9.00 Explain pricing strategies for making effective pricing decisions.

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9.00 Explain pricing strategies for making
effective pricing decisions.

• 9.01 Explain factors
  
  
  
  
  that affect pricing.

D. MARKETING A SMALL BUSINESS
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Pricing Terms

• Price The amount charged to customers in
  exchange for goods and services.
• Price communicates value to customers and profit
  to business owners.
• Market Price The price that prevails in the
  market for a particular good at a specific time.
• For example, the price of gasoline posted at the
  gas stations around your town reflects the market
  price.

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Costs
Factors that affect price

• Fixed Costs Costs that remain constant over a
  period of time regardless of sales volume.
• Insurance
• Rent/Mortgage
• Salaries
• Depreciation

• Variable Costs Costs that vary based on sales
  volume or changes in business needs.
• Commissions
• Advertising
• Office Supplies
• Utilities

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Competition
Factors that affect price

• A rivalry between two or more businesses for
  scarce consumer dollars.

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Classifications of Competition

• Direct Competition Competition between
  businesses that have similar formats and sell
  similar products.
• McDonalds Burger King
• Coke Pepsi
• Hilton Marriott
• Nike Reebok

• Indirect Competition Competition between
  businesses that have dissimilar formats and sell
  dissimilar products.
• A movie theatre the mall
• A restaurant miniature golf course
• An airline a cruise line

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Opportunity Costs

• The option that is given up when a consumer
  chooses one product/service over another.
• For example, if someone chooses airline travel
  instead of a cruise, the opportunity cost is not
  taking the cruise.

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Two major types of competition

• Price Competition Using price as a means to
  attract customers.

• Non-Price Competition Using factors other than
  price as a means to attract customers. Examples
  quality, customer services, business image

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Supply and Demand
Factors that affect price

• Demand The number of products consumers are
  willing to buy at a given time and at a given
  price.
• Supply The number of products manufacturers are
  willing to produce at a given time and at a given
  price.

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Factors that affect demand

• utility
• price
• advertising
• personal selling
• display
• fashion
• consumer wants/needs

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Factors that affect supply

• cost of production
• price
• consumer demand
• profit goals
• competition
• government controls
• new technology

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Elastic Demand

• A product is said to have elastic demand if
  demand for the product is sensitive to a change
  in price.
• Non-essential products such as entertainment,
  specialty foods, fashion

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Inelastic Demand

• A product is said to have inelastic demand if
  demand for the product is not sensitive to a
  change in price.
• Necessities such as gasoline, milk, bread,
  electricity

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Other factors that affect price

• Economic conditions Economic health affects
  price by affecting consumer buying power.
• Government regulation There are federal, state
  and local laws that can have an affect on how a
  business owner must price products.
• Channel members Intermediary fees reach the
  customer by affecting the cost of products to
  resellers.
• Company Objectives/Strategies Planners must
  examine the goals of a company and consider the
  many elements that interact to make businesses
  successful.