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Pricing Strategies

Pricing Strategies. Entrepreneurship/Entrepreneurial Ventures. What affects pricing?. Costs and Expenses Supply and Demand Consumer Perceptions Competition Government Regulations Technology Trends. Costs. A business needs to control expenses in order to keep prices low.

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Pricing Strategies

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  1. Pricing Strategies Entrepreneurship/Entrepreneurial Ventures

  2. What affects pricing? Costs and Expenses Supply and Demand Consumer Perceptions Competition Government Regulations Technology Trends

  3. Costs • A business needs to control expenses in order to keep prices low. • Shrinkage-shoplifting (a cost doing business in a retail environment) • Utilities • Purchases- monitor your markup (Retail price = 60.00, 30.00= cost of goods and 30.00 = markup • Salaries- variable costs that change from week to week • Advertising- variable costs • Rent/mortgage-fixed cost does not change

  4. Supply and Demand Prices are not always affected by supply and demand. For example, when people buy products regardless of price, the demand is inelastic. Example: gasoline For example when people stop buying products because of the price being too high, the demand is elastic. Example: luxury items

  5. Consumer Perceptions • Customers look at prices to determine whether products are of a higher or lower quality. • For example: If a BMW was priced really cheap, the perception to the public would be that there is something wrong with it. • Different target markets have different perceptions • An upscale community may have a different perception of a store or product than a lower economic community. • i.e. Walmart- some people who have higher incomes don’t shop at Walmart because they perceive it as having lower quality items.

  6. Competition • Competition can determine your pricing. • Businesses can offer higher prices by offering more services • Example: Hyatt Hotels can demand higher prices than Motel 6 because they offer a higher grade of accommodations with restaurants, bars, spas, and workout rooms. • Competition can also determine whether you reduce prices on goods. If a competitor reduces their prices, you may have to do the same.

  7. Government Regulations • Clayton Act/Robinson-Patman Act impacts pricing by making it illegal to sell the same product to different customers at various prices. • Businesses must show that conditions exist that allow different prices to different customers. • i.e.- sales events; higher volume allows lower prices. • Be mindful of laws involving price gouging, price fixing, resale price maintenance, unit pricing, and bait and switch. Be sure you understand the different types of pricing terminology.

  8. Technological Trends • The internet has allowed us to have much lower prices offered to consumers. By using the internet, stores don’t have to pay a large overhead expense. • Overhead expense=salaries, utilities (expenses related to running a brick and mortar location) • Amazon.com – passes the savings on to the customer by not having to pay high overhead expenses

  9. Pricing Strategies • Cost Based Pricing- you figure your cost for the product + you add the cost of doing business + add your projected profit margin on top. The difference from the retail price to the cost is your markup. • Retail price = 100.00 • Costs =60.00 • Markup = 40.00 • Demand Based Pricing- this requires you to find out what the market will bare as far as pricing. This pricing strategy is used when demand is high for a product. The more the demand the higher you can price your product.

  10. Pricing Strategies con’t Competition Based Pricing- These prices are determined by what your competition is doing and whether you want to be in line with your competitors. You want to be competitive; however, this pricing strategy can be dangerous if you get too aggressive with your pricing. You can lose money using this strategy. Good merchants use all three strategies by watching their competitors, taking advantage of a high demand item, and being aware of their markupat all times.

  11. The Product Life Cycle The product life cycle will determine pricing. As a product is introduced a higher price can be offered. As a product grows older and different versions enter the market, the price can become more competitive. As the product nears the end of its life, more inventory may be available and the product stops selling. At this time in the cycle, the product may have to be offered with a markdown price for it to sell out quickly. Product Life Cycle- Introduction, Growth, Maturity, and Decline.

  12. Definitions-turn in Define and give examples Pricing related to laws Psychological pricing Price skimming Prestige pricing Odd/even pricing Pricing lining Promotional pricing Multiple unit pricing Bundle pricing Discount pricing Price gouging Price fixing Resale price maintenance Unit pricing Bait and switch

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