Factors Affecting Price

• Costs and expenses – break-even point

What is the break-even point?

Point at which sales revenue equals costs and

expenses.

Total costs and expenses/# products produced or sold

ExampleHats R Us is expecting to produce and sell 15,000 baseball caps with various team logos. The costs and

expenses associated with the production and sale of the hats is $45,000. What is the break-even

point to set the price?

Total Costs and Expenses / expected production

$45,000 / 15,000 = $3.00

• Costs and expenses – break-even point

• Consumer Demand – elasticity - the degree to which demand for a product is affected by its price

• Costs and expenses – break-even point

• Consumers’ Demand – elasticity

• Consumer value perception – subjective

• Competition – price wars• Government regulations

Government Regulations and

Ethics

Price FixingCompetitors agree on certain

price ranges within which they set their own prices.

Collusion – communication among competitors to establish a fixed price

Made illegal by the Sherman Antitrust Act of 1890

because it eliminates competition

Price Discrimination

Company charges different prices to similar customers in similar

situationsMade illegal by the

Clayton Antitrust Act of 1914 because it creates unfair

competition.Strengthened by the Robinson-Patman Act of 1936

Resale Price Maintenance

Disallows manufacturers from forcing retailers to charge a

specific retail price

Resulted in the establishment of the “Manufacturer’s

Suggested Retail Price” (MSRP)

Minimum Price Laws

Enacted in some states to disallow retailers from selling

below costWhere allowed, items priced at

cost are called loss leaders.

Purpose is to attract customers in hopes they will buy other items.

Unit Pricing

Allows consumers to compare similar goods packaged in various sizes or forms by using a standard

unit of measure

Price Advertising• Laws

established by Federal Trade Commission (FTC)

• Bait-and-switch illegal

Factors Affecting Price