Principles of Business, Marketing, and
Finance
Value and Price
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Pricing Factors
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Supply and demand
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Uniqueness
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Age
–
Season
Price
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Money a customer must pay
for a product or service
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Includes product costs,
operating expenses, and a
profit
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Markup-amount added to the
cost of a product to set the
selling price equal to the
expected gross margin
Price as a Marketing Tool
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Satisfaction is related to price.
•
Price determines how much money a business
Importance of Price
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Value in the view of the
customer
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Part of the marketing mix
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Communicates the value
of products and services
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More than the amount
Price Adjustability
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Prices can be changed
quickly
•
Changing a price sticker
Price: An Economic Concept
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People have unlimited wants and needs
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People have limited resources
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Price allocates available resources among people
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Economic utility-value added through changes in
Elasticity of Demand
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Based on the number of
good substitutes for a
product
•
Based on the willingness
of consumers to go
Types of Demand
•
Inelastic-a price
decrease will
decrease total
revenue
•
Elastic-a price
Setting Price Objectives
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Maximize Profits
•
Increase Sales
Determining a Price Range
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Maximum price
•
Minimum price
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Breakeven point
Information to Calculate Breakeven
Point
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Fixed costs
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Variable costs
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Total costs
Calculating a Selling Price
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Product cost
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Gross margin
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Operating expenses
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Net profit
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Markup
Pricing Based on Market Conditions
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Competitive Environment
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Product Life Cycle
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Changing competition during business cycles
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Skimming price-high price designed to emphasize the
quality or uniqueness of the product
Consumer Purchase Classifications
•
Staple convenience
goods and
price-based shopping goods
•
Customers see few
Non-Price Competition
•
De-emphasize price
•
Carefully study the needs of
a target market
•
Find out things customer find
dissatisfying about the
competition
•
Develop a better, more
Pricing Strategies
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Price Flexibility
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One-price policy
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Flexible pricing policy
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Price Lines
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Geographic Pricing
Discounts and Allowances
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Reductions in prices
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Quantity discount
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Seasonal discount
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Cash discount
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Trade discount
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Advertising allowance
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Coupon
Added Value
Changing the customer’s perception of
value by making additions to the
