Price
What is Price?
Price is the value of money (or its
equivalent) placed on a good or service.
Importance of Price
• Establishes image
• Maintains
competitive edge
• Determines profits
Pricing Orientations
• Cost – what a retailer pays for
merchandise
• Competition – struggle between
companies for customers
• Demand – consumer willingness and
ability to buy products
Goals of Pricing
• Profit
• Market Share
• Prestige
Goals of Pricing
Profit
Profit = Sales – Cost
Goals of Pricing
• Market share – a firm’s % of
total sales volume in a given
market
Goals of Pricing
• Prestige
Price Elasticity
• Elasticity is the measurement of how
changing one economic variable affects
others.
For example:
• "If I lower the price of my product, how
much more will I sell?"
• "If I raise the price, how much less will I
sell?"
• "If we learn that a resource is becoming
scarce, will people scramble to acquire it?"
Elasticity
• Elasticity varies among products
because some products may be more
essential to the consumer.
• Products that are necessities are more
insensitive to price changes because
consumers would continue buying
these products despite price increases;
therefore, they are inelastic.
• A good or service is considered to be
highly elastic if a slight change in price
leads to a sharp change in the quantity
demanded or supplied
• An inelastic good or service is one in
which changes in price witness only
modest changes in the quantity demanded
or supplied, if any at all. These goods tend
to be things that are more of a necessity to
the consumer in his or her daily life.
Elastic or Inelastic?
Forms of Price
• Fee you pay for service
• Amount you pay for food, clothes,
etc.
• Interest on a loan
• Dues for a membership
• Tuition for education
• Wages, salaries paid to workers
Pricing Strategies
• Captive Product – sets the price for
one product low but compensates for that
low price by pricing the supplies needed to
operate that product high.
Pricing Strategies
• Multiple-Unit Pricing – 3 for $.99
• Suggests a bargain and helps
increase sales volume.
• Better than selling the same items
at $.33 each.
Pricing Strategies
• Optional Product – setting prices for
accessories or options sold with the main
product.
Pricing Strategies
• Prestige Pricing – sets a higher
than average price to suggest
status, supports a product’s image
Promotional Pricing -- Used with
sales promotion
• Loss Leader Pricing – offering
very popular items for sale at
below-cost prices
• Special-Event
– Back-to-school specials
– Dollar days
– Anniversary sales
• Rebates and Coupons
Steps for Determining Prices
• Establish Pricing
Objectives
– Increase sales
volume?
– Prestigious
image?
– Increase market
share?
Steps for Determining Prices
• Study Costs
– Can you make a
profit?
– Can you reduce
costs without
affecting quality
or image?
Steps for Determining Prices
• Estimate Demand
– What do customers
expect to pay?
– Prices usually are
directly related to
demand.
Steps for Determining Prices
• Study Competition
Steps for Determining Prices
• Decide on a
Pricing Strategy
– Price higher than the
competition because
your product is
superior
– Price lower, and then
raise it once your
product is accepted.
Steps for Determining Prices
• Set Price
– Monitor and evaluate its
effectiveness as conditions in the
market change.
Pricing Technology
• RFID Technology – wireless technology
that involves tiny chips imbedded in
products. The chip has an antenna, a
battery, and a memory chip filled with a
description of the item
Legal Considerations
• Predatory pricing
• Bait and Switch
• MSRP