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Pricing

Pricing. Essential Questions/ I Can Statements. I CAN explain factors that influence price and identify the four areas of pricing I CAN demonstrate my ability to solve cost plus pricing formulas I CAN apply my knowledge of pricing and competitive advantages to a mock business scenario.

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Pricing

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  1. Pricing

  2. Essential Questions/I CanStatements • I CAN explain factors that influence price and identify the four areas of pricing • I CAN demonstrate my ability to solve cost plus pricing formulas • I CAN apply my knowledge of pricing and competitive advantages to a mock business scenario

  3. What determines Price? • Supply and Demand (covered last class) • Costs • Perceived Value

  4. Areas of Pricing • Cost of goods • Overhead expenses • Distribution costs • Profit margin

  5. Cost of Goods • Costs incurred by a business to produce or purchase goods and services to be sold • Examples: Raw materials & Parts, production machinery, labor, etc.

  6. Overhead Expenses • Costs incurred to run a business • Examples: Maintenance, Accounting, Advertising, Rent &Utilities, Insurance, Management Salaries, etc.

  7. Distribution Costs • Costs incurred to distribute goods and services • Examples: Packaging, Storage, Shipping, Channels of Distribution

  8. Profit margin • The amount of money charged above costs & expenses • Factors that effect profit margin: Markups, discounts, competition, supply & demand

  9. Pricing Based on Cost (Markup) • Basic Pricing Formula: • COST + MARKUP = RETAIL PRICE • Complete Cost Method Pricing Worksheet (group activity)

  10. Pricing Based on Value • Products that are valued highly can be set at a high price (think back to supply and demand) • Pharmaceuticals (Health) • Rolex (Image) • Reference pricing • Vaseline lip balm • Water bottles

  11. Michael Porter’s Competitive Advantage • Cost Leadership-focuses on providing goods at the lowest possible price to consumers • Cost plus pricing • Ex: Wal-mart • Differentiation-focuses on providing the best or most unique goods to consumers • Value Pricing • Ex: Rolex • Focus-focuses on providing goods to the small segment of consumers whose wants are not being met by general industry • Cost plus or value pricing • Ex: Gatti’s Pizza (hint: can be combined with either strategy above)

  12. Hot Dog Activity!

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