Factors That Affect Pricing

7/29/2019 Factors That Affect Pricing

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Factors

that Affect

Pricing

2. Pricing

Terms

Price : The

amount

charged to

customers

in

exchange

for goods


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and

services.

Price

communica

tes value to

customers

and profit

to business

owners.

Market

Price : Theprice that

prevails in


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the market

for a

particular

good at a

specific

time. For

example,

the price of

gasoline

posted at

the gasstations

around


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your town

reflects the

market

price.

Supply,

demand ,

and time

are key

elements of

market

price. Forexample,

during


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oyster

season,

prices are

lower

because

they are

more

abundant

(there is

more

supply).Restaurant

s would not


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have to pay

as much

for them.

During the

spring and

summer

months,

oysters

arent in

season so

the pricesare higher.


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3. Costs

Fixed

Costs:

Costs that

remain

constant

over a

period of

time

regardless

of salesvolume.

Insurance


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Rent/Mortg

age

Salaries

Depreciatio

n Variable

Costs:

Costs that

vary based

on sales

volume or

changes inbusiness

needs.


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Commissio

ns

Advertising

Office

Supplies

Utilities

Factors

that Affect

Price

4.

Competitio

n A rivalry


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between

two or

more

businesses

for scarce

consumer

dollars.

Factors

that Affect

Price

5.

Classificati


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ons of

Competitio

n Direct

Competitio

n:

Competitio

n between

businesses

that have

similar

formatsand sell

similar


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products.

McDonald

s & Burger

King Coke

& Pepsi

Hilton &

Marriott

Nike &

Reebok

Lowes &

HomeDepot

Indirect


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Competitio

n:

Competitio

n between

businesses

that have

dissimilar

formats

and sell

dissimilar

products. Amovie

theatre &


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the mall A

restaurant

& miniature

golf course

An airline &

a cruise

line

6. The

option that

is given up

when a

consumer


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chooses

one

product/ser

vice over

another.

For

example, if

someone

chooses

airline

travelinstead of a

cruise, the


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opportunity

cost is not

taking the

cruise.

Classificati

ons of

Competitio

n

Opportunity

Cost

7. Two

Major


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Types of

Competitio

n Price

Competitio

n : A

competitive

strategy in

which

businesses

use price

as a meansto attract

customers.


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The

marketer

assumes

that all

things

being

equal, the

customer

will choose

the product

with thelowest

price. For


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example:

Walmarts

primary

competition

focus is

offering

their

products at

lower

prices than

theircompetitors

. Non-Price


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Competitio

n : A

competitive

strategy in

which

businesses

use factors

other than

price as a

means to

attractcustomers.

For


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example: a

marketer

who cannot

compete

with lower

prices

might use

product

quality,

customer

services,and

business


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image to

attract

customers.

8. Supply

and

Demand

Demand :

The

number of

products

consumers

are willing


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to buy at a

given time

and at a

given price.

Supply :

The

number of

products

manufactur

ers are

willing toproduce at

a given


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time and at

a given

price.

Factors

that Affect

Price

9. Factors

that Affect

Demand

Utility- how

useful is

the product


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Price the

more

expensive,

the less

demand

Advertising

making

public

aware

increases

demandPersonal

selling


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explaining

the

features

and

benefits to

a customer

to stimulate

demand

Display-

seeing

what theproduct

looks like


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or how it

performs

Fashion- is

the product

in style

Consumer

wants/need

s is the

product/ser

vice a

necessityor just a

desire?


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10. Factors

that Affect

Supply

Cost of

production

will affect

how much

a

producers

supplies

Price

themore

expensive


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the less

that may

be supplied

Consumer

demand -

the more

demand,

the more

supplied

Profit goals

how

much does

the


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business

want to

make

Competitio

n is there

any, if so

price and

supply are

important

Governme

nt controls may

affect


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supply if

governmen

t has

quotas or

restrictions

New

technology

could

increase

supply or

create abetter

product


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11. Elastic

Demand

Inelastic

Demand A

product is

said to

have

elastic

demand if

demand for

the productis sensitive

to a


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change in

price. Non-

essential

products

such as

entertainm

ent,

specialty

foods,

fashion

Factorsthat Affect

Price A


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product is

said to

have

inelastic

demand if

demand for

the product

is not

sensitive to

a change in

price.These

products


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are usually

considered

necessities

to the

customer.

Gasoline,

milk, bread,

and

electricity

12. Other

Factors

That Affect


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Price

Economic

conditions :

Economic

health

affects

price by

affecting

consumer

buying

power.Consumers

who


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experience

changes

(positively

or

negatively)

in their

buying

power alter

their

spending

habits inresponse

to those


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changes.

An

individual

who is laid

off from

his/her job

will not

tend to

spend a

great deal

of moneyon non-

essential


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items due

to the

uncertainty

of his/her

economic

future.

Governme

nt

regulation :

Aside from

federal andstate laws

that


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prohibit

unfair

pricing

techniques,

labor laws,

environme

ntal

regulations,

and tax

policy can

have aneffect on

how a


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business

owner has

to price

products.

13. Other

Factors

That Affect

Price

Channel

Members :

The

intermediar


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ies in a

channel of

distribution

all charge a

fee for their

services.

These fees

are

affected by

the same

factors thataffect retail

price. As a


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result,

channel

members

price

changes

reach the

consumer

by affecting

the cost of

products to

businesses. Company

Objectives/


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Strategies :

An

organizatio

n whose

sole

objective is

to survive

the first

critical year

of business

will look atprice

planning


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completely

differently

from an

organizatio

n whose

goal is to

remain the

market

leader.

Price

plannersmust

examine


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the

objectives

and

strategies

of the

company

and

consider all

of the

various

elementsthat

combine to


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make a

business

successful.


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Department stores - very large stores

offering a huge assortment of "soft" and

"hard goods; often bear a resemblance

to a collection of specialty stores. A

retailer of such store carries variety of

categories and has broad assortment ataverage price. They offer considerable

customer service.

Discount stores - tend to offer a wide

array of products and services, but theycompete mainly on price offers extensive

assortment of merchandise at affordable

and cut-rate prices. Normally retailers

sell less fashion-oriented brands. Warehouse stores - warehouses that

offer low-cost, often high-quantity goods
http://en.wikipedia.org/wiki/Department_storehttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Warehouse_storehttp://en.wikipedia.org/wiki/Warehouse_storehttp://en.wikipedia.org/wiki/Discount_storehttp://en.wikipedia.org/wiki/Department_store


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piled on pallets or steel

shelves; warehouse clubs charge a

membership fee;

Variety stores - these offer extremely

low-cost goods, with limited selection;

Demographic - retailers that aim at one

particular segment (e.g., high-end

retailers focusing on wealthy individuals).

Mom-And-Pop : is a retail outlet that is

owned and operated by individuals. The

range of products are very selective and

few in numbers. These stores are seen

in local community often are family-run

businesses. The square feet area of the

store depends on the store holder. Specialty stores: A typical speciality store

gives attention to a particular category
http://en.wikipedia.org/wiki/Warehouse_clubshttp://en.wikipedia.org/wiki/Variety_storehttp://en.wikipedia.org/wiki/Specialty_storehttp://en.wikipedia.org/wiki/Specialty_storehttp://en.wikipedia.org/wiki/Variety_storehttp://en.wikipedia.org/wiki/Warehouse_clubs


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and provides high level of service to the

customers. A pet store that specializes in

selling dog food would be regarded as a

specialty store. However, branded stores

also come under this format. For

example if a customer visits a Reebok or

Gap store then they find just Reebok and

Gap products in the respective stores.

General store - a rural store that supplies

the main needs for the local community;

Convenience stores: is essentially found

in residential areas. They provide limited

amount of merchandise at more than

average prices with a speedy checkout.

This store is ideal for emergency andimmediate purchases as it often works

with extended hours, stocking everyday;
http://en.wikipedia.org/wiki/General_storehttp://en.wikipedia.org/wiki/Convenience_storehttp://en.wikipedia.org/wiki/Convenience_storehttp://en.wikipedia.org/wiki/General_store


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Hypermarkets: provides variety and huge

volumes of exclusive merchandise at low

margins. The operating cost is

comparatively less than other retail

formats.

Supermarkets: is a self-service store

consisting mainly of grocery and limited

products on non food items. They may

adopt a Hi-Lo or an EDLP strategy for

pricing. The supermarkets can be

anywhere between 20,000 and 40,000square feet (3,700 m

2). Example: SPAR

supermarket.

Malls: has a range of retail shops at a

single outlet. They endow with products,food and entertainment under a roof.
http://en.wikipedia.org/wiki/Hypermarkethttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Shopping_Mallhttp://en.wikipedia.org/wiki/Shopping_Mallhttp://en.wikipedia.org/wiki/Supermarkethttp://en.wikipedia.org/wiki/Hypermarket


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Category killers or Category Specialist:

By supplying wide assortment in a single

category for lower prices a retailer can

"kill" that category for other retailers. For

few categories, such as electronics, the

products are displayed at the centre of

the store and sales person will be

available to address customer queries

and give suggestions when required.

Other retail format stores are forced to

reduce the prices if a category specialistretail store is present in the vicinity.

E-tailers: The customer can shop and

order through internet and the

merchandise are dropped at thecustomer's doorstep. Here the retailers

use drop shipping technique. They
http://en.wikipedia.org/wiki/Category_killerhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/E-tailerhttp://en.wikipedia.org/wiki/Category_killer


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accept the payment for the product but

the customer receives the product

directly from the manufacturer or a

wholesaler. This format is ideal for

customers who do not want to travel to

retail stores and are interested in home

shopping. However it is important for the

customer to be wary about defective

products and non secure credit card

transaction. Example: Amazon, Pennyful

and eBay. Vending Machines: This is an automated

piece of equipment wherein customers

can drop the money in the machine and

acquire the products.Some stores take a no frills approach,

while others are "mid-range" or "high end",
http://en.wikipedia.org/wiki/Vending_Machinehttp://en.wikipedia.org/wiki/No_frillshttp://en.wikipedia.org/wiki/No_frillshttp://en.wikipedia.org/wiki/Vending_Machine


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depending on what income level they

target.

Other types of retail store include:

Automated Retail stores are self-service,

robotic kiosks located in airports, malls

and grocery stores. The stores acceptcredit cards and are usually open 24/7.

Examples

include ZoomShopsand Redbox.

Big-box stores encompass larger

department, discount, general

merchandise, and warehouse stores.

Retailers can opt for a format as each

provides different retail mix to its

customers based on their customer

demographics, lifestyle and purchase

behaviour. A good format will lend a hand
http://en.wikipedia.org/wiki/Automated_Retailhttp://en.wikipedia.org/wiki/ZoomShopshttp://en.wikipedia.org/wiki/Redboxhttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Big-box_storehttp://en.wikipedia.org/wiki/Redboxhttp://en.wikipedia.org/wiki/ZoomShopshttp://en.wikipedia.org/wiki/Automated_Retail


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to display products well and entice the

target customers to spawn sales.

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Factors That Affect Pricing

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