PRICE - the amount of money given for something 15% 900 ÷ 0.

25 = 1,000

- reflect the affordability/value of product

 Rent- price for occupying space

 Tuition
 Wages/Salary
 Professional Fee
b) Target Profit
Sales Revenues- gross income -when prices are set towards attaining a satisfactory
rate of return
Sales Volume -
10x70 –price = 700 – Sales Revenues -a manufacturer who wishes to make a 35% return on
Investment (ROI) on an investment of Php2 million
Pricing Strategy
and having a cost base of Php20 a unit with a
- a resound choice from a set of alternative prices/price forecasted sales volume of Php100,000 units may
schedule that aim at profit maximization within a planning compute to the specific price level.
period in response to a given scenario.
Target Profit Pricing=¿
FACTORS THAT ARE CONSIDERED IN PRICING
Unit cost +Target ROI × Investment
Internal Factors External Factors Unit sales
- OBJECTIVES - MARKET DEMAND Example:

-PRODUCT COST - COMPETITION

FACTORS AFFECTING PRICING/PRICE

Internal Factor 1: PRODUCT COST

o PRODUCT COST

- must be broken down to fixed and variable cost as

most companies sell more than one item and the
fixed cost must be allocated to different products in
a sensible way.

FIXED COST

- has no relation to the level of activity or

production of the company

VARIABLE COST

-cost that vary in direct production of an entry

COST
Per Unit Intotality
Variable Cost constant variable
Fixed Cost Variable Constant
(per unit or (in a month)
quantity) Formula for UNIT COST

Variable cost+ ¿ cost

TC = VC + FC Unit cost =
Under Cost Pricing strategy there are “two common types of unit sales
setting Prices. per unit is fixed but
not intotality
a) Mark Up
EXHIBIT 6-3:
-where a standard percentage based on cost is
adopted. For example, a retail price of Php1,000
having a standard 10% mark up on sales will have a
UNIT COST FORMULA
cost of Php900
¿ cost
Unit cost pricing=Variable cost+
Cost Mark up Price unit sales
Ratio
900 10% 900 0.90 = 1,000
Unit Sales Cost
-refers to the amount spent by the business
-a measure of the total amount of Revenue of a organization for the purpose of acquiring an asset for
product generates divided by the total number of the creation of assets.
units that product that were sold in a given time
period
Expenses
Unit Cost - refers to the amount spent by the business
organization for the ongoing operations of the
-the price incurred by a company to produce store business in orders to ensure the generation of revenue
and sell are unit of a particular product. Example: utility bills, salary, supply

-include all fixed cost and all variables cost involved Internal Factor 2: COMPANY’S OBJECTIVES
in production.
o COMPANY’S OBJECTIVES
*cost unit is a form of measurement of volume of -company’s objectives will have a big effect on its
production or service: pricing strategy.

Example: Pricing Objectives

a. Differential Pricing Strategy
b. Competitive Pricing Strategy
c. Product Line Pricing Strategy

3 Classification/Characteristics of customers

a. customers have high search cost

b. consumers have a low reservation price for

the product

c. all consumers have certain special

translation costs other than search costs.

o RANDOM DISCOUNTING

- cannot be predicted by the consumers

Example: Sales special discounts occasionally

provided by companies

-marketer tries to maximize the number of

customers informed of the random discount at his
product’s low price instead of competitors’ low
price.

- marketer tries to maximize the number of

customers uninformed about random discount at
his product’s high price rather than the low price

o SECOND MARKET DISCOUNTING

Overhead Expenses - only the second market segment enjoys savings

through low price.
-refer to all non-labour expenses required to operate
your business those expenses are either fixed or Example:
variable.
Unilab has RiteMED
 Fixed Expenses
-no matter what the volume of sale is, these Tang - Kool-Aid
costs must be met every month
-do not change, regardless of whether a Coca-cola – RC cola
company’s revenue goes up or down
-care must be exercised in simply pricing products
Example:
low. Low prices may offer benefits to customers
Salaries, insurance, utilities
but may be a source of threat to intermediaries
because the same profit margin percentage can be
 Variable Expenses
cannibalized the peso amount of profit without
-really semi-variable expenses that fluctuate
incremental volume. Thus, benefit to both
to sales and other factors such as
consumers and channels have to be considered.
promotional efforts, change of season
 PRODUCT LINE PRICING
o IMAGE PRICING
o PERIODIC DISCOUNTING -makes use of high price to signal high quality and
-manner of discounting that is predictable over time use profit it makes from higher priced versions to
and known to consumers subsidize the price of lower priced version

Example: Room rates as low as Php388 plus vat in Example: firms may bring out an identical version of
gohotels.ph when booked during low occupancy its current product with a different name or model
periods. number and then charge a higher price

o PRICE BUNDLING o PREMIUM PRICING

-also known as package deal -the firm sets a high price emphasizing on a unique
Two types: product features
-Mix bundling
- Example: balcony vs. orchestra seats in theatres ,
-the idea is buying the whole bundle is CHEAPER standard vs suite rooms in hotels
than buying the parts separately
-product must be complementary COMPLEMENTARY PRICING
-both seller and buyers are benefited with the o CAPTIVE PRICING
bundled. -the firm tries to place their product low to attract
buyers and recover from the bigger volume expected
o PRICE SIGNALING in the accessories or consumables.
-price is set high regardless of high or basic product
quality Example: Gillette razors & blades, HP printers &
-the high price aims to influence consumer’s refills, Toyota automobiles & spare part
perception of high quality
o TWO-PART PRICING
Examples: -refers to pricing commonly used by service-based
 imported wines, where casual or amateur firms. There is a fixed fee plus a variable fee charged
buyers have difficulty determining quality to the customers
by inspection
 branded perfumes and fragrance Example: PLDT charging a fixed monthly fee and
call fee for long distance, country clubs charging on
o PENETRATION PRICING entrance fee and monthly fee
-used by business to attract customers to a new
product by offering a low price
-commonly associated with marketing objects of o LOSS LEADER PRICING
enlarging market share and with low barriers to -retailing in supermarket, prices of well-known
competitive entry. brands are dropped to attract traffic to the store.
-branded products would be advertised with
o EXPERIENCE CURVE PRICING amazingly low price. retailers want to generate store
-concept exploits a firm’s production experience as a traffic and recover from consumer’s purchase on
decrease due to cumulative volume. other items not included in the price off.
-starts by projecting the declining per unit production -the amount dropped in price must be large enough
cost, (inflation adjusted) of a product then basing the for consumer to feel it is worth making an extra trip
pricing strategy on a series of significant price or going to another place of purchase to avail the
decreases that come with accumulated production cheaper price.
volume.
GENERIC STRATEGY: THE BIGGER PICTURE OF
o GEOGRAPHIC PRICING PRICING
-or zone pricing strategy can be adopted when there
are adjacent markets separated by transportation cost -introduced by Professor Michael Porter of University of
rather than reservation or transaction cost Harvard
-within each zone, it would charge the price. Three ways to gain and maintain competitive advantage as
part of the business strategy of a firm.
Example: Manufacturers with high delivery cost may
charge a uniformed price for deliveries within Central 1. LOW-COST STRATEGY
Luzon like Angeles or Cabanatuan City while -concentrate in producing products with basic features
adopting another price for deliveries within Visayas that are acceptable to their target customers
and Mindanao -the pricing strategy of low-cost producer is to be priced
-To avoid an end user price problem, manufacturers lower than competition
like San Miguel and Monde have set up factories in
different geographic to save high freight cost and 2. DIFFERENTIATED PRODUCTS
reflect a friendlier end user pricing.
 -offer distinct features that are readily perceived and 1. Product
valued by its customers -refers to the physical goods or intangible services
-in terms of pricing, the differentiated product would that you offer.
price its product higher but they should not price it “out of 2. Price
the market” -it is he cost people pay for a product
3. Promotion
3. NICHE (or FOCUS) -it covers all the communication tactics that you will
-a firm concentrates its resources on entering or use to spread the word and it is the product exposure
expanding in a narrowly and defined market segment. The 4. Place
firm focuses on a narrow niche market in which to build -deals with the location or the place where the
a strong competitive advantages. product is expected to be sold
-the objective of the firm is to do a better job at serving
the buyers in the target market than the rivals. a. Perceived Value- where marketers use the perception of
customers in establishing its price

THE PRACTICE OF “FOOLISH PENETRATION” b. Demand Differential- where marketers choose a price level
that would support their planned sale volume and profit
Marketer
→ may offer low product price during the Diagnostic Perception Pricing
introductory period, regardless of the - products have different features or attributes have different
product quality and choices of available levels of importance to the customer
distribution methods.
→ targets to gain market share quickly FORMULAS:
 (total revenue) TR= Volume x Price
Disadvantages  Profit= Total Revenue – Product Cost
 Product landed Cost = Unit cost x Unit sales
 may create a permanent price image for a
brand
 people patronize the brand at a lower price
may not be the same customers willing to External Factor 2: COMPETITION
patronize the brand at a higher price level.
Competition-based Pricing Strategies
Lower price is effective...
a. Going rate
-gaining market shares back
-marketers begin and work within the prevailing
-competition market price.

Reality... Example:

“Increase prices is much difficult than Commodities like gasoline have similar prices except
lowering them for self-service stations, which charge a little less.
Thus, firm can price their products lower than the
going rate, or price their product at parity with
competition and emphasize their other product value.
External Factor 1: MARKET DEMAND

Demand- is the quality of good or service that consumers and

businesses are willing and able to buy at a given price in a b. Sealed bid
given time period.
-marketers price their product or service depending
o MARKET DEMAND on how competitors are expected to price theirs.
-is the sum of the individual demand for a product
from the buyers in the market. -most of the time, this is pricing policy is required by
-if more buyers enter the market and they have the government offices.
ability to pay for items on sale, then market demand
at each price level will rise.
 has a big impact on pricing The Practice of “Foolish Fellowship”
 different prices create different market
demand While external factors may not be similar to competing
 Demand Curve- tool to show a range of companies, internal factors are not. Different companies have
prices graphically. different objectives, different cost structures, and different
strengths. Abusing and overusing competitor’s price or
Price- is not the sole criterion that influences a consumer to “going rate” pricing is common practice among lazy
buy or not to but marketers. Marketers must remember that the more unique
their products are, the more flexible they can be in formulating
4P’s (Marketing Mix)
pricing. They must not keep on doing what competition is also
doing.