Chapter 11: The Price Strategy

Entrepreneurship
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Chapter 11: The Price Strategy

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  1. The Price Strategy

    Slide 1 - The Price Strategy

    • By: Adrienne Musngi
  2. Vocabulary 11.1

    Slide 2 - Vocabulary 11.1

    • Fixed
    • Variable
    • Price gouging
    • Price fixing
    • Resale price maintenance
    • Unit pricing
    • Return on investment
    • Price skimming
    • Penetration pricing
    • Psychological pricing
    • Prestige pricing
    • Odd/even pricing
    • Price lining
    • Promotional pricing
    • Multiple-unit pricing
    • Bundle pricing
    • Discount pricing
  3. Price Strategy considerations

    Slide 3 - Price Strategy considerations

    • Costs and Expenses
    • Supply and Demand
    • Consumer Perceptions
    • Competition
    • Government Regulations
    • Technological Trends
  4. Costs and Expenses

    Slide 4 - Costs and Expenses

    • Fixed costs such as rent, utilities, and insurance premiums do not vary with the number of units sold.
    • Variable costs do change depending on the number of units sold.
    • Products that include a combination of goods, services, and/or ideas have the same price structure as goods.
    • Products made up of goods and services have the same channel price structure.
  5. Supply and Demand

    Slide 5 - Supply and Demand

    • Since prices reflect the sensitivity of market demand, they are not always affected by supply and demand.
    • Customer Perceptions
    • The prices of your products helps create your image in the mind of your customers. Prices set too low can lead the customers to believe that your product lacks quality. Products set too high may turn away customers.
  6. Government Regulations

    Slide 6 - Government Regulations

    • Price strategy may be affected by federal and state laws. To avoid problems, you should always be fair to customers
    • Price gouging is the practice of pricing above the market when no alternative retailer is available.
    • Price fixing is the illegal practice in which competing companies agree, formally or informally, to restrict prices within a specified range.
    • Resale price maintenance is price fixing imposed by a manufacturer on wholesale or retail resellers of its products to deter price-based competition.
    • Unit pricing is the required pricing of goods on the basis of cost per unit measure, such as pound or ounce, in addition to the price per item.
  7. Pricing objectives

    Slide 7 - Pricing objectives

    • Obtaining a return on investment
    • A return on investment (ROI) is the amount earned as a result of that investment. Targeting a ROI is the practice of setting a price to achieve a specified return.
    • Obtaining Market Share
    • Market share is the business’s portion of the total sales generated by all competing companies in a given market.
  8. Pricing strategy decisions

    Slide 8 - Pricing strategy decisions

    • Select a basic approach to pricing (cost-based, demand-based, or competition-based).
    • Determine your pricing policy (flexible price or one-price).
    • Set a price based on the stage of the product life cycle.
  9. Product Life cycle pricing

    Slide 9 - Product Life cycle pricing

    • Stage 1: Introduction
    • In the introduction stage, sales volume is relatively low, marketing costs are high, and profits are low or even negative.
    • Stage 2:Growth
    • In the growth stage, sales climb rapidly, unit costs are decreasing, the product begins to show a profit, and competitors come into the market.
    • Stage 3: Maturity
    • The principal goal of the maturity stage is to stretch the life cycle of the product. Sales begin to slow and profits peak, but profits fall off as competition increases.
    • Stage 4: Decline
    • In this stage, sales and profits continue to fall. Businesses should cut prices to generate sales or clear inventory.
  10. Pricing techniques

    Slide 10 - Pricing techniques

    • Psychological pricing
    • Based on the belief that customers’ perceptions of a product are strongly influenced by price.
    • Prestige pricing
    • Higher-than-average prices are used to suggest status and prestige to the customer.
    • Odd/even pricing
    • Odd numbers, such as $19.99, are employed to suggest bargains
    • Promotional pricing
    • Lower prices are offered for a limited time period to stimulate sales.
    • Multiple-unit pricing
    • Items are priced in multiples, such as 3 items for 99 cents.
    • Bundle pricing
    • Several complementary products are sold at a single price.
    • Discount pricing
    • Offers customers reductions from the original price.
  11. Vocabulary 11.2

    Slide 11 - Vocabulary 11.2

    • Break-even point
    • Selling price
    • Markup
    • Markdown
  12. Calculating prices

    Slide 12 - Calculating prices

    • The break-even point is the point at which the gain from an economic activity equals the costs incurred in pursuing it.
    • Selling price is the actual or projected price per unit.
  13. Calculating Markup

    Slide 13 - Calculating Markup

    • Markup is the amount added to the cost of an item to cover expenses and ensure a profit.
    • To convert to a percentage, use this formula:
  14. Calculating markdown

    Slide 14 - Calculating markdown

    • Markdown is the amount of money taken from the original price.
    • The sale price is then calculated
  15. Calculating discounts

    Slide 15 - Calculating discounts

    • A discount is a reduction in price to the customer.
    • The discounted price is then calculated as: