1. The Economics of Price
Decisions
Chapter 14
The 4 P’s
Product – Price – Promotion - Place
2. Price as a Marketing Tool
People make buying decisions about what to buy
based on the prices they pay.
What is Price?
- Price is the money a customer must pay for a
product or service.
- Admission, membership, service
charge, donation, fee, retainer, tuition, and monthly
payment.
- Establishing and communicating the value of
products and services to prospective customers.
3. Adjustability
- An important tool because it can be adjusted
quickly.
- Change a sticker, give a coupon or rebate.
4. Price as an Economic Concept
People have unlimited wants and needs that
they try to satisfy with the limited resources
available.
Price allocated available resources among
people.
Small Quantity = High Price
Large Quantity = Low Price
5. Economic Utility
- Value is added through changes in
form, time, place, or possession.
- A product is a greater value and will often
pay a higher price if the product is available
at a better time or place than other
choices, or if it is more accessible or
affordable.
7. Elasticity of Demand
It may seem that an easy way
to get consumers to buy your
product is to decrease the
price. This isn’t always the
case…
Book – page 381
Elastic - ∆P = large ∆D
lots of substitutes, choose not
to buy (ice cream)
Inelastic - ∆P = small ∆D
Needs (eggs)
0
5
10
15
20
25
30
35
40
45
50
Quantity
Price
Inelastic
Elastic
8. Government’s Affect on Prices
1. Regulating Competition
FTC – Federal Trade Commission
Anti-trust legislation, encourage creation of new products with
patents, copyrights
2. Taxation
- An increase in the tax on a product makes it less
attractive and can reduce sales (sin taxes)
- Import taxes
- Tax reduction to encourage business
9. 3. Regulating Prices
- Price fixing: providing amnesty to business who turn
themselves in
- Price discrimination: must offer equivalent
prices, discounts, and quantities to all wholesalers or retailers
- Price Advertising: advertise the correct price, clearly
communicate credit terms
- Bait and Switch: lure customers with low prices and then tell
them it’s unavailable or inferior
- Unit pricing: must list the price for a basic unit such as a
liter, ounce, or pound, so customers can compare.
