PricingPricingMarketing Co-OpMarketing Co-Op

the value placed on the value placed on the goods or the goods or services being services being exchangedexchanged

What is price?What is price?

Price:Price: Profit Margins:Profit Margins:

the the percentagepercentage of of sales the company sales the company has left over as has left over as profitprofit after paying after paying all expensesall expenses

How do businesses How do businesses make pricing decisions?make pricing decisions?Constant change in the marketplace forces Constant change in the marketplace forces

businesses to review pricing decisions businesses to review pricing decisions frequentlyfrequently

Four key market factorsFour key market factors::1.1. Cost and expensesCost and expenses2.2. Supply and demandSupply and demand3.3. Consumer perceptionConsumer perception4.4. Competition Competition

Costs and ExpensesCosts and ExpensesAn increase in costs An increase in costs and expensesand expenses

ExampleExample: : When oil prices When oil prices go up you will see an go up you will see an increase in airline increase in airline tickets, gas station tickets, gas station prices, and shipping prices, and shipping costscosts

How else would the businesses How else would the businesses maintain their profit margins?maintain their profit margins?How else would the businesses How else would the businesses maintain their profit margins?maintain their profit margins?

There are other ways of bringing costs There are other ways of bringing costs down so that prices don’t have to be raiseddown so that prices don’t have to be raised

Reducing the size of an item

Drop features that customers don’t value

Making a candy bar Making a candy bar 3.5 oz. rather than 3.5 oz. rather than the normal 4 oz. the normal 4 oz.

Airlines have stopped Airlines have stopped serving in flight mealsserving in flight meals

Some companies choose to improve Some companies choose to improve features or upgrade materials in features or upgrade materials in order to justify the higher priceorder to justify the higher price

Costs and ExpensesCosts and Expenses

A decrease in costs and expensesA decrease in costs and expensesAggressive firms are always looking for Aggressive firms are always looking for ways to increase efficiency and decrease ways to increase efficiency and decrease costscosts

This helps them be competitive in the This helps them be competitive in the marketplacemarketplace

Improved technology and less Improved technology and less expensive materials may help create expensive materials may help create better quality products at a lower pricebetter quality products at a lower price

Costs and ExpensesCosts and Expenses

Break even pointBreak even point – the point at – the point at which sales revenue equals which sales revenue equals the costs and expenses of the costs and expenses of making and distributing a making and distributing a productproduct

After this point businesses will After this point businesses will start to make profitstart to make profit

Supply and DemandSupply and Demand

As the price of a product goes up, As the price of a product goes up, what happens to the demand?what happens to the demand?

And supply?And supply?

How about when the price goes How about when the price goes down?down?

Consumer PerceptionsConsumer Perceptions

● Some customers equate Some customers equate price with qualityprice with quality

● They believe a high price They believe a high price reflect high quality, status, reflect high quality, status, prestige, and exclusivenessprestige, and exclusiveness

Companies create this Companies create this perception by:perception by:

Limiting the supply (ex:Wii)Limiting the supply (ex:Wii)Limited edition Limited edition Superior customer service or Superior customer service or

added services for customers added services for customers

CompetitionCompetitionWhen two products are very When two products are very

similar, price often is the similar, price often is the sole basissole basis on which on which customers make their customers make their buying decisions.buying decisions.

Customers are more willing Customers are more willing to buy the less expensive to buy the less expensive brand if they see no brand if they see no difference between the difference between the productsproducts

Now it’s time for Now it’s time for some FUN!some FUN!