Price PlanningSports & Entertainment MarketingMrs. Wilson

What we know…What we know… Price is value

You want to have a top market position

You have a “share” or percentage of the market

I want this share

of the pie!

Return on InvestmentReturn on Investment

Calculation used to determine the relative profitability of a product

Formula is: Profit divided by investment

____ _PROFIT______INVESTMENT

ProfitProfit

Another word for return Ergo the phrase… return on investment

Example: Your sports drink is $8 each Costs are $6.50 Formula:

$8 - $6.50 $6.50

1.256.50 .23

Rate of return on investmentRate of return on investment

Is 23%

Market Factors Affecting Market Factors Affecting PricesPrices How do businesses make decisions?

Not an easy answer

Planning begins with an analysis of costs and expenses

Can these expenses change?

Passing the increase on to customers may seem easy, but is it?

List of Factors affecting Price

Consumer Perceptions

Supply/DemandCosts/Expenses

Government Regulations

Costs and Expenses

Businesses constantly monitor, analyze, and project prices and sales in the light of costs and expenses

Doing this helps to determine a firm’s profit

The Big Marketing Question…

What do marketers do when costs increase and sales decline?

How do they maintain their profit margin?

Do they change their prices?

Some answers…

Sure they make changes For example:

How about changing the “size” before they will change the price?

Candy bar size may decrease from 4 to 3.5 ounces

Therefore the cost of making the bar is reduced and profit remains the same

This ONLY works if the same quantity is sold

Other answers…

Manufacturers drop features their customers don’t value. In 1994, Reebok stripped down its best-

known athletic shoe, the $135 “Shaq Attaq”

Four versions replaced one Starting with the basic model priced at $60

ending with an option-packed shoe much like the original $130 version

Thus eliminating features, the company could compete more effectively based on price

Third approach….

Some manufacturers respond to higher costs and expenses by IMPROVING their products

Add more features Upgrade the materials Therefore justifying higher prices

Increase in higher cost is JUSTIFIED!

Goodyear Tire & Rubber Co.

Used this approach successfully Aquatred All-Season Radial Tire

Sold for 10% more than Goodyear’s previous premium-priced tire

Consumers “perceived” the improved tire as having more value because it was for “wet” roads

Lower Costs/Expenses

On occasion, prices may actually DROPDROP because of decreased costs and expenses

Improved technology and less expensive but better-quality materials may help create better-quality products at lower costs

For example…

Personal Computers… These have fallen in price because of the

improved technology of microprocessors They require LESS wiring and assembly

time Durability and memory has also improved

What is the Break-even Point? Companies ALWAYS want to make a

profit. Special concerns are when they

Market a new product Starbuck’s Chantico!

Try to establish a new price

Starbucks… look at the high/low!

Break-even Defined

A point at which sales and revenue EQUALS the costs and expenses of making and distributing a product.

After this point is reached, we are making PROFIT!!!!

Units of ProductionUnits of Production

Total RevenueTotal Revenue

Break-evenBreak-evenPointPointD

oll

ars

Do

llar

s

Total Total CostsCosts

LossesLosses

Look at this picture…

Tomorrow… Supply & Demand Now…

Let’s work on a handout Submit it for a grade for this marking

period