Entrepreneurship I
Ind. 5.01 – Develop a foundational knowledge of pricing to understand its role in marketing.
What is Pricing?
· Pricing is a marketing function that involves the determination of an exchange price at which the buyer and seller perceive optimum value for a good or service.
· Effective pricing is important for:
o ______
o ______
· Pricing isn’t as simple as just placing a tag on an item that tells customers how much they owe. It involves:
o ______
§ Buyers & sellers must feel they are receiving the most from the product
o ______
§ The amount of money the buyer is willing to pay and the seller is willing to accept.
Pricing is a Tug of War
· Buyers want ______prices
· Sellers want ______prices
· The trick is to find a ______!
· If this doesn’t happen:
o Consumers spend their money elsewhere
o A businesses sales will decline – products will be discontinued or prices will change
Characteristics of Effective Pricing
· No ______makes an effective price
· Marketers must keep a number of characteristics in mind when setting a price, such as:
o Being ______– neither too high or too low
o Being ______– adjustments may be increases or decrease, depending on the circumstances the business faces
o Being ______– when similar products are offered by your competition, you must be aware of the price they are charging
Prices have many names……
Entrepreneurship I
Ind. 5.01 – Develop a foundational knowledge of pricing to understand its role in marketing.
· Interest
· ______
· Fees
· Dues
· ______
· Admission
· Service Charge
· ______
· Rent
· Etc.
Entrepreneurship I
Ind. 5.01 – Develop a foundational knowledge of pricing to understand its role in marketing.
More About Pricing…
· What is actually being priced?
o The product and all of its ______
§ i.e. In the case of a car, it’s not just the car itself. The price includes the car and all of the associated services—transportation and delivery charges, credit, etc.
Who sets prices?
· Depending on the______, many people may be involved in establishing prices. This person will check competitors’ prices and use the company’s own records to establish prices for the goods and services the business offers.
o In a smaller business, the person most often responsible for setting prices is the manager or owner.
o In larger companies, an ______(part of marketing) is usually responsible for setting prices for the company.
Factors Affecting Price (will talk about more in the second part of the notes!)
Entrepreneurship I
Ind. 5.01 – Develop a foundational knowledge of pricing to understand its role in marketing.
· Costs
· ______
· Economic conditions
· ______
· Government regulations
· ______
· Company objectives and strategies
Entrepreneurship I
Ind. 5.01 – Develop a foundational knowledge of pricing to understand its role in marketing.
How Pricing Affects Product Decisions
· ______
o Research costs money!
· ______
o Can we make a profit by selling this product?
o Can we achieve the return in investment we want?
o Can we set our prices high enough to answer the other two questions with a yes?
· ______
o The quality of materials used is reflected in the product's price
· ______
o A companies pricing strategy will determine the type of customer it will attract
· ______
o Pricing will help to determine the businesses image
How Pricing Affects Promotion Decisions
· ______
o Products with low profit margins are promoted in lower priced media (i.e. radio)
o Products with higher profit margins are promoted in a combo of media (i.e. radio, tv, newspapers, & magazines)
o The bigger the ad, the higher its cost
· ______
o The amount of money spent on promotion is built into the cost of the product, therefore the more promotion=higher price
· ______
o The longer the promotion, the higher the price
How Pricing Affects Place Decisions
· ______
o Businesses choose the type of transportation that fits in their budget & gets the product to the destination at the right time
o The cost of this transportation will be built into the price of the product
· ______
o A product’s price affects where it is sold.
o Goods and services with high prices will be carried by stores that sell higher priced items.
o If a product is priced inexpensively, it will sell at a different type of store.
Pricing Objectives (will talk about more in the second part of the notes!)
· Pricing objectives are the goals a company hopes to accomplish through its pricing strategies
· There are a number of pricing objectives companies may have, they may relate to:
o ______– making as much money as possible or simply covering the cost
o ______– selling as many as possible or gaining a certain market share
o ______
o ______– setting prices to keep a certain image in the customers mind
What is a Selling Price?
· The selling price the ______for a product
· Each business goes through its own process to determine prices.
· Selling prices are dynamic – they do not remain the same, they fluctuate.
Components of the Selling Price (sketch the pie)
Importance of Selling Price
· ______
o Helps them decide how to allocate money
o People cannot buy everything they want so price helps them to decide what they can afford
o Helps them compare products
o Price = Quality
· ______
o Helps them determine amount of income from sales
o They must include enough mark-up to pay current expenses & provide for future growth
o Helps them reach company goals
Pricing Objectives
· A firm’s pricing objectives should be compatible with its marketing objectives.
· The business must know where it wants to go before it can choose selling prices that will help it to get there.
· Sometimes, a business must use a ______of pricing objectives to reach its goals.
· In all cases, the business should set its marketing objectives first, and then select pricing objectives that seem most likely to help it meet its marketing objectives.
· Pricing objective will change as circumstances inside & outside of the business change.
o ______Pricing Objectives
§ Purpose – to increase the total amount of income from sales
§ Two ways to do this:
· Charge lower prices to increase ______
· Charge higher prices to increase the ______
§ Some specific objectives a business might achieve:
· ______
· Being more ______(similar price, higher price, or lower price)
§ Obtaining, maintaining, & increasing market share
o ______Pricing Objectives
§ Purpose – to create profits for the business
§ Some businesses want to make the most profit possible but most simply want to recover costs and make a reasonable profit
§ Some specific objectives a business might achieve:
· ______
· Maximizing profits
· Earning return on ______- specific % of profit based on the amount of money put into the business
· Earning return on ______– basing the amount of profit they want to earn on sales. Corporations often use this to avoid the government of accusing them of unfair trade practices or earning too much profit
Factors Affecting Selling Price
· ______(fixed & variable)
o Knowing the total costs of a product is very important in setting selling prices because the business needs to recover those costs.
o If it doesn’t, the business will eventually go broke.
· ______
o When consumer demand for a product increases, producers make more of it, the supply increases.
o As the supply increases, the number of buyers may decrease, and sellers will have to reduce the price of the game to get it off the shelves.
o On the other hand, if the producer is not able to increase production, and the supply of the product does not increase, the price may go up.
o Customers may be willing to pay the higher price to obtain the product.
o However, if the selling price goes too high, customers may stop buying, and demand will drop.
· ______
o The national economy is always changing.
o Ups and downs in economic activity are known as ______
· Competition
o ______
§ In a pure competitive market, there are a great many buyers and sellers of nearly identical products, and marketers have very little control over pricing.
§ More competition exists in this kind of market than in any other.
§ Most products are sold at market price—the actual price that prevails in a market at any particular moment.
§ Market price is controlled by ______.
§ Sellers can’t raise their prices above the market price because buyers can obtain all they want of the product at the lower, market price.
§ Sellers also can’t lower the price to increase demand because buyers are already buying as much as they want of the product.
o ______
§ In a monopolistic competitive market, there are many buyers and sellers, but there is a range of prices rather than one market price.
§ Demand for products may be elastic or inelastic.
§ Companies make their products ______in terms of quality, service, features, styles, as well as prices, so that competition is not based on price alone.
§ Customers decide which product to buy based on its difference from other products.
§ There are both big firms and small businesses competing in this kind of market.
o ______
§ In an oligopolistic market, there are relatively few sellers, and the ______usually determines prices.
§ Prices are fairly stable because not too many new firms can afford to enter the market.
§ If the industry leader raises or lowers prices, the other firms usually follow suit.
§ Sellers watch each other’s pricing because they know they will lose customers if the competition lowers prices.
§ Competition is more likely to be based on style or brand than on ______.
o ______
§ In a pure monopoly, there is only one seller or provider of a product, and no substitutes are readily available.
§ Pure monopolies have been almost ______by the federal government because monopolies control the pricing of their products.
§ This is unfair to customers who would have to pay whatever price was charged because they could not get the product they needed elsewhere.
§ The monopolies such as utility companies that exist today are either owned or controlled by the ______.
· Government Regulation – state & federal laws
o ______- agreeing on a price or price range for a product. This prohibited because it limits competition
o ______- Businesses are not allowed to charge different prices to similar customers in similar situations if doing so would damage competition. These laws were passed to protect small businesses in their competition with larger businesses. Without these laws, a drug wholesaler selling to two drugstores might charge the large drugstore much lower prices than it would charge the smaller drugstore because the large drugstore buys in larger quantities. This would put the smaller store at a competitive disadvantage.
o ______– prohibits any kind of customer deception.
§ i.e. They may not use bait-and-switch advertising—promoting a low-priced item to attract customers to whom they then try to sell a higher priced item.
o ______- Unit pricing shows the price per unit (ounce, pound, etc.) along with the total price of the item.
§ Some states have laws requiring businesses to use unit pricing.
§ Unit pricing is an added expense for the business because of the time required to calculate unit prices, print labels, and post prices.
§ However, unit pricing makes it easier for consumers to compare
· ______
o Each member must make a ______
o Channel members who perform certain duties in the process of selling products expect producers to provide them with such support as sales and service training, sales promotions, or cooperative advertising.
o Producers must consider the cost of the supports they are expected to provide when they price their products.
o If they price the products too low to be able to provide this kind of assistance, channel members may buy from another producer.
o If they add too much to their prices to cover support activities, the price may be too high to encourage sales.
o When manufacturers and producer raise their prices this is ______
· ______
o Product Mix
o ______
o Target Market