Marketing Essentials n Chapter 25 Price Planning Section

Marketing Essentials n Chapter 25 Price Planning Section 25. 1 The Steps of Price Planning Chapter 25 n Price Planning 1

SECTION 25. 1 The Steps of Price Planning What You'll Learn = The different forms of price = The importance of price = The goals of pricing = The difference between market share and market position Chapter 25 n Price Planning 2

SECTION 25. 1 The Steps of Price Planning Why It's Important Price is one of the four Ps of the marketing mix and is an essential element in marketing a product to the correct target market. The goals of company and government regulations are two issues that must be considered in the pricing process. Understanding the steps involved in determining the price of a product is essential for business success. Chapter 25 n Price Planning 3

SECTION 25. 1 The Steps of Price Planning Key Terms = price = share = market position = return on investment Chapter 25 n Price Planning 4

SECTION 25. 1 The Steps of Price Planning What Is Price? Price is the value of money (or its equivalent) placed on a good or service. It is usually expressed in monetary terms. The oldest form of pricing is the barter system—the exchange of a product or service for another product or service, without the use of money. Chapter 25 n Price Planning 5

SECTION 25. 1 The Steps of Price Planning Importance of Price is involved in every marketing exchange. It helps establish and maintain a firm's: = image—to some customers, high price equals quality = competitive edge—a business can attract customers by guaranteeing low prices = profits—sales price is directly related to the price and number of items sold Chapter 25 n Price Planning 6

SECTION 25. 1 The Steps of Price Planning Projected Effects of Different Prices on Sales Price per Item x Quantity Sold = Sales Revenue $50 200 $10, 000 $45 250 $11, 250 $40 280 $11, 200 $35 325 $11, 375 $30 400 $12, 000 $25 500 $12, 500 An increase in the price of an item may not produce an increase in sales revenue. Why is this true? Are you more likely to buy a higher priced item or a lower priced item? Chapter 25 n Price Planning 7

SECTION 25. 1 The Steps of Price Planning Goals of Pricing Marketers’ pricing goals include: = gaining market share = achieving a certain return on investment = meeting the competition Chapter 25 n Price Planning 8

SECTION 25. 1 The Steps of Price Planning Gaining Market Share A business may engage in price competition to take market share from its competitors, forgoing immediate profits for long-term gains in market share. Chapter 25 n Price Planning 9

SECTION 25. 1 The Steps of Price Planning Market Share Market share is a firm's percentage of the total sales volume generated by all competitors in a given market. Which brand has the largest share of the digital camera market? If total sales for this market are $3 billion, what is the sales revenue for the market leader? Do you have more confidence in a company that has a large market share? Chapter 25 n Price Planning 10

SECTION 25. 1 The Steps of Price Planning Market Position Market position is the relative standing a competitor has in a given market in comparison to its competitors. Which brand is the market leader in the U. S. cookie market? Given total sales of $1, 221 (in millions) for the U. S. cookie market, what is the leader's market share? Are you more inclined to buy a product if you know it is the market leader? Why? Chapter 25 n Price Planning 11

SECTION 25. 1 The Steps of Price Planning Return on Investment Return on investment is a calculation used to determine the relative profitability of a product. The formula for calculating return on investment is Profit Investment Companies often price products to produce a certain return on investment. Chapter 25 n Price Planning 12

SECTION 25. 1 The Steps of Price Planning Meeting the Competition Some companies simply aim to meet the prices of their competition, either by following the industry leader or meeting the industry average. = Example: Automobiles and soft drinks have similar prices and compete based on other factors. Chapter 25 n Price Planning 13

25. 1 ASSESSMENT Reviewing Key Terms and Concepts 1. What is bartering? 2. Why is price an important factor in the success or failure of a business? 3. Name three goals of pricing in addition to making a profit. 4. Distinguish between market share and market position. 5. Define and show the formula for return on investment. Chapter 25 n Price Planning 14

25. 1 ASSESSMENT Thinking Critically Setting prices higher than the competition will put your business on a fast track to failure. Is this statement true or false? Explain the reasons for your answer. Chapter 25 n Price Planning 15

Marketing Essentials End of Section 25. 1 Chapter 25 n Price Planning 16