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Download Lesson 2 - Pricing Factors and Gov`t Regs
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Factors Affecting Price Lesson Objectives • What are the factors that affect the selling price of a product? • What are legal and ethical considerations of pricing? • Costs and expenses »Break-even point What is the break-even point? Point at which sales revenue equals costs and expenses. Total costs and expenses/selling price = break-even point What would be the break-even point for a Baseball hat manufacturer making 100,000 hats @ $4.50 each, and selling them for $6.00 each? ($4.50 X 100,000)/$6.00 = 450,000/6.00 = 75,000 units • Costs and expenses – break-even point • Consumer Demand – elasticity What is elasticity? The degree to which demand for a product is affected by its price DIMINISHING MARGINAL UTILITY HOWEVER… consumers will not buy indefinitely because a price is low. Other factors (income, taste and need) play a role in demand also. • Costs and expenses – breakeven point • Consumers’ Demand – elasticity • Consumer perception – subjective • Competition – price wars • Government regulations Government Regulations Price Fixing Competitors agree on certain price ranges within which they set their own prices. Collusion – communication among competitors to establish a fixed price Made illegal by the Sherman Antitrust Act of 1890 because it eliminates competition Price Discrimination Company charges different prices to similar customers in similar situations Made illegal by the Clayton Antitrust Act of 1914 because it creates unfair competition. Strengthened by the Robinson-Patman Act of 1936 Resale Price Maintenance Resulted in the establishment of the “Manufacturer’s Suggested Retail Price” (MSRP) Disallows manufacturers from forcing retailers to charge a specific retail price Minimum Price Laws Enacted in some states to disallow retailers from selling below cost Where allowed, items priced at cost are called loss leaders. Purpose is to attract customers in hopes they will buy other items. Unit Pricing Allows consumers to compare similar goods packaged in various sizes or forms by using a standard unit of measure Price Advertising • Laws established by Federal Trade Commission (FTC) • Bait-and-switch illegal Review • What are some of the factors that affect pricing? • What are some of the government regulations that affect pricing?
