Schedule Overview…

• 1st block:– Wed., Jan 18th - Ch. 25 Open Note Quiz &

Study Guide Completion– Fri., Jan. 20th – Ch. 25 Test

• 5th block:– Tues., Jan 17th - Ch. 25.2 Notes, Break

Even Assignment, PD Point Assignments– Thurs., Jan. 19th – Ch. 25 Open Note

Quiz and Study Guide Completion– Mon., Jan. 23rd – Ch. 25 Test

Price PlanningChapter 25Marketing I

Sec. 25.1 – Price Planning Considerations

• The different forms of price• The importance of price• The goals of pricing• The difference between market

share and market position

What you’ll learn

What is Price?

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

• Understanding the value that buyers place on a product.

Key to Pricing—Product Value

Huffy - $79.87

Trek - $4949.99Price a product high enough for a profit, but not so high that it exceeds the “VALUE” customers place on the product.

Forms of Price

• Fee you pay for service• Amount you pay for goods• Interest on a loan• Dues for a membership• Tuition for education• Wages, salaries paid to workers

Importance of Price

• Establishes image

• Maintains competitive edge

• Determines profits

Projected Effects of DifferentPrices on Sales

Price per item X

Quantity Sold =

Sales Revenue

$50 200 $10,000

$45 250 $11,250

$40 280 $11,200

$35 325 $11,375

$30 400 $12,000

$25 500 $12,500

An increase in the price of an item may not produce an increase in sales revenue. Why is this true?

Goals of Pricing

• Gaining market share

• Achieving a certain return on investment

• Meeting competition

Market Share

• Companies percentage of total sales volume in a specific category.

OREO -#1 Brand in Cookie Category – 42%

CHIPS AHOY -#2 Brand in Cookie Category – 32%

U.S. Cookie Market Share

Return on Investment

• Will the product be profitable?

– Box of chocolate:

• Sell for $8

• Cost to make & market $6.50

• $8 - $6.50 = $1.50/$6.50…….23% return

Meeting the Competition

• Some companies simply aim to meet the prices of their competition.

• They either follow the industry leader or calculate the average price.

• Examples of products priced in this manner:

• Automobiles

• Soft drinks

Activity

• Calculate the market share for a product category of your choice and create a pie chart representing your findings.

• Link

Warm-Up – Hint: Do this NOW!!• Chad Foster – Read pages 39-62

• You might want to see me about Internship after you finish!

• Sit tight when you are through, we will move on shortly!

Section 25.2 Factors Involvedin Price Planning

The four market factors that affect price planning

What demand elasticity is in relation to supply and demand theory

The government regulations that affect price planning

What you’ll learn

Market Factors Affecting Prices

• Costs and Expenses

• Supply and Demand

• Consumer Perceptions

• Competition

Costs and Expenses

• Responses to Declining Profit Margins• Pass costs on to their consumers

– Examples?• Reduce size of item

– Examples?• Drop less important features

– Examples?• Improving products

– Examples?

What do marketers do when costs orexpenses increase or when sales decline?

Pass costs on to their consumersWhen oil prices increase, we often see an increase in rates charged by airlines

Reduce size of itemCandy manufacturers may decrease the size of the candy bar, instead of increasing the price

Drop less important featuresAirlines may stop serving meals and only offer beverages and pretzels

Improving productsFord designed more comfortable supercabs on some trucks and charged more for those models

Costs and Expenses Examples

Break-Even Point

• The point at which sales revenue equals the cost and expenses of making and distributing a product.

• To calculate the break-even point, the manufacturer divides the total amount of costs and expenses by the selling price

A toy manufacturer plans to make 100,000 dolls that will be sold for $6 dollars each. The cost of making and marketing the dolls is $4.50 per unit, or $450,000 for 100,000 dolls.

How many dolls must the company sell to break-even? $450,000/6= 75,000

Activity

Break-Even Point

Complete the table using the break-even point equation and answer the critical thinking questions.

Supply and Demand

• Elastic Demand

– A change in price creates a change in demand

– Example- If the price of steak were $8 per pound, few people would buy steak, if the price were to drop to $5, $3 and finally $2 per pound, demand would increase at each level

– Law of diminishing marginal utility– Consumers will only buy so much of a

given product, even though the price is low

Supply and Demand

• Inelastic Demand

–A change in price has very little effect on demand for a product

–Milk and bread fall into this category

What determines whether demand for a product is likely to be elastic or inelastic?

Activity

Now You Buy It, Now You Don’t

- Complete the worksheet reviewing elastic and inelastic demand (Note: This is a two-sided document.)

- Marketing 2 presentations!

Consumer Perceptions

• Equate quality with price

• High price may also suggest prestige, status, and exclusiveness– Businesses can create the perception that a

particular product is worth more than others by

limiting the supply of the item (limited editions)

– Personalized service (= higher prices)

Competition

• When products are very similar, price often becomes the sole basis on which consumers make their purchase decisions

– When one company changes prices others usually react

– Price Wars

Government Regulations Affecting Prices• Price Fixing -occurs when competitors

agree on certain price ranges within which they set their own prices

– This eliminates competition

• Sherman Antitrust Act (1890)

– Federal law against price fixing

– Made monopolies illegal

Government Regulations Affecting Prices• Price Discrimination

– Occurs when a firm charges different prices to similar customers in similar situations

• The Clayton Antitrust Act (1914)• The Robinson-Patman Act (1936)

– Prohibits sellers from offering different prices on the same product in similar situations

Government Regulations Affecting Prices• Resale Price Maintenance

– Manufacturers would set a retail price for an item and force retailers to sell it at that price.

• Consumer goods Pricing Act (1975)

– Outlawed practice of punishing retailers

Government Regulations Affecting Prices• Minimum Price Laws

– Selling goods at a very low price– Enacted to prevent retailers from selling

goods below cost– Only a law in some states

• States without this law, use technique to draw customers into store

–Loss leader (businesses take a loss on the item)

Government Regulations Affecting Prices• Unit Pricing

– Many states have passed laws to make it easier for consumers to compare similar goods that are packaged in different sizes

– Standard unit or measure such as an ounce or pound

Government Regulations Affecting Prices• Price Advertising

– FTC developed guidelines for advertising prices

• Price reductions

• Claiming prices are lower than competitors

• Bait and switch

Schedule Overview…

• 1st block:– Wed., Jan 18th - Ch. 25 Open Note Quiz &

Study Guide Completion– Fri., Jan. 20th – Ch. 25 Test

• 5th block:– Tues., Jan 17th - Ch. 25.2 Notes, Break

Even Assignment, PD Point Assignments– Thurs., Jan. 19th – Ch. 25 Open Note

Quiz and Study Guide Completion– Mon., Jan. 23rd – Ch. 25 Test