Price

What is Price?

Price is the value of money (or its equivalent) placed on a good or service.

Importance of Price

• Establishes image• Maintains

competitive edge• Determines profits

Pricing Orientations

• Cost – what a retailer pays for merchandise

• Competition – struggle between companies for customers

• Demand – consumer willingness and ability to buy products

Goals of Pricing

• Profit• Market Share• Prestige

Goals of Pricing

Profit Profit = Sales – Cost

Goals of Pricing

• Market share – a firm’s % of total sales volume in a given market

Goals of Pricing

• Prestige

Price Elasticity

• Elasticity is the measurement of how changing one economic variable affects others.

For example:• "If I lower the price of my product, how

much more will I sell?"• "If I raise the price, how much less will I

sell?"• "If we learn that a resource is becoming

scarce, will people scramble to acquire it?"

Elasticity

• Elasticity varies among products because some products may be more essential to the consumer.

• Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases; therefore, they are inelastic.

• A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied

• An inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life.

Elastic or Inelastic?

Forms of Price

• Fee you pay for service• Amount you pay for food, clothes,

etc.• Interest on a loan• Dues for a membership• Tuition for education• Wages, salaries paid to workers

Pricing Strategies

• Captive Product – sets the price for one product low but compensates for that low price by pricing the supplies needed to operate that product high.

Pricing Strategies

• Multiple-Unit Pricing – 3 for $.99• Suggests a bargain and helps

increase sales volume.• Better than selling the same items

at $.33 each.

Pricing Strategies

• Optional Product – setting prices for accessories or options sold with the main product.

Pricing Strategies

• Prestige Pricing – sets a higher than average price to suggest status, supports a product’s image

Promotional Pricing -- Used with sales promotion

• Loss Leader Pricing – offering very popular items for sale at below-cost prices

• Special-Event–Back-to-school specials–Dollar days–Anniversary sales

• Rebates and Coupons

Steps for Determining Prices

• Establish Pricing Objectives– Increase sales

volume?– Prestigious

image?– Increase market

share?

Steps for Determining Prices

• Study Costs–Can you make a

profit?–Can you reduce

costs without affecting quality or image?

Steps for Determining Prices

• Estimate Demand– What do customers

expect to pay?– Prices usually are

directly related to demand.

Steps for Determining Prices

• Study Competition

Steps for Determining Prices

• Decide on a Pricing Strategy– Price higher than the

competition because your product is superior

– Price lower, and then raise it once your product is accepted.

Steps for Determining Prices

• Set Price–Monitor and evaluate its

effectiveness as conditions in the market change.

Pricing Technology

• RFID Technology – wireless technology that involves tiny chips imbedded in products. The chip has an antenna, a battery, and a memory chip filled with a description of the item

Legal Considerations

• Predatory pricing• Bait and Switch• MSRP