Ind. 5.01 – Develop a foundational
knowledge of pricing to understand
its role in marketing. (Part I)
ENTREPRENEURSHIP I
Warm-up
Tuesday, May 20th
What is Pricing?
 Pricing is a marketing function that involves the
determination of an exchange price at which the
buyer and seller perceive optimum value for a good
or service.
 Effective pricing is important for:
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Customer satisfaction
The continued success of a business
What is Pricing?
 Pricing isn’t as simple as just placing a tag on an item
that tells customers how much they owe. It involves:

Perceiving Optimum Value
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Buyers & sellers must feel they are receiving the most from the
product
Determining the exchange price

The amount of money the buyer is willing to pay and the seller is
willing to accept.
Pricing is a Tug of War
 Buyers want low prices
 The trick is to find a
 Sellers want high prices
balance!
 If this doesn’t happen:
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Consumers spend their
money elsewhere
A businesses sales will
decline – products will be
discontinued or prices will
change
PRODUCT LIFE CYCLE
Product Life Cycle Strategies
 Introduction stage: stimulate consumer interest and
create awareness.
 Growth stage: stress benefits of a product over its
competitor’s products.
 Maturity stage: repositioning a product.
 Decline stage: greatly reduce marketing or drop
product due to poor sales.
MATURITY STAGE
 A business will stabilize a product's price
during the maturity stage
 Strategies during this stage may include
repositioning a product.
 Choosing a different target market to position the
product.
Factors Affecting Price
 Costs
 Supply and demand
 Economic conditions
 Competition
 Government regulations
 Channel members
 Company objectives and
strategies
To remain competitive a
manager of a local business
keep track of the prices that
similar businesses in the
area are charging
FLEXIBLE PRICING POLICY
 Method of selling where the prices are open to
negotiations between buyers and sellers, and allow for
bargaining within a certain range.
Example: Lowering prices during bad
economic times
 costs of raw materials increase considerably,
a business is likely to increase the selling
price of a product.
How Pricing Affects Place Decisions
 The price function often
influences the place function by
determining where the product is
sold.
 Goods and services with high prices will
be carried by stores that sell higher
priced items.
Pricing Objectives
 some new companies set their selling prices
as low as they can to get market share as fast
as possible
SALES-ORIENTED PRICING OBJECTIVES
the purpose of sales-
oriented pricing objectives
to increase the total
amount of sales income
 One reason why the target
market of a business affects its
pricing is because consumers
in each target market judge
the value of products
differently.
Prices have many names……
 Interest
 Wages/Salary
 Fees
 Dues
 Fare
 Admission
 Service Charge
 Tuition
 Rent
 Etc.
More About Pricing…
 What is actually being priced?

The product an all of its
associated services
 i.e. In the case of a car, it’s
not just the car itself. The
price includes the car and
all of the associated
services—transportation
and delivery charges, credit,
etc.
 Who sets prices?

Depending on the size of the
business, many people may be
involved in establishing prices.
This person will check
competitors’ prices and use the
company’s own records to
establish prices for the goods
and services the business
offers.


In a smaller business, the
person most often
responsible for setting prices
is the manager or owner.
In larger companies, an
entire department (part of
marketing) is usually
responsible for setting prices
for the company.
How Pricing Affects Product Decisions
 Research
 Research costs money!
 Profit Decisions
 Can we make a profit by
selling this product?
 Can we achieve the return in
investment we want?
 Can we set our prices high
enough to answer the other
two questions with a yes?
 Materials used in
production

The quality of materials used
is reflected in the product's
price
 Customer Decisions
 A companies pricing strategy
will determine the type of
customer it will attract
 Company Image
 Pricing will help to
determine the businesses
image
How Pricing Affects Promotion Decisions
 Choice of Medium


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Products with low profit
margins are promoted in
lower priced media (i.e.
radio)
Products with higher
profit margins are
promoted in a combo of
media (i.e. radio, tv,
newspapers, & magazines)
The bigger the ad, the
higher its cost
 Amount of Money Spent

The amount of money
spent on promotion is
built into the cost of the
product, therefore the
more promotion=higher
price
 Time Allocated to the
Promotion

The longer the promotion,
the higher the price
How Pricing Affects Place Decisions
 Choice of Transportation
Channels

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Businesses choose the
type of transportation that
fits in their budget & gets
the product to the
destination at the right
time
The cost of this
transportation will be
built into the price of the
product
 Where the Product is
Offered

A product’s price affects
where it is sold.
Goods and services with
high prices will be carried
by stores that sell higher
priced items.
 If a product is priced
inexpensively, it will sell at
a different type of store.

Pricing Objectives
 Pricing objectives are the goals a company hopes to
accomplish through its pricing strategies
 There are a number of pricing objectives companies
may have, they may relate to:
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Profitability – making as much money as possible or simply
covering the cost
Sales – selling as many as possible or gaining a certain market
share
Competition
Image/Prestige – setting prices to keep a certain image in the
customers mind
Ind. 5.01 – Develop a foundational
knowledge of pricing to understand
its role in marketing. (Part II)
ENTREPRENEURSHIP I
What is a Selling Price?
 The selling price the amount the seller charges for a
product
 Each business goes through its own process to
determine prices.
 Selling prices are dynamic – they do not remain the
same, they fluctuate.
Components
of the
Selling Price
From selling price,
the business must:
Pay all of the
costs of the
product
Pay
operating
expenses
Obtain a
profit
Importance of Selling Price
 For Customer

Helps them decide how to
allocate money
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People cannot buy
everything they want so
price helps them to decide
what they can afford
Helps them compare
products

 For Businesses
Price = Quality
Helps them determine
amount of income from
sales


They must include enough
mark-up to pay current
expenses & provide for
future growth
Helps them reach
company goals
Pricing Objectives
 A firm’s pricing objectives should be compatible with
its marketing objectives.

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The business must know where it wants to go before it can
choose selling prices that will help it to get there.
Sometimes, a business must use a combination of pricing
objectives to reach its goals.
In all cases, the business should set its marketing objectives
first, and then select pricing objectives that seem most likely to
help it meet its marketing objectives.
 Pricing objective will change as circumstances inside
& outside of the business change.
Sales-Oriented Pricing Objectives
 Purpose – to increase the total amount of income
from sales
 Two ways to do this:


Charge lower prices to increase sales volume
Charge higher prices to increase the dollar value of its sales
 Some specific objectives a business might achieve:
 Creating an image
 Being more competitive (similar price, higher price, or lower
price)
 Obtaining, maintaining, & increasing market share
Profit-Oriented Pricing Objectives
 Purpose – to create profits for the business
 Some businesses want to make the most profit possible but
most simply want to recover costs and make a reasonable
profit
 Some specific objectives a business might achieve:
 Surviving
 Maximizing profits
 Earning return on investment - specific % of profit based on
the amount of money put into the business
 Earning return on sales – basing the amount of profit they
want to earn on sales. Corporations often use this to avoid the
government of accusing them of unfair trade practices or
earning too much profit
Factors Affecting Selling Price
 Costs (fixed & variable)


Knowing the total costs of a
product is very important in
setting selling prices because the
business needs to recover those
costs.
If it doesn’t, the business will
eventually go broke.
 Supply & Demand
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When consumer demand for a
product increases, producers
make more of it, the supply
increases.
As the supply increases, the
number of buyers may decrease,
and sellers will have to reduce the
price of the game to get it off the
shelves.
On the other hand, if the producer
is not able to increase production,
and the supply of the product does
not increase, the price may go up.
Customers may be willing to pay
the higher price to obtain the
product.
However, if the selling price goes
too high, customers may stop
buying, and demand will drop.
Factors Affecting Selling Price
 Economic Conditions
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The national economy is
always changing.
Ups and downs in
economic activity are
known as business cycles.
Factors Affecting Selling Price - Competition
 Pure Competition
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In a pure competitive market, there are a great many buyers and
sellers of nearly identical products, and marketers have very little
control over pricing.
More competition exists in this kind of market than in any other.
Most products are sold at market price—the actual price that prevails
in a market at any particular moment.
Market price is controlled by supply and demand.
Sellers can’t raise their prices above the market price because buyers
can obtain all they want of the product at the lower, market price.
Sellers also can’t lower the price to increase demand because buyers
are already buying as much as they want of the product.
Factors Affecting Selling Price - Competition
 Monopolistic Competition
 In a monopolistic competitive market, there are many buyers
and sellers, but there is a range of prices rather than one
market price.
 Demand for products may be elastic or inelastic.
 Companies make their products different from each other in
terms of quality, service, features, styles, as well as prices, so
that competition is not based on price alone.


Customers decide which product to buy based on its
difference from other products.
There are both big firms and small businesses competing in
this kind of market.
Factors Affecting Selling Price - Competition
 Oligopoly
In an oligopolistic market, there are relatively few sellers,
and the industry leader usually determines prices.
 Prices are fairly stable because not too many new firms
can afford to enter the market.
 If the industry leader raises or lowers prices, the other
firms usually follow suit.
 Sellers watch each other’s pricing because they know they
will lose customers if the competition lowers prices.
 Competition is more likely to be based on style or brand
than on price.

Factors Affecting Selling Price - Competition
 Monopoly
In a pure monopoly, there is only one seller or provider of
a product, and no substitutes are readily available.
 Pure monopolies have been almost eliminated by the
federal government because monopolies control the
pricing of their products.
 This is unfair to customers who would have to pay
whatever price was charged because they could not get
the product they needed elsewhere.
 The monopolies such as utility companies that exist today
are either owned or controlled by the government.

Factors Affecting Selling Price
 Government Regulation – state & federal laws
 Price Fixing - agreeing on a price or price range for a product.
This prohibited because it limits competition
 Price Discrimination - Businesses are not allowed to charge
different prices to similar customers in similar situations if
doing so would damage competition. These laws were
passed to protect small businesses in their competition with
larger businesses. Without these laws, a drug wholesaler
selling to two drugstores might charge the large drugstore
much lower prices than it would charge the smaller
drugstore because the large drugstore buys in larger
quantities. This would put the smaller store at a competitive
disadvantage.
Factors Affecting Selling Price
 Government Regulation – state & federal laws (cont)
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Price Advertising – prohibits any kind of customer deception. i.e.
They may not use bait-and-switch advertising—promoting a lowpriced item to attract customers to whom they then try to sell a
higher priced item.
Unit Pricing - Unit pricing shows the price per unit (ounce, pound,
etc.) along with the total price of the item.
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Some states have laws requiring businesses to use unit pricing.
Unit pricing is an added expense for the business because of the time
required to calculate unit prices, print labels, and post prices.
However, unit pricing makes it easier for consumers to compare
Factors Affecting Selling Price
 Channel Members
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Each member must make a profit
Channel members who perform
certain duties in the process of
selling products expect producers to
provide them with such support as
sales and service training, sales
promotions, or cooperative
advertising.
Producers must consider the cost of
the supports they are expected to
provide when they price their
products.

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If they price the products too low to be
able to provide this kind of assistance,
channel members may buy from
another producer.
If they add too much to their prices to
cover support activities, the price may
be too high to encourage sales.
When manufacturers and producer
raise their prices this is passed on
the consumer
 Company Objectives &
Strategies
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Product Mix
Product Life Cycle
Target Market