Business 201 Chapter 13 Determining Prices After a product is made the second major component is pricing determining what the buyer pays, and what the seller receives Pricing to Meet Business Objectives Pricing objectives The goals that sellers hope to achieve in pricing products for sale Profit-Maximizing Objectives Revenue = Selling Price x Units Sold Managers need to weigh sales revenue against costs for materials and labor as well as capital resources (plant and equipment) and marketing costs (maintaining large sales staff) Market-Share (Market Penetration) Objectives Businesses need to make a profit to survive Market share a company’s percentage of the total industry sales for a specific product type (Toyota cut the prices because of a previous recall Price-Setting Tools Cost-Oriented Pricing Cost-Oriented Pricing pricing that considers the firms desire to make a profit and its need to cover production costs Markup Percentage = Markup/ Sales Price Breakeven Analysis: Cost-Volume-Profit Relationships Variable Costs Costs that changes with the quantity of a product produced and sold (cost of materials, shipping) Fixed Costs cost that is incurred regardless of the quantity of a product sold and produced (rent, insurance, utilities) Breakeven Point When the sales = the costs Pricing Strategies and Tactics Pricing Strategies Pricing Existing Products A firm has 3 options for pricing products 1. Pricing above prevailing market prices for a similar product to take advantage to try to take advantage that higher price = higher quality 2. Pricing below market prices while offering a product of comparable quality to higher-priced competitors 3. Pricing at or near market prices Pricing New Products Price Skimming setting an initial high price to cover new product costs and generate profit (have to prove its unique and worth it) Penetration Pricing setting low price to establish a new product into the market Fixed Versus Dynamic Pricing For Online Businesses Pricing Tactics
Price lining setting a limited number of prices for certain categories of products (suits for 199,299,399,499) Psychological Pricing takes advantage of the fact that customers are not always rational when making buying decisions Odd-Even Pricing the theory that customers prefer prices not stated in even dollar amounts Promoting Products and Services Promotion
You've reached the end of your free preview.
Want to read all 5 pages?
- Spring '13
- Business, Pricing