Fixed and variable costs, competition, opportunity cost, demand, and supply all affect pricing. Direct competition refers to businesses selling similar products, while indirect competition sells dissimilar products. Price competition uses price to attract customers, while non-price competition uses other factors. Demand depends on factors like utility, price, advertising, fashion, and consumer needs/wants. Supply is affected by costs of production, price, demand, profit goals, competition, and technology. Elasticity of demand, economic conditions, regulations, distribution channels, and company objectives also impact price.

1. Factors
that Affect
Pricing

2. What is price?
The amount
charged to
customers in
exchange for
goods and
services.

3. Fixed Costs Variable Costs
Costs that remain
constant over a period
of time regardless of
sales volume.
Costs that vary based
on sales volume or
changes in business
needs.
• Insurance
• Rent/Mortgage
• Salaries
• Depreciation
• Commissions
• Advertising
• Office Supplies
• Utilities

4. Competition – A
rivalry between
two or more
businesses for
scarce
consumer
dollars.
Direct Competition –
Competition between
businesses that have
similar formats and
sell similar products.
Direct
Competition
• Coke & Pepsi
• Nike & Reebok
• Hilton &
Marriott
Indirect Competition
– Competition
between businesses
that have dissimilar
formats and sell
dissimilar products.
Indirect
Competition
• Movie theatre &
Mall
• Airline & cruise
line
Classifications
of Competition

5. The option that is
given up when a
consumer chooses
one product/service
over another.
If someone chooses
airline travel instead of
a cruise, the
opportunity cost is not
taking the cruise.

6. Price Competition Non-Price Competition
A competitive strategy in which
businesses use price as a means to
attract customers. The marketer
assumes that all things being equal,
the customer will choose the
product with the lowest price
A competitive strategy in which
businesses use factors other than
price as a means to attract
customers.
Example: Walmart’s primary
competition focus is offering their
products at lower prices than their
competitors.
Example: A marketer who cannot
compete with lower prices might use
product quality, customer services,
and business image to attract
customers.
Two Major Types of Competition

7. Demand
• The number of products consumers
are willing to buy at a given time and
at a given price.
Supply
• The number of products
manufacturers are willing to produce
at a given time and at a given price.

8. Utility –
how useful
is the
product.
Price – the
more
expensive,
the less
demand
Advertising –
making
public aware
increases
demand.
Personal selling –
explaining the
features and
benefits to a
customer to
stimulate demand
Fashion –
the product
in style
Display –
seeing what
the product
looks like or
how it
performs
Consumer
wants/needs –
is the
product/service a
necessity or just
a desire?
Factors that Affect
Demand

9. “Factors that Affect Supply
Cost of production Will affect how much a producers supplies
Price The more expensive the less that may be suppl
Consumer demand The more demand, the more supplied
Profit goals How much does the business want to make
Competition Is there any, if so price and supply are importan
Government controls May affect supply if government has quotas or r
New Technology Could increase supply or create a better produc

10. Factors that Affect Price
Elastic Demand
• A product is said to
have elastic demand if
demand for the product
is sensitive to a change
in price.
• Non-essential products
such as entertainment,
specialty foods, fashion
Inelastic Demand
• A product is said to
have inelastic demand
if demand for the
product is not sensitive
to a change in price.
These products are
usually considered
necessities to the
customer.
• Gasoline, milk, bread,
and electricity
Economic Conditions
• Economic health
affects price by
affecting consumer
buying power.
Consumers who
experience changes
(positively or
negatively) in their
buying power alter their
spending habits in
response to those
changes. An individual
who is laid off from
his/her job will not tend
to spend a great deal
of money on non-
essential items due to
the uncertainty of
his/her economic
future.

11. Factors that Affect Price
Government
regulations
• Aside from federal and
state laws that prohibit
unfair pricing
techniques, labor laws,
environmental
regulations, and tax
policy can have an
effect on how a
business owner has to
price products
Channel Members
• The intermediaries in a
channel of distribution
all charge a fee for
their services. These
fees are affected by the
same factors that affect
retail price. As a result,
channel members’
price changes reach
the consumer by
affecting the cost of
products to
businesses.
Company
Objectives/Strategies
• An organization whose
sole objective is to
survive the first critical
year of business will
look at price planning
completely differently
from an organization
whose goal is to
remain the market
leader. Price planners
must examine the
objectives and
strategies of the
company and consider
all of the various
elements that combine
to make a business
successful.