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# Margin

product

calculated how?

Price -cost

Example:

price= 100
cost=25
Margin=100-25=75

towards

1. rent
2. salaries

Markup

1-(cost/price)

## If theres any money left To keep it

over after all expenses are
paid the owner gets
Profit

Margin-fixed costs=profit

## Tells you: How many units/dollars must be sold in

order to cover operating costs

Break even analysis is the starting point of setting the actual price
Break Even Point

cost

Variable Costs

Examples:

## 1. For each meal sold at a restaurant, the cost of

the food might represent 25% of the costmarkup=75%

## 2. For a plumber, the cost of the material and

goods used to do a job might be 50% of what
they ultimately charge the customer
Fixed Costs

## An increase in sales does not have any effect on Fixed costs

Examples

1. rent
2. insurance
3. salaries
4. utilities

All businesses should determine their average fixed costs per day as well as their
average variable costs
All businesses should determine their average variable costs
Gross Profit=

## Selling price variable costs

Gross margin=

1-variable cost %

Break Even=

Fixed costs/margin-Units
Fixed Costs/markuo-Dollars

Examples:

1. Restaurant:

Cost to make \$3

Margin \$7

## 70% of everything they sell is profit that goes

towards paying for fixed costs. Once the Fixed costs
are covered, the rest is profit.
2. Plumber:
1. Markup=50% (half of what they charge
goes towards paying the material)
2. Fixed cost per day=\$200
3. B.E. = 200/.5=\$400
Economies of Scale

## The more products a company makes, the lower the

cost of production for each item.

## You get better and more efficient at a task with each

time you accomplish it, until you finally cant get
much better without using a new or better
tool/system

## 1. develop no-name brand products

2. create barriers to entry
3. create new brands
4. merge with competitors

## Developing Products for

Private Label Companies

## Private Label (store brand) products are made by the

same companies that make some of the other
products

Usually a lot

Cheaper

## Manufacturers do not have It has already covered them

to consider fixed costs
when calculating the price
for non-branded chips
because
Barrier to Entry

## Something that makes it difficult for competitors to

enter the market and compete against you

## Economies of scale can

You pass the savings in production efficiency onto
pose a significant barrier if the customer
Skimming with a higher
price would only

Encourage competition

brand

Idle capacity:

## When you have equipment, workers that are not

being used all the time. This is why many plants
operate 3 shifts. If youve got the building and the
equipment it is more profitable to keep producing
and selling, thus covering the fixed costs of that
equipment more quickly thus leading to more
profitability.

## Merging with competitors Usually results in: reduction in fixed costs.

Greater efficiency often
means:

Less employees

Diseconomies of Scale

## Although expansion can generate more profit, it

oftencentralizes management and causes

from:

## 1. Price Fixing=Group pricing

2. retail Price Maintenance
3. Deceptive Pricing Practices
1. Double ticketing
2. Bait and switch
3. False sale prices

MSRP

## Manufacturers suggested retail price

Cannot legally be

enforced

## Marketing boards play

important role in
marketing:

## Some have the power to

control:

1. price

Price Positioning

2. supply

2. discount
Consumer Demand

immune to

## Competition: Forces sellers Remain close to one another

to
Internet access allows
consumers to

world

## What fixed costs can be

eliminated by having an
online store?

1. rent/mortgage
2. employees
4. inventory

Pricing Strategies

Pricing Strategy

3 pricing Strategies:

## Plan too price a product to achieve a specific

marketing objective
1. skimming
2. penetration
3. competitive

Skimming

enter the market

Capitalize on

Uniqueness

R and D costs

## Marketers sometimes use The cant produce enough

skimming to limit demand
because
List examples of products
and prices that reflect
skimming:
these were actual prices at
one time

1. calculators-\$399
2. vcr-\$1500
3. dvd player-\$800
4. mp3 player-\$600

Price Lining

Super Sizing

## Adding a low cost product to increase its selling

price

Negotiated Pricing

## Offer and counter offer

Negotiated Prices

Examples:
1. cars
2. corporate stocks
3. houses

## Store sells contract to financial institution for a %

Combo Pricing/Bundling

## Similar to supersizing, but discount price on one

item is part of package

Psychological Pricing

## Tries to use knowledge of typical consumer

behaviour to forecast acceptable pricing

Return on Investment

goods

## Purchase Discounts(buying Price reductions for volume purchases or early

Terms)
payment
Factors affecting price of
goods sold in other
countries

1. Tariffs
2. Transportation
3. currency
4. extra charges

Tariffs