Chapter 25 Section 25.2.ppt

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Chapter 25  Price Planning 1

Marketing Essentials

Marketing

Essentials

 Chapter 25 Price Planning

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SECTION 25.2

What You'll Learn

Factors Involved in

Price Planning

Factors Involved in

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}

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Why It's Important

Why It's Important

Pricing a product may seem like an easy task, but there are many factors affecting that decision that must be taken into

consideration. Skipping even one aspect of this process could cost a business

millions of dollars in lost sales, or even in fines or lawsuits if the laws governing

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Key Terms

Key Terms

 _{break-even point}  _{elastic demand}

 _{law of diminishing marginal utility}  _{inelastic demand}

 _{price fixing}

 _{price discrimination}  _{loss leader}

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Pricing decisions are not necessarily easy.

Most price planning begins with an analysis of

costs and expenses, many of which are related

to current market conditions. An organization's goals also must be considered.

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Costs and Expenses

Businesses constantly monitor, analyze, and

project prices and sales in the light of costs

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Responses to Declining Profit Margins

When profits decline, some businesses

increase price. Others feel that price is so

important in the marketing strategy of a product that instead of making price

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Responses to Lowering Costs or Expenses

Prices may occasionally be lowered

because of decreased costs and expenses. Improved technology and less expensive

materials may help create better-quality

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

The break-even point is the point at which sales revenue equals the costs and

expenses of making and distributing a product. This is especially important to

consider when marketing a new product or establishing a new price.

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

The degree to which demand for a product is affected by its price is called demand

elasticity. Demand elasticity is affected by:

Supply and Demand

Slide 1 of 2

 _{brand loyalty}

 _{price relative to income}  _{availability of substitutes}  _{luxury vs. necessity}

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

The law of diminishing marginal utility states that consumers will buy only so much of a given product, even though the price is low.

Supply and Demand

Slide 2 of 2

Elastic Demand A change in price creates a change in demand.

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Price planning is affected by the following consumer perceptions about price:

 _{Some consumers equate}_quality_with_price_.  _{Some consumers are willing to pay}_more_for

status, prestige, and exclusiveness, as well as extra services.

Subjective price is the price consumers see as the

value they are getting for the price. A perception of value.

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Price must be evaluated in relation to the

target market and is one of the four Ps of the

marketing mix. Companies can compete with:

 _{price competition}_{—offering lower prices}  _{nonprice competition}_{—attracting}

customers with prestige, service, or quality, better product selection, etc.

Competition

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Marketers change prices to reflect:

 _consumer_demand  _cost

 _competition

Similar products sometimes differ only in price, so when one company changes its

prices, others usually react. Sometimes price wars produce financial losses that can ruin businesses.

Competition

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Federal and state governments have enacted laws regarding:

 _{price fixing}

 _{price discrimination}

 _{resale price maintenance}  _{minimum pricing}

 _{unit pricing}

 _{price advertising}

Government Regulations Affecting Price

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Price

fixing

occurs when competitors

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

Price

discrimination

occurs when a firm charges different prices to similar customers

in similar situations. (Robinson-Patman Act

of 1936)

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Resale price maintenance occurs when a

manufacturer forces retailers to sell an item

at a minimum price.

Minimum price laws prevent retailers from selling goods below cost plus a percentage for expenses and profit. Some states do not have minimum price laws and allow loss leaders, items sold at cost to attract customers.

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SECTION 25.2

Factors Involved in

Price Planning

Factors Involved in

Price Planning

Unit

pricing allows consumers to compare

prices in relation to a standard unit or measure, such as an ounce or a pound.

The Federal Trade Commission (FTC)

price advertising guidelines forbid fraudulent and misleading pricing advertisements.

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25.2

A

SSESSMENTSSESSMENT

Reviewing Key Terms and Concepts

1. Name four market factors that affect price planning.

2. In response to increased costs and expenses, what three pricing options might a business consider to maintain their profit margins?

3. What is demand elasticity, and how does it apply to the theories of supply and demand?

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25.2

A

SSESSMENTSSESSMENT

Thinking Critically

Many people with diabetes depend on insulin to stay alive. If the price of insulin went up

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25.2

Graphic Organizer

Market Factors Affecting Prices

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Marketing Essentials

Marketing

Essentials