Lesson Plan —Unit Two Goods and Services Course Title: Principles of Business, Marketing, and Finance Session Title: Lesson Thirteen -Prices in a Private Enterprise System Performance Objective: • Upon completion of this lesson, the student will explain how prices are determined in a private enterprise system. Specific Objectives: • Describe how supply and demand affect prices of products and services. • Describe how America’s private enterprise economy works. • Discuss how the selling price of a product is calculated. • Explain the reasons why price is an important marketing tool. • Demonstrate how the economic concept of elasticity of demand relates to pricing decisions. • Describe the three primary ways in which government influences prices. • Describe three common pricing objectives for businesses. • Explain how businesses establish a price range for a product. • Identify the three components that must be considered when determining the selling price. Preparation TEKS Correlations: This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result in the elimination of any or all of the TEKS listed. • 130.112(c)(14)(A) explain the principles of supply and demand • 130.112(c)(3)(C) summarize the characteristics of the private enterprise system • 130.112(c)(14)(B) describe the functions of prices in markets such as supply and demand Interdisciplinary Correlations: English 110.42(b)(6)(A) – Vocabulary Development …expand vocabulary through wide reading, listening, and discussing 110.42(b)(6)(B) – Vocabulary Development … rely on context to determine meanings of words and phrases such as figurative language, idioms, multiple meaning words, and technical vocabulary 110.42(b)(7)(F) – Reading/comprehension …identify main ideas and their supporting details 110.42(b)(7)(G) – Reading/comprehension …summarize texts Copyright © Texas Education Agency, 2011. All rights reserved. 1 110.42(b)(7)(J) – Reading/comprehension …read silently with comprehension for a sustained period of time Interdisciplinary Correlations: Mathematical Models with Applications 111.36(c)(1)(A) – Knowledge and Skills …compare and analyze various methods for solving a real-life problem. 111.36(c)(1)(B) – Knowledge and Skills …use multiple approaches (algebraic, graphical, and geometric methods) to solve problems from a variety of disciplines 111.36(c)(1)(C) – Knowledge and Skills …select a method to solve a problem, defend the method, and justify the reasonableness of the results 111.36(c)(6)(A) – Knowledge and Skills …analyze methods of payment available in retail purchases and compare relative advantages and disadvantages of each option. 111.36(c)(7)(A) – Knowledge and Skills …analyze types of savings options involving simple and compound interest and compare relative advantages of these options. Accommodations for Learning Differences: It is important that lessons accommodate the needs of every learner. These lessons may be modified to accommodate your students with learning differences by referring to the files found on the Special Populations page of this website. References: 1. Intro to Business, Dlabay Burrow Klendl, South-Western Cengage Learning 2. Introduction to Business, Brown Clow, Glencoe McGraw-Hill 3. Marketing, Burrow, South-Western Cengage Learning 4. Online Resources: globaledge.msu.edu, worldnetdaily.com/news/article Instructional Aids: 1. “Prices in a Private Enterprise System” PowerPoint Presentation 2. Customer Service GAP Assignment #1 3. Customer Service GAP Assignment #1 Rubric 4. Ethics and Pricing Assignment #2 5. Ethics and Pricing Assignment #2 Rubric 6. Price Line Assignment #3 7. Price Line Assignment#3 Rubric 8. PRICE ELASTICITY Assignment 9. PRICE ELASTICITY Assignment Rubric 10. Internet Copyright © Texas Education Agency, 2011. All rights reserved. 2 Materials Needed: 1. Construction paper 2. Scissors and glue 3. Poster board 4. Newspapers Equipment Needed: 1. Computers for students to complete projects 2. Projector for PPT Learner Preparation: 1. Ask students how much they are willing to spend on lunch at their favorite restaurant. Then ask students if they would still go to the restaurant if it raised prices by 20%. Elasticity is how consumers respond to increased prices. 2. Ask students what the objective is for the “Monopoly” game. Then ask students why the U.S. government prohibits monopolies. 3. Ask students to comparison shop to determine the price charged for a bottle of coke at three different types of stores. Then ask students why there is such a variation in price for the same product. Explain how limited supply, convenience, and consumer demand make a big difference in the prices being charged by the three businesses. Lesson Plan Introduction (LSI Quadrant I): 1. Ask students why clothing stores periodically mark down prices on clothing. Then explain how clothing is a good that can become obsolete quickly. The store must move the merchandise, so there is a plan of markdowns to clear the merchandise. 2. Ask students why the price of a new automobile may be considerably higher than the price advertised on a television commercial. Explain how all of the extras on the sticker price can add thousands of dollars to the price of the new car. Important Terms for this Lesson: • price-actual amount customers pay and the methods of increasing the value of the product to the customers • elasticity of demand-describes the relationship between changes in a product’s price and the demand for that product • inelastic demand-market situation in which a price decrease will decrease total revenue • elastic demand-market situation in which a price decrease will increase total revenue • selling price-the price charged for a product or service • product cost-includes the cost of parts and raw materials (or the price paid to a supplier for finished products), labor, transportation, insurance, and an amount Copyright © Texas Education Agency, 2011. All rights reserved. 3 • • • • • • • • • • • • • • • for damaged, lost, or stolen products gross margin-the difference between the cost of the product and the selling price operating expenses-all costs associated with business operations net profit-the difference between the selling price and all costs and operating expenses associated with the product sold markup-am amount added to the cost of a product to determine the selling price markdown-a reduction from the original selling price market price-point where supply and demand are equal skimming price-very high price designed to emphasize the quality or uniqueness of the product penetration price-very low price designed to increase the quantity sold of a product by emphasizing the value non-price competition-when business decide to emphasize factors of their marketing mix other than price one-price policy-all customers pay the same price flexible pricing policy-allows customers to negotiate the price within a price range price lines-distinct categories of prices based on differences in product quality and features FOB pricing-identifies the location from which the buyer pays the transportation costs and takes title to the products purchased zone pricing-different product or transportation costs are set for specific areas (zones) of the seller’s market discounts and allowances-reductions in a price given to the customer in exchange for performing certain marketing activities or accepting something other than what would normally be expected in the exchange Copyright © Texas Education Agency, 2011. All rights reserved. 4 Outline Outline (LSI Quadrant II): Instructors can use the PowerPoint presentation, slides, handouts, current events, the Internet, and note pages in conjunction with the following outline. MI . Outline I. Value and Price A. Pricing Factors 1. supply and demand 2. uniqueness 3. age 4. season 5. complexity 6. convenience B. Price for a Product-money a customer must pay for a product or service 1. includes product costs, operating expenses and a profit 2. markup- amount added to the cost of a product to set the selling price equal to the expected gross margin 3. markdown-a reduction from the original selling price II. Price as a Marketing Tool A. Satisfaction about a purchase is often times directly related to price B. price determines how much money a business will make to cover the costs of designing, producing, and marketing its products or services C. Importance of Price 1. satisfactory price-consumer views the purchase as a value 2. price-money that a customer must pay for a product or service (with a lot deeper meaning) 3. price is one of the four elements of the marketing mix 4. price is the actual cost and the methods Copyright © Texas Education Agency, 2011. All rights reserved. Notes to Instructor The age of a product can either decrease or increase the price. Rare antiques and fine wines go up in price with age while vehicles and equipment decrease in price due to age. The markup for most clothing stores is at least 200%. Explain to students why it is worth waiting for the 50% markdown. Clothing stores must move their merchandise. When people pay high prices, they expect high quality and excellent service. For some people price is related to quality. An expensive meal must meet the high expectations of the customer. 5 of increasing the value of the product to the customers 5. pricing-establishing and communicating the value of products and services to prospective customers D. Price Adjustability 1. price can be changed more quickly than other marketing decisions 2. can be as simple as changing a price sticker or marking out an old price III. Price as an Economic Concept A. people have unlimited wants and needs that they try to satisfy with the limited resources that available to society B. price allocates available resources among people C. economic utility-value added through changes in form, time, place, or possession D. elasticity of demand-describe the relationship between changes in a product’s price and the demand for that product 1. based on the number of good substitutes for a product 2. based on the willingness of consumers to go without a product if the price rises too much E. inelastic demand-a price decrease will decrease total revenue F. elastic demand-a price decrease will increase total revenue Some stores seem to always be having the “sale of the year.” Pricing is one element of the marketing mix that can be adjusted frequently to increase the traffic flow of customers. Adults are no different than kids— we always want more than we can afford. Some products are more desirable than others. Spending money on a vacation is much more attractive than spending money for funeral pre-planning. Spending money for a new automobile is much more fun than spending money on the insurance to protect the automobile. Utility also refers to usability to the consumer. A bolt of cloth is not nearly as valuable to the consumer as the suit that was made from the cloth. Copyright © Texas Education Agency, 2011. All rights reserved. 6 IV. Setting Price Objectives A. Maximize Profits B. Increase Sales C. Maintain an Image V. Determining a Price Range A. Maximum Price B. Minimum Price C. Breakeven Analysis-breakeven point is the quantity of a product that must be sold for total revenues to match total costs at a specific price D. Information to Calculate Breakeven Point 1. Fixed Costs 2. Variable Costs 3. Total Costs 4. Product Price 5. Total Revenue E. Calculating a Selling Price 1. product cost-cost of producing or buying the product 2. gross margin-difference between the cost of the product and the selling price 3. operating expenses-all costs associated with actual business operations 4. net profit-difference between the selling price and all costs and operating expenses associated with the product sold 5. markup-an amount added to the cost of a product to determine the selling price 6. markdown-reduction from the original selling price Copyright © Texas Education Agency, 2011. All rights reserved. Individuals take the risk of operating a business to make a profit. Pricing strategies are sometimes based upon the image that the business desires to maintain. Ask students to survey the manager of a store where they shop. Ask the manager how and when markdowns are determined. Do the markdowns increase customer traffic to the store? What is the best promotion to advertise the sale prices? 7 VI. Pricing Based on Market Conditions A. Competitive Environment B. Product Life Cycle 1. types of competition change during product life cycles 2. skimming price-high price designed to emphasize the quality or uniqueness of the product 3. penetration price-a very low price designed to increase the quantity sold of a product by emphasizing the value 4. Consumer Purchase Classificationsprovide an example of different levels of price competition a. staple convenience goods and pricebased shopping goods illustrate intensive price competition b. customers see few product differences C. Non-Price Competition 1. de-emphasizes price 2. carefully study the needs of a target market 3. find out things customer find dissatisfying about the competition 4. develop a better, more satisfying marketing mix When a product is at the end of its life cycle, the price should decrease dramatically. A good example of this concept involves computers that become obsolete or new televisions that replace the previous greatest models. IV. Pricing Strategies A. Price Flexibility 1. one-price policy-all customers pay the same price 2. flexible pricing policy-allows customers to negotiate the price within a price range B. Price Lines-distinct categories of prices based on differences in product quality and features C. Geographic Pricing 1. FOB Pricing-identifies the location from which the buyer pays the transportation costs and takes title to the products purchased 2. zone pricing-different product or transportation costs are set for specific areas (zones) of t he seller’s market D. Discounts and Allowances-reductions in a Automobile dealerships have price lines for different types of vehicles. The GM dealership has the Buick and Cadillac price lines. Copyright © Texas Education Agency, 2011. All rights reserved. Dollar Stores have become increasingly popular because consumers do not feel a need to spend large sums of money on staple convenience goods like toothpaste and toilet paper. FOB pricing affects the final price of a product. FOB dictates whether the producer or the final consumer pays the cost of shipping the merchandise. 8 price given to the customer in exchange for performing certain marketing activities or accepting something other than what would normally be expected in the exchange 1. quantity discount 2. seasonal discount 3. cash discount 4. trade discount 5. trade-in allowance 6. advertising allowance 7. coupon 8. rebate E. Added Value-changing the customer’s perception of value by making additions to the purchase Individuals and businesses are constantly looking for discounts to improve profit margin. Incentives are given for paying on time, paying with cash, and trading in used equipment. When individuals shop for a new automobile, the dealership will give them a trade-in allowance for their old automobile. Consumers should look up the blue book value of their used vehicle before shopping for the new car to make sure that the dealership is giving them a fair deal. Copy and paste Multiple Intelligences Graphic in appropriate place in left column. Verbal Linguistic Logical Mathematical Visual Spatial Musical Rhythmic Bodily Kinesthetic Intrapersonal InterPersonal Naturalist Existentialist Application Guided Practice (LSI Quadrant III): Give students a list that contains the categories of retail stores in sections C, D, and E. Then give students five minutes to write the name of a store for each category. This activity is a good ice breaker for the lesson about retailers. Independent Practice (LSI Quadrant III): Copyright © Texas Education Agency, 2011. All rights reserved. 9 1. Customer Service GAP Assignment: A customer service gap is the difference between customers’ expectations of a service and the actual service they receive. Ask students to recall the last time they purchased a service. Did the performance meet their expectations? Was the price charged directly related to the quality of service provided? What improvements could the business implement to improve the service? Then ask students to prepare a PowerPoint presentation to explain the experience and suggestions for improvements. 2. Ethics and Pricing Assignment: Ticket scalping is prohibited in many states, yet individuals scalp tickets to attend highly demanded events. Ask students to conduct research to determine the meaning of ticket scalping and then research the policy of ticket scalping for a chosen state. Students must prepare a onepage report about ticket scalping, free market economy, and supply and demand. 3. Price Line Assignment: Ask students to select a product or service that has two to three price lines. Then have students create a table with one column for the name of he product or service and one column for each price line. In each price line column, students must list the features that correspond to the price. Then students will prepare a poster that reflects your findings. Summary Review (LSI Quadrants I and IV): Q: What are three factors considered when determining prices? A: Pricing factors include supply and demand, uniqueness, age, season, complexity, and convenience for the product. Q: What is gross margin? A: Gross margin is the markup or amount added to the cost of a product. Q: What is a markdown? A: Markdown is a reduction from the original selling price. Q: How flexible is the price for a product? A: Price can be changed more quickly than other marketing decisions. Q: What are four forms of economic utility? A: Four forms of economic utility include form, time, place, and possession. Q: What is an inelastic demand? A: Inelastic demand means that when prices are reduced, individuals are not stimulated to purchase more; the price decrease will decrease total revenue. Q: What is elastic demand? A: Elastic demand means that lowered prices will increase total sales. Q: How do prices charged by a business create an image? A: Some people associate high prices with superior quality or service. Q: What is breakeven point? A: Breakeven point is the quantity of a product that must be sold for total revenues to match total costs at a specific price. Q: What are operating expenses? A: Operating expenses are all costs associated with actual business operations. Copyright © Texas Education Agency, 2011. All rights reserved. 10 Q: A: Q: A: Q: A: What is an example of non-price competition? Offering superior service is an example of non-price competition. What does FOB involve? FOB determines if the shipper or buyer will pay shipping costs. What is a rebate? A rebate is a discount coupon that can be mailed in after the purchase to receive a discount. PRICE ELASTICITY Ask students to select two products or services that consumers can purchase. Then have students record three prices for each product or service—a low, average, and high price. Survey 20 people and ask them (1) if they would buy the items at the different price levels and (2) how many of the items they would buy at one time at the different price levels. Create a table to show the elasticity of demand for each item based upon survey results. Evaluation Informal Assessment (LSI Quadrant III): 1. Instructor will observe students during Independent Practice. 2. Instructor will assist students as needed. Formal Assessment (LSI Quadrant III, IV): Assigned Rubrics will be used to assess assignments 1, 2, and 3 for Independent Practice (LSI Quadrant III). Extension/Enrichment (LSI Quadrant IV): 1. Many restaurants have gone to $1 menus during tight economic times. Students work for a movie theater. How can the theater use a similar pricing strategy to help increase its business. Ask the student to write two paragraphs to explain your movie theater strategy. 2. Divide the class into groups of two students. Each team is opening a clothing boutique that sells designer clothing and accessories. The shop will be located in an upscale neighborhood. The team must write a price objective for the clothes they sell and give an example of what prices would be charged for several articles of clothing. 3. Ask students to research the price of a ticket for a college football game for different universities. Then ask students to explain why they think the price of the football ticket varies based upon the team, location, etc. Copyright © Texas Education Agency, 2011. All rights reserved. 11 Prices in a Private Enterprise System Independent Practice Assignment Sheet Customer Service GAP Assignment #1: A customer service gap is the difference between customers’ expectations of a service and the actual service they receive. Recall the last time they purchased a service. Did the performance meet your expectations? Was the price charged directly related to the quality of service provided? What improvements could the business implement to improve the service? Prepare a PowerPoint presentation to explain the experience and suggestions for improvements. Ethics and Pricing Assignment #2: Ticket scalping is prohibited in many states, yet individuals scalp tickets to attend highly demanded events. Conduct research to determine the meaning of ticket scalping and then research the policy of ticket scalping for a chosen state. Prepare a one-page report about ticket scalping, free market economy, and supply and demand. Price Line Assignment #3: Select a product or service that has two to three price lines. Create a table with one column for the name of he product or service and one column for each price line. In each price line column, list the features that correspond to the price. Prepare a poster that reflects your findings. PRICE ELASTICITY Ask students to select two products or services that consumers can purchase. Then have students record three prices for each product or service—a low, average, and high price. Survey 20 people and ask them (1) if they would buy the items at the different price levels and (2) how many of the items they would buy at one time at the different price levels. Create a table to show the elasticity of demand for each item based upon survey results. Copyright © Texas Education Agency, 2011. All rights reserved. 12 Prices in a Private Enterprise System Customer Service Gap PowerPoint Assignment #1 Rubric Student Name: _____________________________________________________ 20 15 10 5 or less Content Covers topic in-depth with details and examples. Subject knowledge is excellent. Includes essential knowledge about the topic. Subject knowledge appears to be good. Includes essential information about the topic but there are 1-2 factual errors. Content is minimal OR there are several factual errors. Organization Content is well organized using headings or bulleted lists to group related material. Uses headings or bulleted lists to organize, but the overall organization of topics appears flawed. Content is logically organized for the most part. There was no clear or logical organizational structure, just lots of facts. Attractiveness Makes excellent use of font, color, graphics, effects, etc. to enhance the presentation. Makes good use of font, color, graphics, effects, etc. to enhance to presentation. Makes use of font, color, graphics, effects, etc. but occasionally these detract from the presentation content. Use of font, color, graphics, effects etc. but these often distract from the presentation content. Originality Product shows a large amount of original thought. Ideas are creative and inventive. Product shows some original thought. Work shows new ideas and insights. Uses other people's Uses other people's ideas (giving them ideas, but does not credit), but there is give them credit. little evidence of original thinking. Presentation Well-rehearsed with smooth delivery that holds audience attention. Rehearsed with fairly smooth delivery that holds audience attention most of the time. Delivery not smooth, Delivery not smooth but able to maintain and audience interest of the attention often lost audience most of the time. CATEGORY Total Score _______ Maximum 100 Points Copyright © Texas Education Agency, 2011. All rights reserved. 13 Prices in a Private Enterprise System Ethics and Pricing Assignment #2 Rubric Student Name: _____________________________________________________ 20 15 10 5 or less Organization Information is very organized with wellconstructed paragraphs and subheadings. Information is organized with wellconstructed paragraphs. Information is organized, but paragraphs are not well-constructed. The information appears to be disorganized. 8) Quality of Information Information clearly relates to the main topic. It includes several supporting details and/or examples. Information clearly relates to the main topic. It provides 1-2 supporting details and/or examples. Information clearly Information has little relates to the main or nothing to do with topic. No details the main topic. and/or examples are given. Amount of Information All topics are addressed and all questions answered with at least 2 sentences about each. All topics are addressed and most questions answered with at least 2 sentences about each. All topics are One or more topics addressed, and most were not addressed. questions answered with 1 sentence about each. Sources All sources (information and graphics) are accurately documented in the desired format. All sources (information and graphics) are accurately documented, but a few are not in the desired format. All sources (information and graphics) are accurately documented, but many are not in the desired format. Some sources are not accurately documented. Diagrams & Illustrations Diagrams and illustrations are neat, accurate and add to the reader's understanding of the topic. Diagrams and illustrations are accurate and add to the reader's understanding of the topic. Diagrams and illustrations are neat and accurate and sometimes add to the reader's understanding of the topic. Diagrams and illustrations are not accurate OR do not add to the reader's understanding of the topic. CATEGORY Total Score _______ Maximum 100 Points Copyright © Texas Education Agency, 2011. All rights reserved. 14 Prices in a Private Enterprise System Price Line Poster Assignment#3 Rubric Student Name: _____________________________________________________ CATEGORY 20 15 10 5 or less All but 1 of the required elements are included on the poster. Several required elements were missing. Required Elements The poster includes All required elements all required elements are included on the as well as additional poster. information. Content Accuracy At least 7 accurate facts are displayed on the poster. 5-6 accurate facts 3-4 accurate facts Less than 3 accurate are displayed on the are displayed on the facts are displayed poster. poster. on the poster. Attractiveness The poster is exceptionally attractive in terms of design, layout, and neatness. The poster is attractive in terms of design, layout and neatness. The poster is acceptably attractive though it may be a bit messy. The poster is distractingly messy or very poorly designed. It is not attractive. Knowledge Gained Student can accurately answer all questions related to facts in the poster and processes used to create the poster. Student can accurately answer most questions related to facts in the poster and processes used to create the poster. Student can accurately answer about 75% of questions related to facts in the poster and processes used to create the poster. Student appears to have insufficient knowledge about the facts or processes used in the poster. Most graphics are in focus and the content easily viewed and identified from 6 ft. away. Most graphics are in Many graphics are focus and the not clear or are too content is easily small. viewed and identified from 4 ft. away. Graphics -Clarity Graphics are all in focus and the content easily viewed and identified from 6 ft. away. Total Score _______ Maximum 100 Points Copyright © Texas Education Agency, 2011. All rights reserved. 15 Prices in a Private Enterprise System PRICE ELASTICITY Rubric Student Name: _____________________________________________________ 20 15 Neatness and Attractiveness Exceptionally well designed, neat, and attractive. Colors that go well together are used to make the graph more readable. A ruler and graph paper (or graphing computer program) are used. Neat and relatively Lines are neatly attractive. A ruler drawn but the graph and graph paper (or appears quite plain. graphing computer program) are used to make the graph more readable. Appears messy and "thrown together" in a hurry. Lines are visibly crooked. Type of Graph Chosen Graph fits the data well and makes it easy to interpret. Graph is adequate and does not distort the data, but interpretation of the data is somewhat difficult. Graph distorts the data somewhat and interpretation of the data is somewhat difficult. Graph seriously distorts the data making interpretation almost impossible. Accuracy of Information Information displayed very accurately. Information is within a few percentage points of accuracy. Some information is Information accurate while other displayed in a information is confusing manner. confusing. Presentation Neat vivid presentation. Colorful presentation Colorful presentation Confusing that stays on target that does not presentation. 90% of the time. highlight all necessary details. Overall Effort Extra effort was evident. Basic amount of effort used. CATEGORY 10 Effort seemed to be lacking. 5 or less Project seemed to be a last-minute effort Total Score _______ Maximum 100 Points Copyright © Texas Education Agency, 2011. All rights reserved. 16