Download Price Planning - Lindbergh Schools

How do marketers use price
planning?
Marketing I
What is Price?
(value of money placed on a good)

Product Value to customers
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–

features in relation to other
products
seller’s objective is to set high
enough to make a profit yet not
to exceed value perceived by
customers
Price comes in many forms
–
rent, dues at a club, fees,
interest, salaries, tuition
Importance of Price



Success or failure of a
business
Establishes &
maintains a firm’s
image, competitive
edge, & profits
Main thrust of
advertising strategy
Goals of Pricing

Gaining market share(firm’s percent of total sales
generated by all competitors)
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
Return on Investment=profit/investment
–

need to watch competitors to maintain market position(relative
standing in relation to competitors) and market share, may
lower price to increase them
If you are given a certain ROI, you would work the formula
backwards
Meeting the Competition
–
follow industry leader or calculate average price of all
competitors (automobiles, soft drinks)
Market Factors Affecting Prices

Costs and Expenses
–
Responses to Declining Profit Margins
 smaller
size, drop features not valued, improving product
to justify increase in price
–
Responses to Lower Costs/Expenses
 take
higher profit, lower price, improve product and keep
same price
–
Break-even Point
 Figured
when marketing a new product or establishing new
price
 total costs/selling price=break even point
Market Factors Affecting Prices

Supply and Demand
–
Elastic demand(change in price creates change
in demand)
 Availability of substitutes
 Price Relative to Income
 Brand loyalty
 Luxury vs. Necessity
 Urgency of Purchase
–

Inelastic demand(change in price creates little
change in demand)
Consumer Perceptions(subjective price)
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Equate quality with price (status, prestige)
Personalized service
Market Factors Affecting Price

Competition
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Price conscious target market
means you must use price
competition
Not price conscious means you
can use nonprice competition
In price competition, change
prices to reflect demand, cost or
competition
Price war (fast food, airlines)
Government Regulations

Price Fixing(competitors agree on certain price
ranges)
–

Need collusion to prove, that means communication
took place between competing firms (Sherman
Antitrust Act)
Price Discrimination
–
cannot sell to one customer at one price and another
at another price in similar situations (Clayton
Antitrust Act)
Government Regulations

Resale Price Maintenance
–
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
manufacturers unable to tell retailers what to
sell for, can only offer suggested prices
Can tell retailers in advance that they will not
be able to sell product if they don’t adhere
Minimum Price laws
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prevents retailers from selling goods below cost
plus a % for expense and profit
In states with out these laws, retailers use loss
leaders(item priced at cost to draw customers
in) to pull in customers
Government Regulations

Unit Pricing
–
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Consumers must be able to compare similar products
based on a cost per standard unit of measure
Price Advertising
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Must offer product at original price before advertising
reduction
May not say prices are lower without proof
Pre-marked price cannot be used if not sold at that
price
Bait-and-switch advertising is illegal