PRICING

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All products and all services have prices. The price depends on different thing such as credit terms, delivery, trade-in allowance, guarantees, quality and other forms of service, which price can produce the biggest profit during a long period of time. It's hardly possible to determine such a price. The price may be too high to produce a large volume or too low to cover costs. No other area of marketing operations has been a subject to bad practice. Many businesses persue unsound price policies for long periods of time and are not aware about it.

Prices can be determined in different ways. For example, the prices of meat, cotton and other agricultural prices can be decided in large central market where forces of supply and demand exist. This is pure price competition. The prices on industrial products (iron, steel, etc.) are usually decided by large companies. As a rule the amount and price of goods sold to large number of buyers is controlled by a few competing sellers. Prices also can be set by the government, usually for different public services - railroads, electricity, manufactured gas, bus services, etc.

If demand increases, prices rise, profits expand and new investment is attracted. But other factors may be involved as well. Prices are related to each other in different ways. Ultimately, everything is related in price, since the consumer

can buy and must pay for everything out of a particular, limited amount of money.

Active Vocabulary

credit terms - кредитні умови

trade-in allowance - сума, яка відділи за стару річ і яка включена в рахунок

нової покупки

to cover costs - відшкодовувати витрати

to persue unsound price policies - вести недоцільну цінову політику

supply and demand - пропозиція і попит

price competition - конкуренція в ціноутворенні

to set prices - встановлювати ціни

Comprehension Questions

1. Why is it difficult to determine the right price?

2. Why is the seller interested in the price that produces the highest volume of sales at the lowest unit cost?

3. Why do many businesses follow unsound pricing policies?

4. In what way are agricultural prices decided?

5. How are industrial products usually priced?

6. Why does the government usually set the prices for public utility services?

7. Why is it so important to know the levels of supply and demand when dealing with pricing?

8. Why is everything related by price?

Vocabulary Practice

Exercise 1. Put the necessary word in the sentence.

1. It is very difficult... without sound price policy. 1 supply and demand

Of course we are interested in producing the... with the

lowest unit costs. 2 volume of sales

3.I decided to buy a new car at this company 3 trade-in allowance

because they offered the best... on my old model.

4. The... of this store are very beneficial for a customer. 4 compete

5. Their business will fail if they persue unsound.... 5 price policies

6. The government usually... for public utility services. 6 credit terms

7. In pure competition the forces of... operate. 7 to set prices

Dialogue

Dick is introducing a new line of products and is talking to his friend Tom, a business consultant, about it.

Dick It's the first time when I'm in business for myself.

Tom Don't worry. The store has always been doing well. It has a great location and as far as your new line of merchandise ...

Dick That's what I wanted to talk to you about. Can you give some ideas how to charge the prices?

Tom With pleasure. Generally, there are two types of pricing policies. There is price emphasis and price deemphasis.

Dick What's the difference?

Tom The price emphasis policy emphasizes low prices. This encourages sales. But low price doesn't give extra services.

Dick So, a really low price means no credit, home delivery, repair, installation and other services.

Tom That's what I mean. But many people are interested only in the low price and not in the extra services.

Dick Yes, and vice versa. The price which I set determines the number of sales. I must think thoroughly about it.

Tom A good example of price emphasis is "loss leader" pricing. It means that you choose one item - let's say an electric razor - at a price just above the cost. The customers will come to your shop to buy this loss leader item. But since they are inside they can decide to buy a few other things they need.

Dick It sounds interesting. What other things can you tell?

Tom There is also off-even pricing. Let's say you sell a tape recorder for $69.95 instead of $80.00. Though it is in fact about the same, the low price can produce a favorable psychological effect.

Dick What are the other ways to attract the customers?

Tom First of all, remember that you are going to compete with well-known products, so you should start with specially low prices. It's important to advertise this. You should use newspaper ads, maybe a radio spot, maybe do a big window