Pricing
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Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Goals
Students
will understand the goals of pricing.
Students will be able to identify the factors affecting
pricing.
Students will be able to explain how pricing affects
product, place and promotion decisions.
Students will be able to explain the use of technology
in the pricing function.
Students will be able to describe the role of business
ethics in pricing.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing Strategies
Terms to Know

Price

Market share

Market position

Return on investment

Break even point

Elastic demand

Law of diminishing marginal utility

Price fixing

Price discrimination

Loss leader

Unit pricing
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
•
•
Price is the value of money placed on
a good or service
The key to setting price is to
understand the value that a customer
would place on the item.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Goal of Pricing
•
Gaining Market
Share
Increase the firm’s
percentage of
total sales in a
given market.
•
Return on
Investment
•
A company may
price their products
to have a certain
percentage of
return on
investment.
•
•
Meeting the
Competition
Some companies
just want to be
priced similarly to
their competitors.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Costs and Expenses
•
•
Costs and expenses are factors that affect
pricing.
Businesses must continually monitor their costs
and expenses when producing a product to
ensure they are making a profit.
•
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Costs and Expenses
•
When costs and expenses rise, business can:
Increase the price of the product
Reduce the size of the product instead of increasing the
price.
Drop features that customers don’t value and maintain the
same price.
Improve products by adding features or upgrades and
charging more for product.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Costs and Expenses
Occasionally costs and expenses may
decrease due to:
o increases in efficiency
o decreased costs
Aggressive firms are always looking for ways to
decrease costs and improve efficiency.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Costs and Expenses
•
•
Businesses are always concerned with their breakeven point. This is the point at which sales revenue
equals the cost and expenses of making the product.
So businesses must determine the minimum number
of products they must sell to cover their costs and
expenses. Any products that they sell after the
minimum will begin to make the business a profit.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Supply and Demand
•
•
•
Demand Elasticity is the degree to which a product is
affected by price.
Elastic demand is when a change in price creates a
change in demand. (steak)
Inelastic demand is when a change in price has very
little effect on demand. (gas)
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Supply and Demand
•
•
•
Customer perception plays a role in pricing also.
Some customers equate quality with price. A high
price equals high quality.
Some businesses will produce a limited edition of a
product and then charge more because of is
exclusivity.
Exceptional customer service can also entice
customers to purchase from certain businesses and
pay more than competitors.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Supply and Demand
Price, as one of the four P’s of marketing, must be
evaluated in relation to the target market. If a
businesses target market is price sensitive they must
carefully consider the price of their product.
If the target market is not price sensitive they can use
other non-price incentives to meet the competition.
Copyright © Texas Education Agency, 2014. All rights reserved.
Pricing
Government Regulations
•
Federal and state laws have been passed that control pricing.
Price fixing – companies get together and agree on a certain price for
products or services.
Price discrimination – when a business charges different prices to
similar customers in similar situations. Robinson-Patman Act allows
exceptions for
Products purchased are physically different
Non-competing buyers are involved
Prices do not hurt competition.
Costs justify the different pricings
Production costs go up
Prices are changed to meet another supplier’s bid.
Copyright © Texas Education Agency, 2014. All rights
Pricing
Government Regulations
Resale Price Maintenance – manufacturers cannot set a
retail price for an item and force retailers to sell it at that
price.
Minimum Price Laws – some states have laws prohibiting
retailers from selling goods below cost. Some states prohibit
this for all products some for only specific products.
In states where it is not prohibited retailers will price an item at
below cost to entice customers to their store. This is called a
loss leader. These are highly popular, well-advertized products
such as diapers or milk.
Copyright © Texas Education Agency, 2014. All rights
Pricing
Government Regulations
Unit Pricing – requires retailers to provide consumers with a
standard unit price such as an ounce or pound to compare
prices between different sized packages. This has affected
grocery stores the most.
Price Advertising – are laws that are regulated by the
Federal Trade Commission to ensure that retailers are not
using deceptive advertising of prices to get customers into
the store.
Copyright © Texas Education Agency, 2014. All rights
reserved.