Download CONTENT TEACHING OUTLINE Unit D: Marketing a Small

CONTENT TEACHING OUTLINE
Unit D: Marketing a Small Business
COMPETENCY:
9.00
Explain pricing strategies for making effective pricing
decisions.
OBJECTIVE:
9.01
Explain factors that affect pricing.
A. Define price: The amount charged to customers in exchange for goods and
services. Price communicates value to customers and profit to sellers.
B. Define market price: The price that prevails in the market for a particular
good at a specific time.
C. Explain factors that affect price.
1. Costs
a. Fixed costs: Costs that remain constant over a period of time
regardless of sales volume. For example: insurance, rent, salaries,
and depreciation
b. Variable costs: Costs that vary based on sales volume or changes in
business needs. For example: commissions, advertising, and office
supplies
2. Competition
a. Define competition: A rivalry between businesses to attract scarce
consumer dollars.
b. Identify classifications of competition.
(1) Direct competition: Competition between businesses that have
similar formats and sell similar products. For example:
McDonald’s and Burger King, Coke and Pepsi
(2) Indirect competition: Competition between businesses that have
dissimilar formats and sell dissimilar products. For example: a
movie theatre and a mall, an airline and a cruise line
(3) Opportunity cost: The option that is given up when a consumer
chooses one product/service over another. For example: If
someone chooses to go to a movie rather than to go shopping,
the opportunity cost is a shopping trip to the mall.
c. Define the two major types of competition.
(1) Price competition: A competitive strategy in which businesses
use price as a means to attract customers. The marketer
assumes that all things being equal, the customer will choose the
product with the lowest price.
(2) Non-price competition: A competitive strategy in which
businesses use factors other than price as a means to attract
customers. For example: A marketer who cannot compete with
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3.
4.
5.
6.
lower prices might use product quality, customer services, and
business image to win customers.
Supply and demand
a. Define demand: The number of products consumers are willing to
buy at a given time and at a given price.
b. Define supply: The number of products manufacturers are willing to
produce at a given time and at a given price.
c. Identify factors that influence demand.
(1) Utility
(2) Price
(3) Advertising
(4) Personal selling
(5) Display
(6) Fashion
(7) Consumer wants and needs
d. Identify factors that influence supply.
(1) Cost of production
(2) Price
(3) Consumer demand
(4) Profit goals
(5) Competition
(6) Governmental controls
(7) New technology
e. Define elastic and inelastic demand.
(1) A product is said to have elastic demand if demand for the
product is sensitive to a change in price. Such products tend to
be non-essential products such as entertainment, specialty
foods, and fashion.
(2) A product is said to have inelastic demand if demand for the
product is not sensitive to a change in price. These products are
usually considered necessities to the customer. For example:
gasoline, milk, bread, and electricity
Economic conditions: Economic health affects price by affecting
consumer buying power. Consumers who experience changes
(positively or negatively) in their buying power alter their spending habits
in response to those changes. An individual who is laid off from his/her
job will not tend to spend a great deal of money on non-essential items
due to the uncertainty of his/her economic future.
Government regulation: Aside from federal and state laws that prohibit
unfair pricing techniques, labor laws, environmental regulations, and tax
policy can have an effect on how a business owner has to price
products.
Channel members: The intermediaries in a channel of distribution all
charge a fee for their services. These fees are affected by the same
factors that affect retail price. As a result, channel members’ price
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changes reach the consumer by affecting the cost of products to
businesses.
7. Company objectives and strategies: An organization whose sole
objective is to survive the first critical year of business will look at price
planning completely differently from an organization whose goal is to
remain the market leader. Price planners must examine the objectives
and strategies of the company and consider all of the various elements
that combine to make a business successful.
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