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Chapter 4 - Pricing

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25 views9 pages

Chapter 4 - Pricing

Uploaded by

Jean BouHabib
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Price Conveys Image
◼ Price sends important signals to customers:
Quality, prestige, uniqueness, and others.
◼ Common small business mistake:
Charging prices that are too low and failing to
recognize extra value, service, quality, and other
benefits they offer.
◼ Understand the target market and identify how
much customers are willing to pay rather than
how much to charge.

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 2


Competition and Pricing
◼ Must take into account competitors’ prices,
but it is not always necessary to match or
beat them.
◼ Key is to differentiate a company’s products
and services.
◼ Price wars often destroy companies’ profits
and scar an industry for years.
◼ Best strategy: Stay out of a price war!

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 3


Dealing with Rising Costs

◼ Add a surcharge
◼ Explain the reasons behind price increases
◼ Focus on improving efficiency
◼ Consider absorbing cost increases
◼ Modify the product or service to lower
its cost
◼ Eliminate discounts, coupons, and freebies

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 4


Dealing with Rising Costs
(continued)

◼ Diversify your product line


◼ Anticipate rising costs and try to lock in
prices of raw materials early
◼ Emphasize the value of your company’s
product or service to customers
◼ Differentiate your product or service
◼ Use cheaper raw materials
◼ Raise prices incrementally and consistently
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 5
What Determines Price?
Price Ceiling - What will the market bear?

?
? ? ? ?
?
Acceptable Final Price -
Price What is the company's ?
Range
? desired "image?"?

? ? ?
? ?
? ? ?
Price Floor - What are the company's costs?
FIGURE 1
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 6
Pricing for Retailers: Markup
Dollar Markup = Retail Price - Cost of Merchandise
Dollar Markup
Percentage (of Retail Price) Margin = Retail Price

Percentage (of Cost) Markup = Dollar Markup


Cost of Unit
Example:
Dollar Markup = $30 - $14 = $16

$16
Percentage (of Retail Price) Margin = = 53.3%
$30

Percentage (of Cost) Markup = $16 = 114.3%


$14

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 7


Conclusion
Pricing techniques impact every
aspect of a company including:
◼ Image
◼ Customers
◼ Cash flow
◼ Profits

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 8


Price structure

- Local
- Export

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 9

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