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• Is the rate of value used to exchange goods and services
• May be in monetary or non-monetary terms
– monetary example:
• paying $75 for a pair of shoes
– non-monetary examples:
• an office supply store giving merchandise to a newspaper producer in exchange for advertising
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• Can influence the success or failure of a company
• Can establish a business’s image, position in the market and competitive edge
• Is used by customers to make judgments about products and services regarding quality and value
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• Is the level of satisfaction associated with a particular good or service
• Is largely influenced by price
• Is perceived differently by each consumer
• Is not the same as quality
– quality is about performance level while value is about performance relative to cost
– for example, a shirt may be of poor quality, but at only $2, it can still be a good value, while a shirt of high quality could be a poor value if priced too high
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• Include:
– create/enhance value
– maximize profits
– increase market share
– increase customer satisfaction
– “beat” the competition
– enhance the business’s image
Market Share a firm’s percentage of total sales volume within a given market or industry
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• Include:
– costs and expenses
– competition
– customer perceptions
– consumer income
– supply and demand
– laws and ethics
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• Typically directly influence price
• Changes will sometimes result in changes in price
– increased costs will often result in increased prices
– decreased costs don’t always result in decreased prices
• When considered with price, determine a business’s break-even point and profit margins
Break-Even Point - the point at which sales equal expenses
Profit Margin – the ratio of profit to cost
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• Includes the following types:
– price competition
 refers to competition based solely on price
 largely affects pricing strategy
 can cause industrybased “price wars”
– non-price competition
 refers to competition based on factors other than price, such as customer service or features and benefits
 has much less affect on pricing strategy
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• Refer to how customers view a business and its products and/or services
– everyone sees a different level of value in various business offerings
• Are influenced by factors including personal experiences, opinions of others, and the components of the marketing mix
• When favorable, can result in brand loyalty
– the tendency to be faithful to a specific brand regardless of price or convenience
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• Has a considerable impact on determining a target market
• Should be an influential factor when determining a final sales price
• Should reflect the pricing strategy used
Target Market - the specific group of customers to which a product is marketed
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• Are basic economic concepts businesses consider when pricing
– supply refers to the amount of goods/services producers are willing to produce and sell
– demand refers to the amount of goods/services customers are willing and able to buy
• Interact to cause the following:
– surplus: when supply exceeds demand
– shortage: when demand exceeds supply
– equilibrium: when supply and demand are equal
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• States price and supply move in the same economic direction
– as one increases or decreases, the other will do the same
• States price and demand move in the opposite economic direction
– as one increases of decreases, the other will do the opposite
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• Refers to the degree in which demand is affected by price
• Classifies goods and services as either having elastic demand or inelastic demand
• Can create exceptions to the law of supply and demand
• Indicates whether sales will respond to a change in price
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• Applies to products and services for which a small change in price creates a change in demand
• Occurs with non-essential goods/services, those for which a purchase can be postponed, and those for which there are substitutes
– entertainment, travel, convenience foods, luxury items, etc.
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• Applies to products and services for which a small change in price has little or no affect on demand
• Occurs with essential goods and services
– milk, bread, gasoline, toilet paper, medical care, etc.
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• Include:
– cost-oriented pricing
– demand-oriented pricing
– competition-oriented pricing
• Are usually used in combination to determine ideal price
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• Is based on projected profit margins
• Takes into account the cost of production and the company’s profit objectives
– for example, if a widget costs a company $10 to make and distribute, and a 20 percent profit margin is needed, the widget is priced at $12
• Is very common because it uses a simple equation to calculate price
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Production
Cost (C)
$20
$20
$150
$150
Markup %
(M)
30%
60%
30%
60%
Total Sales
Price
$26
$32
$195
$240
(C x M) + C = total sales price
Markup - adding a specific amount to the cost of the goods in order to generate an exact profit margin
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• Is calculated based on the highest price customers are willing to pay
• Allows for changes in price based on changes in demand
– for example, a widget costs a company $10 to produce and distribute, but people are willing to pay $25, so that is where the price is set until demand changes
• Is often used for new or trendy products
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• Is used to price products above, below or at the same level as the competition
• Does not rely on cost- or demand-based methods
– for example, a widget is priced by one company at $25, so a competitor prices it at $20.99 to gain a competitive advantage without losing profitability
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• Are either one price or flexible
– a one price policy
 requires all customers pay the same amount for the same product
 is associated with price tags, signs and retail stores
 does not allow for price deviations or bargaining
– a flexible pricing policy
 allows customers to pay different rates for similar products
 permits customers to negotiate sales prices
 is often used when purchasing cars, services, antiques or bundled items
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• Are important to consider in pricing
• In pricing classify the following practices as unacceptable:
– price fixing
– price discrimination
– bait-and-switch advertising
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• Occurs when two or more competing companies conspire to set prices for specific goods and agree not to raise prices
• Is illegal because it eliminates competition and consumer choice, but can be difficult to prove
• Most commonly occurs when gas stations agree to leave gas prices above a set price
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• Occurs when a company charges customers in similar situations different prices for the same item
• Is illegal in some situations, but because of its various definitions and conditions, is commonly seen in other situations
– for example, car dealerships are often accused, but buyers vary in terms of needs and ability to pay, so discrimination can rarely be proven in these cases
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• Is a form of fraud in which customers are enticed with a low-price product the seller does not actually intend to sell
– seller baits customers with a seemingly great deal and then tries to switch it for a more expensive item by claiming the bait is out of stock, of low quality, etc.
• Is illegal in most states, but is also very difficult to prove
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• Include:
– price skimming
– penetration pricing
– price lining
– bundle pricing
– geographical pricing
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• Sets a high price for a new product to generate popularity or demand
• Is used to stimulate excitement and interest in a product
• Should only be used in short-term situations
– for example, charging a high price for a new brand of cologne in order to appear special
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• Is the opposite of price skimming
• Sets a low price for a new product in order to penetrate the market
• Allows the mass market to try the product
• Detracts attention from the competition
• Should only be used with price-sensitive and common household items
– for example, charging $.25 for a new drink in order to get people to try it
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• Is a technique used to create standardized price lines
• Often consists of low, medium and high price levels for a company’s product line based on features, benefits or quality
– for example, one model of computer may come in an economical version at $400, standard version at $500 or loaded version at $600
• Limits the number of prices used for specific groups of merchandise
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• Offers complimentary products in a package sold for a single price
• Offers smaller or less expensive products at a reduced rate if purchased with a larger, more expensive item
– for example, a video game console may be discounted when purchased with a number of games
• Is most common with services
– for example, communication providers often offer television, internet and phone services in a package
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• Refers to price adjustments made based on a customer’s location
• Accounts for varying costs of transportation of products
– for example, many products are more expensive in places which include higher transportation costs, such as Alaska and Hawaii
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• Is a marketing approach in which illusions are created with the use of strategies based on customer habits and motivation
• Include:
– odd-even pricing
– prestige pricing
– multiple-unit pricing
– everyday low prices (EDLP)
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• Is a technique which involves setting prices which all end in either odd or even numbers
• Is based on the principle that odd numbers convey bargains and even numbers convey quality
• Examples include:
– odd pricing- $9.99, $499, $79
– even pricing- $10, $500, $80
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• Is when an artificially high price is set for a product or service in order to convey status or quality
• Is common for luxury goods and services
• Typically is most effective for well-known brands
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• Is a pricing technique used to suggest a special deal
• Combines more than one item in the sales price
• Often includes a higher price, if items purchased individually, showing savings
– for example, 1 for $10 or 3 for $25
• Is common for household items, food and items normally purchased in quantity
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• Are used to convey a message of price consistency
• Are not raised or lowered due to discounts, sales or coupons
• Are often associated with large multi-purpose retailers
– for example, Walmart ® claims to save customers money and time with low prices offered everyday
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• Is a pricing method in which businesses offer a lower price temporarily
• Includes:
– loss-leader pricing
– special event pricing
– rebates and coupons
– discounts
Limited
Time Only!
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• Is used to increase store traffic by offering one popular item at a price below its production cost
• Is used to increase sales of other products once the customer has entered the store
• Is illegal in some states
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• Is when special prices are established for certain dates or seasons
• Is usually associated with specific events or holidays
• Examples include Presidents’ Day sales,
Black Friday sales, back-to-school sales, grand opening sales
Grand Opening!
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• Are partial refunds provided by a manufacturer or retailer
• Are used to attract customer interest
• Are only available for a limited time or in conjunction with specific products
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• Are reductions to regular pricing
• Include the following types:
– employee
– quantity (for large orders)
– seasonal (for out-of-season items)
– cash (for timely payments)
– promotional (for specific items, such as old, new or overstocked)
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• Consists of the following steps:
1. establish pricing objectives
2. determine costs
3. estimate demand
4. study competition
5. select a pricing strategy
6. set a price point
7. monitor, evaluate and adjust the price
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• Should account for the following:
– inflation
– changes in trends or customer habits
– changes in competition
– increased or decreased costs
– pricing strategies or company goals product quality increase in price due to economic factors and purchasing power
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1. (T/F) Price can be expressed in nonmonetary terms.
2. List two goals of pricing.
3. Describe two factors which affect price.
4. What is the difference between elastic and inelastic demand?
5. Calculate the final sales price for a bucket which cost $10 to manufacturer, if the markup percentage is 30 percent.
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6. (T/F) Bait-and-switch advertising is legal in most states.
7. What is prestige pricing?
8. What is the purpose of an odd pricing strategy?
9. What does EDLP stand for?
10. What are two types of discounts?
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