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7/29/2019 Factors That Affect Pricing
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Factors
that Affect
Pricing
2. Pricing
Terms
Price : The
amount
charged to
customers
in
exchange
for goods
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and
services.
Price
communica
tes value to
customers
and profit
to business
owners.
Market
Price : Theprice that
prevails in
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the market
for a
particular
good at a
specific
time. For
example,
the price of
gasoline
posted at
the gasstations
around
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your town
reflects the
market
price.
Supply,
demand ,
and time
are key
elements of
market
price. Forexample,
during
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oyster
season,
prices are
lower
because
they are
more
abundant
(there is
more
supply).Restaurant
s would not
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have to pay
as much
for them.
During the
spring and
summer
months,
oysters
arent in
season so
the pricesare higher.
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3. Costs
Fixed
Costs:
Costs that
remain
constant
over a
period of
time
regardless
of salesvolume.
Insurance
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Rent/Mortg
age
Salaries
Depreciatio
n Variable
Costs:
Costs that
vary based
on sales
volume or
changes inbusiness
needs.
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Commissio
ns
Advertising
Office
Supplies
Utilities
Factors
that Affect
Price
4.
Competitio
n A rivalry
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between
two or
more
businesses
for scarce
consumer
dollars.
Factors
that Affect
Price
5.
Classificati
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ons of
Competitio
n Direct
Competitio
n:
Competitio
n between
businesses
that have
similar
formatsand sell
similar
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products.
McDonald
s & Burger
King Coke
& Pepsi
Hilton &
Marriott
Nike &
Reebok
Lowes &
HomeDepot
Indirect
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Competitio
n:
Competitio
n between
businesses
that have
dissimilar
formats
and sell
dissimilar
products. Amovie
theatre &
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the mall A
restaurant
& miniature
golf course
An airline &
a cruise
line
6. The
option that
is given up
when a
consumer
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chooses
one
product/ser
vice over
another.
For
example, if
someone
chooses
airline
travelinstead of a
cruise, the
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opportunity
cost is not
taking the
cruise.
Classificati
ons of
Competitio
n
Opportunity
Cost
7. Two
Major
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Types of
Competitio
n Price
Competitio
n : A
competitive
strategy in
which
businesses
use price
as a meansto attract
customers.
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The
marketer
assumes
that all
things
being
equal, the
customer
will choose
the product
with thelowest
price. For
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example:
Walmarts
primary
competition
focus is
offering
their
products at
lower
prices than
theircompetitors
. Non-Price
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Competitio
n : A
competitive
strategy in
which
businesses
use factors
other than
price as a
means to
attractcustomers.
For
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example: a
marketer
who cannot
compete
with lower
prices
might use
product
quality,
customer
services,and
business
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image to
attract
customers.
8. Supply
and
Demand
Demand :
The
number of
products
consumers
are willing
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to buy at a
given time
and at a
given price.
Supply :
The
number of
products
manufactur
ers are
willing toproduce at
a given
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time and at
a given
price.
Factors
that Affect
Price
9. Factors
that Affect
Demand
Utility- how
useful is
the product
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Price the
more
expensive,
the less
demand
Advertising
making
public
aware
increases
demandPersonal
selling
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explaining
the
features
and
benefits to
a customer
to stimulate
demand
Display-
seeing
what theproduct
looks like
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or how it
performs
Fashion- is
the product
in style
Consumer
wants/need
s is the
product/ser
vice a
necessityor just a
desire?
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10. Factors
that Affect
Supply
Cost of
production
will affect
how much
a
producers
supplies
Price
themore
expensive
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the less
that may
be supplied
Consumer
demand -
the more
demand,
the more
supplied
Profit goals
how
much does
the
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business
want to
make
Competitio
n is there
any, if so
price and
supply are
important
Governme
nt controls may
affect
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supply if
governmen
t has
quotas or
restrictions
New
technology
could
increase
supply or
create abetter
product
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11. Elastic
Demand
Inelastic
Demand A
product is
said to
have
elastic
demand if
demand for
the productis sensitive
to a
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change in
price. Non-
essential
products
such as
entertainm
ent,
specialty
foods,
fashion
Factorsthat Affect
Price A
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product is
said to
have
inelastic
demand if
demand for
the product
is not
sensitive to
a change in
price.These
products
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are usually
considered
necessities
to the
customer.
Gasoline,
milk, bread,
and
electricity
12. Other
Factors
That Affect
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Price
Economic
conditions :
Economic
health
affects
price by
affecting
consumer
buying
power.Consumers
who
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experience
changes
(positively
or
negatively)
in their
buying
power alter
their
spending
habits inresponse
to those
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changes.
An
individual
who is laid
off from
his/her job
will not
tend to
spend a
great deal
of moneyon non-
essential
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items due
to the
uncertainty
of his/her
economic
future.
Governme
nt
regulation :
Aside from
federal andstate laws
that
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prohibit
unfair
pricing
techniques,
labor laws,
environme
ntal
regulations,
and tax
policy can
have aneffect on
how a
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business
owner has
to price
products.
13. Other
Factors
That Affect
Price
Channel
Members :
The
intermediar
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ies in a
channel of
distribution
all charge a
fee for their
services.
These fees
are
affected by
the same
factors thataffect retail
price. As a
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result,
channel
members
price
changes
reach the
consumer
by affecting
the cost of
products to
businesses. Company
Objectives/
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Strategies :
An
organizatio
n whose
sole
objective is
to survive
the first
critical year
of business
will look atprice
planning
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completely
differently
from an
organizatio
n whose
goal is to
remain the
market
leader.
Price
plannersmust
examine
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the
objectives
and
strategies
of the
company
and
consider all
of the
various
elementsthat
combine to
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make a
business
successful.
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Department stores - very large stores
offering a huge assortment of "soft" and
"hard goods; often bear a resemblance
to a collection of specialty stores. A
retailer of such store carries variety of
categories and has broad assortment ataverage price. They offer considerable
customer service.
Discount stores - tend to offer a wide
array of products and services, but theycompete mainly on price offers extensive
assortment of merchandise at affordable
and cut-rate prices. Normally retailers
sell less fashion-oriented brands. Warehouse stores - warehouses that
offer low-cost, often high-quantity goods
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piled on pallets or steel
shelves; warehouse clubs charge a
membership fee;
Variety stores - these offer extremely
low-cost goods, with limited selection;
Demographic - retailers that aim at one
particular segment (e.g., high-end
retailers focusing on wealthy individuals).
Mom-And-Pop : is a retail outlet that is
owned and operated by individuals. The
range of products are very selective and
few in numbers. These stores are seen
in local community often are family-run
businesses. The square feet area of the
store depends on the store holder. Specialty stores: A typical speciality store
gives attention to a particular category
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and provides high level of service to the
customers. A pet store that specializes in
selling dog food would be regarded as a
specialty store. However, branded stores
also come under this format. For
example if a customer visits a Reebok or
Gap store then they find just Reebok and
Gap products in the respective stores.
General store - a rural store that supplies
the main needs for the local community;
Convenience stores: is essentially found
in residential areas. They provide limited
amount of merchandise at more than
average prices with a speedy checkout.
This store is ideal for emergency andimmediate purchases as it often works
with extended hours, stocking everyday;
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Hypermarkets: provides variety and huge
volumes of exclusive merchandise at low
margins. The operating cost is
comparatively less than other retail
formats.
Supermarkets: is a self-service store
consisting mainly of grocery and limited
products on non food items. They may
adopt a Hi-Lo or an EDLP strategy for
pricing. The supermarkets can be
anywhere between 20,000 and 40,000square feet (3,700 m
2). Example: SPAR
supermarket.
Malls: has a range of retail shops at a
single outlet. They endow with products,food and entertainment under a roof.
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Category killers or Category Specialist:
By supplying wide assortment in a single
category for lower prices a retailer can
"kill" that category for other retailers. For
few categories, such as electronics, the
products are displayed at the centre of
the store and sales person will be
available to address customer queries
and give suggestions when required.
Other retail format stores are forced to
reduce the prices if a category specialistretail store is present in the vicinity.
E-tailers: The customer can shop and
order through internet and the
merchandise are dropped at thecustomer's doorstep. Here the retailers
use drop shipping technique. They
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accept the payment for the product but
the customer receives the product
directly from the manufacturer or a
wholesaler. This format is ideal for
customers who do not want to travel to
retail stores and are interested in home
shopping. However it is important for the
customer to be wary about defective
products and non secure credit card
transaction. Example: Amazon, Pennyful
and eBay. Vending Machines: This is an automated
piece of equipment wherein customers
can drop the money in the machine and
acquire the products.Some stores take a no frills approach,
while others are "mid-range" or "high end",
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depending on what income level they
target.
Other types of retail store include:
Automated Retail stores are self-service,
robotic kiosks located in airports, malls
and grocery stores. The stores acceptcredit cards and are usually open 24/7.
Examples
include ZoomShopsand Redbox.
Big-box stores encompass larger
department, discount, general
merchandise, and warehouse stores.
Retailers can opt for a format as each
provides different retail mix to its
customers based on their customer
demographics, lifestyle and purchase
behaviour. A good format will lend a hand
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to display products well and entice the
target customers to spawn sales.