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Phase III: PricingApril 30, 2012
Pricing
Price – The value placed on goods and services being exchanged Determines profit or loss Demand Cost Product Life Cycle Competition
Pricing
Pricing Considerations and Strategies
Prestige Pricing – pricing based on consumer perception
Odd-even pricing – pricing goods with an odd number or an even number to match a product’s image $25.99 $100
Pricing Considerations and Strategies
Target Pricing – pricing good according to what customers are willing to pay Estimate target price and work
backwards to determine how much to charge customer or intermediaries
Pricing Considerations and Strategies
Demand Elastic –
change in price will effect demand
Inelastic – product is a necessity, there are no substitutes
Pricing Considerations and Strategies
Cost Markup – the difference between the
wholesale/retail price and the cost of the item
Represented as dollar value or percentage▪ Cost method▪ Retail method
Pricing Considerations and Strategies
Cost to produce good = $25 Retail price = $49.99
Markup Value▪ Dollar = $24.99▪ Percentage▪ Cost = 100% ($24.99/$25.00)▪ Retail = 50% ($24.99/$49.99)
Pricing Considerations and Strategies
Product Line Pricing – setting different markup percentages for each product so average markup is achieved for the entire line of goods Can differ for each product line
Pricing
Cost-Plus Pricing – calculating all costs and expenses and adding desired profits Cost of production Employee Salaries Rent
Overall Pricing Considerations
Newness of Product
Competition
Non-Price Competition Competition based on quality, service ,
and relationships
Your Stadium Pricing
Do some research on stadiums of similar size and/or location, and create a chart mapping out the different price levels they offer.
What types of pricing did you find?
Supply and Demand
Review
Cost-plus Pricing Prestige Pricing Odd Even Pricing Target Pricing Product Line Pricing
Review
Markup – Three Kinds Dollar Percentage – Cost Percentage - Retail
Examples
Bobbleheads are purchased at cost for $10/each and resold at $20.
Calculate the following: Dollar Markup = Cost Markup = Retail Markup =
$10Markup/Cost = 100%Markup/Retail = 50%
Examples
If we buy T-Shirts at $7, and want to add a 50% cost markup, how much should our retail price be?
Cost = $7.0050% of cost = $3.50
$3.50 + $7.00 = $10.50
Examples
If we buy the same T-Shirts at $7, and sell them for $10.50, how much is the retail markup?
Markup = $3.50Retail = $10.50
Markup/Retail = 33.3%
Pricing Objectives and Strategies
Market Share – the percentage of the total sales of all companies that sell the same type of product
Special Pricing Strategies
Price Lining
Bundle Pricing
Loss-leader Pricing
Yield Management Pricing
Special Pricing Strategies
Price Lining- selling all goods in a product line at specific price points ($39.99, $59.99, $79.99)
Special Pricing Strategies
Bundle Pricing - Selling several items as a package for a set price
Special Pricing Strategies
Loss Leader Pricing – pricing an item at cost or below cost to draw customers into the store
Special Pricing Strategies
Yield-management pricing – pricing items at different prices to maximze revenue when limited capacity is involved
Legal/Regulatory Factors
Price Fixing – an illegal practice where competitors conspire to set the same prices
Predatory Pricing – Setting a very low price in order to drive competitors out of business
Both made illegal by Sherman Anti-Trust Act
Legal/Regulatory Factors
Price Discrimination – charging different prices to similar buyers Originally prohibited by Clayton Act and
the Robinson-Patman Act Today, as long as it doesn’t lessen
competition, it is generally considered legal
Use three from this list…
Cost-plus Pricing Prestige Pricing Odd Even Pricing Target Pricing Product Line Pricing Price Lining Bundle Pricing Loss-leader Pricing Yield Management Pricing
Supply and Demand – 4 Basic Rules
• If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
• If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
• If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
• If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity.
Test Format
Similar to Phase II Multiple Choice Short Answer Short Essay/Case Study