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PRICE: ITS NATURE 5 STEPS IN DEVELOPING A PRICING

STRATEGY
“PRICING IS THE ONLY ELEMENT IN
THE MARKETING MIX THAT I. THE OBJECTIVE
PRODUCES REVENUE; THE OTHER
ELEMENTS PRODUCE COSTS” • Sales-Based - the firm is interested in
-Phillip sales growth and/or maximizing the
Kotler market share.
• Profit-Based - the firm is interested in
maximizing profit, earning a satisfactory
profit, optimizing the return on investment
or securing an early recovery of cash.
• Status Quo Based - the firm seeks to
avoid reasonable government actions,
minimize the effects of competitor actions,
maintain good channel relations,
discourage the entry of competitors,
4Ps of Marketing Mix reduce demands from suppliers and
stabilize prices.
NATURE OF PRICE refers to decisions
surrounding “list pricing, discount pricing, II. BROAD PRICE POLICY
special offer pricing, credit payment or
credit terms“. - provides procedures, rules and methods
to act in one specific situation. It links the
PRICE prices with the target market, image and
• refers to the total cost for customer to other marketing elements.
acquire the product and may involve in a. Penetration pricing - uses low prices
both monetary and psychological costs to capture/attract the larger market for
such as time and effort expended in the product or service.
acquisition. b. Skimming pricing - uses high prices to
• determines the value of a good or attract the market segment more
service to the buyers even to the sellers. It concerned with product quality,
is the amount of money charged for a uniqueness, or status than price.
product or service or the sum of the
values that the consumers exchange for III. PRICE STRATEGIES
the benefits of having or using service.
• means the money value of a product or - are ways or some actions to accomplish
service expressed in terms of peso and or the goals and objectives of the company
centavos. in gaining profit.
• it is also the amount of money needed in a. Cost-based price strategy - is when
order to acquire product or service and its the firm sets prices by computing the
accompanying services. merchandise, services, and overhead
costs then adding the desired profit to
those figures.
b. Demand-based price strategy - is
when the firm sets prices after researching
consumer desires and makes sure the
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range of prices is acceptable to target of different quality and features at different

market. prices.
c. Competition-based price strategy - is 11. Price bundling - is when the firm
when the firm sets prices in relation to the offers a basic product, options and
competitors. The entrepreneur research customer service for one total price.
the prices set by their competitors. 12. Unbundled pricing - is when the firm
sells by individual components and allows
IV. IMPLEMENTING PRICE STRATEGY the customer to decide what to buy.
13. Geographic pricing - is when prices
is the first readiness to sell the product are set depending on the distance of the
which would be effective if given an buyer to the seller.
attractive price strategy listed below: 14. FOB factory (Point-of-Production
Pricing) - is when buyer pays for all
1. Customary pricing - is when one price freight charges regardless of the distance.
is maintained over an extended period of 15. Uniform delivered pricing - is when
time. Normally the price of the product will buyer pay the same delivered price for the
not be easily changed. same delivered price.
2. Variable pricing - is when the price 16. Zone pricing - is when the buyer is
responds to cost fluctuations or within the geographical zone pay a
differences in demand. The entrepreneur uniform price.
must consider the law of demand of 17. Base-point pricing - is when the cost
supply. of transporting the goods is computed
3. One price policy - is when the price is from the base point nearest buyer.
charged to all customers buying the
product or service under similar TERMS OF PAYMENTS
conditions.
4. Flexible pricing - is based on the Any price agreements including discounts,
customer’s ability to negotiate or buy the any timing of payments, and credits
power of the customer. agreements.
5. Odd pricing - is prices set a level
below even values. V. PRICE ADJUSTMENTS
6. Price quality association - is when
consumers believed that high price Changes in cost, competitive conditions
represents high quality and low prices and consumer demand require changes in
represents low quality. price.
7. Prestige pricing - is when customers
set price floors and will not buy at prices DETERMINING THE RIGHT PRICE
below those floors. Above price ceilings
items would seem too expensive. 1. The customer’s perception of the value
8. Leader pricing - is selling key items at of the kind of business firm;
low prices to gain consumer loyalty within 2. The costs involved such as overhead,
its product line. storage, financing, production and
9. Multiple unit pricing - is when the distribution, and
entrepreneur offers discounts to 3. The profit objectives of the firm.
consumers for buying in large quantities.
10. Price lining - is when instead of
setting one price for a single model of a
good or service, the firm sells two models
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FACTORS THAT INFLUENCE PRICE >Limits the flexibility in adjusting prices.

DETERMINATION Examples
>McDonald's
INTERNAL FACTORS >Public Transportation
These are the marketing objectives,
marketing mix strategy, and the cost-plus CUSTOMER PERCEIVED VALUE
pricing strategy. PRICING
EXTERNAL FACTORS
in pricing strategy such as market Pricing is based on how much value the
demand, competitor’s strategy, and the customer thinks a product or service
economic and social concerns. provides.
The customer’s perception of worth, which
COST ORIENTED PRICING may be influenced by branding, quality,
and experience.
A pricing strategy where the price of a Pros
product or service is determined by adding >Customer Loyalty
a markup to its total production cost to >Higher Profit Margin
ensure profitability. Cons
Pros >Customers perception vary and change
>Guarantees that expenses are met. overtime
>Easy and quick to compute. >Competitors using the rights price
>Lowers the risk of pricing in irregular >Has limited appeal to price sensitive
markets. customer
Cons Examples
>Disregards consumer demand. >Apple >Rolex
>Could ignore the prices of competitors. >Tesla >Luxury
>Could result in market prices that aren't Fashion >Starbucks
competitive. >Brands
Examples
>McDonald's
>Apple CUSTOMER SEGMENT PRICING
>Toyota
>Walmart A strategy where different customer
groups are charged different prices for the
CUSTOMARY PRICING same product or service based on factors
like age, location, purchasing behavior or
A pricing strategy where the price of a industry.
product or service remains stable over Pros
time based on customer expectations and >Optimize market coverage
industry standards. >Has Competitive advantage
Pros Cons
>Customer's Loyalty >Some customers may feel unfairly
>makes it easier for Businesses to decide treated
on prices. >Difficult to implement
>Keeps prices from changing too much, Examples:
which may mislead buyers. >Tech Devices - Student Discounts
Cons >Streaming Services
>Can lead to lower profit.
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>Transportation - Student Discounts &

Senior Citizen Discount DEMAND DIFFERENTIAL PRICING
STRATEGY
Price Segmentation Techniques:
Customer Characteristics. Differential Pricing - is the strategy of
>Prices vary based on customer traits like selling the same product to different
age, location, or occupation. customers at different prices. Differential
Transaction Characteristics. pricing strategy allows a company adjust
>Prices change based on conditions at pricing based on various situations or
the time of purchase, such as urgency, circumstances.
weather, or season.
Behavior Based Segmentation. Diagnostic Perception Pricing
>Customers must prove they are price-
sensitive by taking action. Diagnostic Identification of a condition,
Product Portfolio Pricing. disease, disorder, or problem by
>Companies create different product systematic analysis of the background
versions to appeal to different buyers. history, examination of the signs or
symptoms, evaluation of the research or
CUSTOMER VALUE BASED PRICING test results, and investigation of the
assumed or probable causes.
Pricing is set based on the actual value a Perception can have various meanings
product delivers to the customer. but in marketing, it is often described
The real benefits and effectiveness of the process by which a consumer identifies,
product compared to alternatives. organizes, and interprets information to
Pros create meaning.
>Increased revenue if clients perceive a Pricing is the process whereby a
high level of value. business sets the price at which it will sell
>Strengthens premium positioning and its products and services, and may be part
brand loyalty. of the business markerting plan.
Cons
>Dangerous if buyers don't think the price DIFFERENTIAL PRICING STRATEGY
is worth it.
>Difficult to implement in markets with referred as discriminatory pricing, this
fierce competition and inexpensive means charging different prices to
substitutes. different buyers for the same quality and
Examples quantity of the product.
>Apple Iphones
>Luxury brands FIVE DIFFERENT TYPES OF
>Tesla DIFFERENTIAL PRICING STRATEGIES

THE POWER OF DIFFERENTIAL Customer-Segment Pricing - different

PRICING group of people pay different prices for the
same kind of product based on the basis
It maximize revenue, attract diverse of a segment they belong to.
customers and increase market share. Image Pricing - charge different prices for
the same product based on the image of
LOW DEMAND = LOW PRICE the product.
HIGH DEMAND = HIGH PRICE
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Product-form Pricing - charge different

prices for the same product based on the STEPS IN ACTIVITY-BASED COSTING
variants of the product.
Location Pricing - charge different prices 1. IDENTIFY NECESSARY ACTIVITIES:
for the same product based on the DETERMINE ALL ACTIVITIES
location where it is offered. INVOLVED IN THE PRODUCTION
Time Pricing - charge different prices for PROCESS.
the same product based on the time of 2. CREATE COST POOLS: SEPARATE
purchase. EACH ACTIVITY INTO INDIVIDUAL
COST POOLS. FOR EXAMPLE,
DISCOUNT AND ALLOWANCE PURCHASING COULD BE ITS OWN
PRICING COST POOL.
3. DETERMINE TOTAL OVERHEAD:
Business face two risk when setting prices CALCULATE THE TOTAL OVERHEAD
for their products. If the price is set too FOR EACH COST POOL.
high, product demand will be low. If the
price is set too low, the business will be ALLIANCE PRICING STRATEGY
unable to make a profit. Businesses must
develop pricing strategies to avoid these A strategic alliance is a partnership
risks. between two companies, promoting a
Trade discount- is the type of discount product and increasing profitability. It
which allowed of the quoted price with allows for resource sharing, reduced
reference specific position enjoyed buys competition, and market entry.
the buyers in the channel of distribution.
Seasonal discount -is the type of AUCTION-TYPE PRICING
discount which deduction is allowed over
and above the trade discount in cases of An auction is a sales method where
products which have only seasonal buyers bid competitively for goods or
demand services. Auctions can be conducted
Quantity discount - is the type of online or in physical locations.
discount which allowed off the quoted
price to the buyers on the basis quantities INTERNET AUCTIONS
bought.
Online platforms allow buyers and sellers
DYNAMIC PRICING from around the world to participate in
auctions, increasing competition and
is a strategy where businesses change ensuring fair market value for goods and
the prices of their products or services services. Internet auctions are a popular
based on demand, competition, or time. method of buying and selling goods
online.
ACTIVITY BASED COST ACCOUNTING
REVERSE AUCTIONS
Activity-Based Costing (ABC) is an
advanced method of accounting used to It involve buyers setting the terms and
determine the total cost of production. multiple sellers competing by offering the
lowest possible price.
● Instead of sellers listing items for buyers
to bid on, a buyer (such as a company or
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government agency) announces what they 2. When customers attempt to buy it, they
need. are told it is unavailable.
● Suppliers then submit their lowest bids 3. They are then persuaded to purchase a
to win the contract. higher-priced alternative (the “switch”).

AUCTION TYPES PRODUCT PRICING STRATEGY

1. English Auctions (Ascending Bid) BONUS PACK

● One seller and multiple buyers.
● Bidders compete by raising their offers is an additional number of items that are
until no higher bid is placed. placed in a special pack size as a “bonus”.
● Used for high-value items like artwork,
antiques, and concert tickets. TYPES OF BONUS PACK
● Popular platforms: Yahoo! Auctions,
eBay, and Ticketmaster. - PRICE DRIVEN
2. Dutch Auctions (Descending Bid) - BONUS SIZE
● A seller starts with a high price and - SAMPLE NEW PRODUCTS
lowers it until a buyer accepts the bid.
● Alternatively, multiple sellers can PRICE DRIVEN
compete by lowering their prices to win a Customers like bonus packs because they
buyer’s contract. get more products for the same price.
● Used in industries such as real estate, This is when a manufacturer offers a deal
logistics, and commodity trading. like “Buy 2 for the price of 1”, bundling the
Example: Royal Mail auctioned contracts items together in a combo pack.
for international shipping using this BONUS SIZE
method. Customers receive extra product for free
3. Sealed-Bid Auctions in the same packaging size.
● Participants submit a single confidential This encourages purchases by offering
bid without knowing others’ offers. more value without increasing the price.
● Often used by governments for SAMPLE NEW PRODUCTS
procurement contracts and supplier A great way to introduce new products to
selection. loyal customers by including a sample of
● Ensures a fair bidding process but something new.
requires strategic pricing from bidders. Since they already trust the brand, they
are more likely to try the new product.
BRAND PRICE TRADE-OFF (BPTO)
BENEFITS OF BONUS PACK
BPTO IS A STATISTICAL TECHNIQUE - Boosts Sales & Revenue
USED IN MARKET RESEARCH TO - Strengthens Brand Loyalty
ANALYZE CONSUMER PREFERENCES - Attracts New Customers
BETWEEN BRANDS AND PRICING. - Competitive Advantage

BAIT AND SWITCH TACTICS CHALLENGES OF BONUS PACK

- Consumer Skepticism
Bait and switch is a deceptive marketing - Shelf Space
strategy where:
1. A low-priced product (the “bait”) is
advertised.
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Bonus Packs vs. Price Discounts BROAD PRICE POLICY

Offline Shopping: Bonus packs drive
higher impulse buying than discounts. The overall strategy a firm uses to set and
Online Shopping: coordinate its pricing decisions with its
Hedonic products → Discounts work target market, brand image, and other
better. marketing elements while staying
Utilitarian products → Bonus packs work competitive.
better.
TYPES OF NEW PRODUCT PRICING
BREAKEVEN SALES refer to the amount STRATEGIES
of revenue a business needs to earn to
cover all costs, resulting in zero profit. Skimming Pricing
This includes fixed expenses and variable setting a high price at first to attract buyers
expenses. who value quality and brand, helping the
business earn profits early and cover
BREAK-EVEN SALES FORMULA costs before lowering prices later.
Penetration Pricing
Fixed Expenses ÷ Contribution Margin% = starting with a low price to attract many
Break-Even Sales customers quickly, keep competitors
away, and increase demand, but it can be
TERMS : hard to raise prices later.
FIXED EXPENSES
costs that stay the same regardless of CAPTIVE PRICING
sales, like rent, salaries, and utilities.
VARIABLES EXPENSES Captive pricing attracts customers with a
change based on sales volume, like low-priced core product while making
ingredients, packaging, and delivery costs. profits from higher-priced essential
CONTRUBITION MARGIN accessories (captive products), ensuring
the amount left from sales after covering long-term revenue.
variable costs.
IMPORTANT FACTORS IN CAPTIVE
BROAD COST LEADERSHIP PRICING

This strategy means being the cheapest - Patent Protection

option for customers in all parts of the - Competitive Threats
market. The goal is to offer low prices to - Product Life Cycle
attract as many customers as possible,
while still making a profit. CHANNEL PRICING

BROAD DIFFERENTATION Is the use of distribution channel as a

factor in pricing. It is common for firms to
This strategy focuses on making a product offer different prices depending where you
or service stand out by being unique and buy item.
high-quality. The goal is to make
customers willing to pay more because DISTRIBUTION CHANNELS
they believe the product is special or
better than others. Distribution channels are set of
independent organization that are involved
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in the process of making a product competition rather than consumer-oriented

available for use or for consumption by pricing.
customer or individual level.
COMPLEMENTARY PRICING
STRATEGY
5 TYPES OF CHANNEL PRICING
Involves selling packages or set of goods
Clearance Channels refers to specific or services at lower prices than they would
sales channels used to sell off excess have actually cost if sold separately.
inventory at significantly discounted price.
Cost it is using pricing to recoup the costs DISTINCT TYPE OF COST BASED
of expensive channels. PRICING
Penetration Pricing it is charging less
when youopen a new channel in order to Full cost pricing takes into consideration
gain market share. both variable, fixed costs and a percent
Unified Pricing it is common for firms to markup.
make significant efforts to unify prices Direct-cost pricing is variable costs plus
across channel region. a percentage mark-up.
Price Discrimination is a pricing strategy Cost plus is an approach that adds a
where a business sells the same product standard markup to the cost of the
or service to different customers at product.
different prices.
COST BASED PRICING STRATEGY is
CLEARANCE MARKDOWNS FOR when a flat dollar amount or percentage is
FASHION MERCHANDISE added to the cost of the product, which
means marketers apply a desired level of
A markdown is cutting down a certain profit to the cost of the product.
amount of percentage from the
merchandise original price.
Clearance markdown is also in this
branch
of pricing strategy that a firm could utilize.
The clearance sale or markdown are
usually seen if trends are going to be
replaced with a new one.

COMPANY PRICING POLICIES

Price is all around us it is not just a

number on a tag or an item.

COMPETITION - BASED PRICE

STRATEGY

A competitive pricing strategy, a.k.a.

market-oriented pricing strategy, is an
approach in which e-commerce retailers
set their online prices based on