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Transcript
9.00 Explain pricing strategies for making effective pricing decisions. D. MARKETING A SMALL BUSINESS 9.01 Explain factors that affect pricing. 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. Factors that affect price Costs 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 Factors that affect price Competition A rivalry between two or more businesses for scarce consumer dollars. Classifications of Competition Direct Competition: Competition between businesses that have similar formats and sell similar products. – – – – McDonald’s & 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 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. 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 Factors that affect price Supply and Demand – – 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. Factors that affect demand – – – – – – – utility price advertising personal selling display fashion consumer wants/needs Factors that affect supply – – – – – – – cost of production price consumer demand profit goals competition government controls new technology 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 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 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.