinds of
costs—fixed and variable.
• Fixed costs are costs that are not affected by
changes in sales volume.
• Variable costs are costs that change according
to changes in sales volume.
Pick a Price
• Supply and demand are determined not only
by what people want but by what they can
afford to buy. When consumer demand for a
product increases, producers make more of it,
the supply increases, and the selling price
goes down.
• As the supply increases, the number of buyers
may decrease, and sellers will have to reduce
the price of a product to get it off the shelves.
Pick a Price
• Marketers monitor business cycles and try to
predict whether business conditions will get
better or worse. This helps them to adjust
their pricing according to the changes in the
economy.
• In times of economic growth, both individuals
and businesses increase their spending, which
increases demand. When demand is higher
than producers can meet, prices go up
Pick a Price
• The kind of market in which the business
operates determines what kind of pricing will
help the business to be more competitive.
Each one affects pricing in a different way:
• Pure competition.
• Monopolistic competition.
• Oligopoly.
• Monopoly
Pick a Price
• There are both state and federal laws that
affect pricing. The major purposes of
government regulation of pricing are to
promote competition and to prevent
monopolies. Some of the pricing areas
regulated by law are:
• Price fixing, Price discrimination, Price
advertising, Unit pricing.
Pick a Price
• No two companies have the same set of
objectives and strategies, but there are several
common factors that affect pricing, including:
• Product mix.
• Product life cycle.
• Target market.