Warm-up
 What factors should be considered
when determining the price of a
product?
Do you have a calculator with you?
If you need one, take from bag on my desk
Pricing Strategies
PART OF THE
MARKETING MIX
(PRODUCT, PRICE, PLACE, PROMOTION)
Pricing Objectives
 Meeting a return on investment or profit
 Building Traffic
 Achieving market share
 Increasing sales
 Creating an image
 Social objectives
Pricing Strategies

Three major factors used when determining a
price for a product
Cost
Demand
Competition
Cost-Oriented Pricing
Producers calculate the COST of making a product, then add preferred profit
Markup Pricing
 Commonly used by wholesalers & retailers
 Expressed as a percentage
Selling Price = Cost x (1 + mark-up percent)
Example:
 Costs store $7
 Store seeks a 25 percent markup
 What will the selling price be?
 7 x 1.25 = 8.75
Example 2
 Store buys for $12
 Sells for $20
What is the mark-up?
 20 – 12 = 8
 8/12 = 66%
Cost-Oriented Pricing
Producers calculate the COST of making a product, then add preferred profit
Cost-Plus Pricing
 Commonly used by manufacturers &
service businesses
 Expressed as a $ amount
 Example



Job costs $200 to perform
Add $100 as profit
Charge $300 to the client
 200
+ 100 = 300
Demand Oriented Pricing (Target Pricing)
What are consumers willing to spend on a product or service?
 Price is set in relation to Demand & Supply of the
product/service
Limited
Supply
High
Demand
HIGH
PRICE
Plenty
Supply
Low
Demand
LOW
PRICE
Product Line Pricing
 Pricing a product at various price levels in order to
appeal to different segments of the market
 Example



Appliance manufacturer creates a dishwasher
Sells in different versions (basic, midline, and premium)
Different prices for each version to appeal to different
segments of buyers
 Targeted at consumers for whom price is important
in choosing the model of a product
Psychological Pricing
 Based on the theory that
certain prices have a
psychological impact
 Retail prices expressed
as "odd prices“ or a little
less than a round
number
 Examples



$7.99 vs. $8.00
$19.99 vs. $20.00
$199 vs. $200
Remember these Pricing Strategies

Three major factors used when determining a
price for a product
Law of Demand
Price Lining
Psychological Pricing
Markup Pricing
Cost-Plus Pricing
Cost
Demand
Competition
Competition-Oriented Pricing
Three Possible Actions
Price above
competition
Price below
competition
Price in line
with
competition
(going-rate)
Pricing Policies & Product Life Cycle
Introducing a new product
Skimming
Penetration
• Sets a HIGH price
• Used when competition is low
• Lower price after introduction
• Sets a LOW price
• Used to build market share
• Price raised later
Other Price Strategies
Everyday Low Pricing (EDLP)
 Setting prices lower than competitors and never
having sales.
High-Low Strategy
 Set prices higher than EDLP stores but have many
sales.
Other Price Strategies
Loss Leader
 Setting very low prices on certain items in order to
build store traffic.
Prestige Pricing
 Setting a very high price to create an image of high
quality.
Non-Price Competition
Quality
Service
Relationship
Pricing Strategies Summary

Three major factors used when determining a
price for a product
Law of Demand
Price Lining
Psychological Pricing
Markup Pricing
Cost-Plus Pricing
Cost
Non-price
competition
Quality
Service
Relationships
Demand
Competition
Skimming
Penetration
Going rate/in-line with
competition
Break-Even Analysis
Process used to determine profitability at various
levels of sales.
Break-even point =
Total Fixed Cost (FC)
Unit Price one unit (P) – Variable cost one unit(VC)
Fixed Cost = Expenses that remain the same no matter how
many units are sold.
Variable Cost = Costs that change according to the level of
production.
Breakeven Point = Point at which sales equal all costs.
Determine the Break-Even Point
Selling Price = $5
Variable Cost = $3
Fixed Cost = $50,000