Download Factors that Affect Pricing

Factors that Affect Pricing
Pricing Terms

Price: The amount charged to customers in exchange
for goods and services.
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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.
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For example, the price of gasoline posted at the gas
stations around your town reflects the market price.
Supply, demand, and time are key elements of market
price. For example, during oyster season, prices are lower
because they are more abundant (there is more supply).
Restaurants would not have to pay as much for them.
During the spring and summer months, oysters aren’t “in
season” so the prices are higher.
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.
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McDonald’s & Burger King
Coke & Pepsi
Hilton & Marriott
Nike & Reebok
Lowe’s & Home Depot

Indirect Competition:
Competition between
businesses that have
dissimilar formats and
sell dissimilar products.
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A movie theatre & the mall
A restaurant & miniature
golf course
An airline & a cruise line
Classifications of Competition
Opportunity Cost

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: 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.
For example: Walmart’s
primary competition focus is
offering their products at
lower prices than their
competitors.
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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
lower prices might use
product quality, customer
services, and business
image to attract customers.
Factors that Affect Price
Supply and Demand
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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
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Utility- how useful is the product
Price – the more expensive, the less demand
Advertising – making public aware increases demand
Personal selling – explaining the features and benefits
to a customer to stimulate demand
Display- seeing what the product looks like or how it
performs
Fashion- is the product in style
Consumer wants/needs – is the product/service a
necessity or just a desire?
Factors that Affect Supply
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Cost of production – will affect how much a producers
supplies
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Price – the more expensive the less that may be supplied
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Consumer demand - the more demand, the more supplied
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Profit goals – how much does the business want to make
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Competition – is there any, if so price and supply are
important
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Government controls – may affect supply if government has
quotas or restrictions
–
New technology – could increase supply or create a better
product
Factors that Affect Price
Elastic Demand

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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. These products
are usually considered
necessities to the
customer.
Gasoline, milk, bread, and
electricity
Other Factors That Affect Price

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 nonessential 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.
Other Factors That Affect Price
 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 changes reach the
consumer by affecting the cost of products to businesses.
 Company Objectives/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.