CLARET COLLEGE OF ISABELA

P.O. Box 8692 Roxas Avenue, Isabela City, Basilan Province, 7300 Philippines
GRADE 12 - ENTREPRENEURSHIP

Name :_____________________________ Date : ________________

Strand/Section :_____________________________ Output No. : SIX (6)

LET THE MARKET KNOW YOU BETTER

(LESSON/OUTPUT TITLE)

Lesson Objectives:

The learners will be able to…

a. Determine the importance of Positioning Map of Competitors in an Industry/Market;

b. Conceptualize a product or service for prototyping;
c. Create a unique packaging of your own business idea or prototype.

Values Integration:

a. Truth – entrepreneur discovers new or different ideas through fact-based material and
sees whether these ideas will work.

Explore and Explain:

In its broadest sense, marketing is about creating and accumulating customers. Marketing plans
are designed to capture market share and defeat competitors. The marketing functions and the
marketing mix serve the overall business strategy. It is summarized in seven Ps by which the
enterprise will engage competitors and gain customers. These Ps are Positioning, Product,
Packaging, Place, People, Promotion, and Price.

Positioning

Positioning, in the context of marketing battle plan, has three overlapping objectives.

First, positioning has an enterprise perspective. The enterprise scans the market environment and
design to position itself with products that specifically address the needs of a chosen target
market. Second, positioning has a competitive perspective. The enterprise has to differentiate and
distinguish itself from its competitors. Third, positioning takes the customers’ perspective.
Positioning is the way the customers perceive the enterprise and its products or services in their
minds. The stronger the overlap is in these perspectives, the more defined the positioning of an
enterprise is in the marketplace.

Enterprises can establish their positioning either by starting with their own product creations or
with their customers’ outcome expectations. The competitors will always be part of the
positioning equation, whether the enterprise starts with the product or the customer perspective.
After all, marketing warfare takes place in a competitive arena.

The competitive landscape of the enterprise, relative to its market, can be clearly mapped out by
laying out both the latitudinal and longitudinal market dimensions.

Latitude lays out what is important to the different customer segments from their differing points
of view. Certain customers may claim that what is important to them are the quality features of
durability and functionality. Other customers may be looking for style, design, and aesthetic
appeal. There would be customers who do not have the purchasing power to afford any of the
above quality definitions. They would buy lower-priced products with lesser quality.

LET THE MARKET KNOW YOU BETTER pg. 1

Longitude in the marketing map represents the product features and attributes of competitors in
the marketplace. Most competitors would be offering product features, which the major
customers segments want to buy. A few will focus on niche customers who are not in main
stream. The latitudinal and longitudinal dimensions will draw the parameters of the map,
locating both customers and competing enterprises in their respective positioning. (See
Challenge 1 of this chapter for an example of the Positioning Map.)

In determining its positioning, the enterprise should be mindful of the main value proposition
(MVP) to its customers relative to its competitors.

In determining the MVP, the enterprise must assess its products from the customers’ viewpoint.
It must evaluate the other six Ps of marketing to find out if they complement and reinforce one
another. Price might be out of line with the promotion message, or the people chosen might be
wrong message carriers. Each of the Ps of marketing must communicate something to the
customer.

The enterprise should carefully assess whether it’s chosen MVP is the most sought after by its
targeted market segment. Some enterprises have discovered that their intended customers are not
the ones buying their products but some other segments. Their choice, then, is to either reposition
their products toward the unintended customers or to reinvent their products to fit their intended
customers. Sometimes, all that is necessary is a change of message but, most of the time, what is
required is an overhaul of the marketing mix.

To establish the positioning of its various products in the marketplace, the enterprise endeavours
to build the brand of each product. Branding serves three purposes. First is to differentiate the
product from other products. Second is to avoid a commodity image for the product. Third is to
fill space in the consumer’s mind that would prevent other products from occupying the same
space.

Once a space gets filled in the consumer’s mind, it is very hard to change. We all remember the
first man on the moon, the first person to circumnavigate the world, and the first murderer, but
we do not remember the second. Number two will only be remembered if it makes a big thing
out of being number two like Avis. People know that as the ‘number two’ car rental company,
Avis, “tries harder”.

Branding and brand equity development should go hand-in-hand with positioning. Volvo stresses
its safety brand positioning by crashing their test cars into brick walls to dramatize the minimal
effect on the owner-driver.

Powerful brands have become the generic name for their product categories like Kleenex, Band-
Aid, Xerox, and Scotch Tape. It is hard to separate these brands from their permanent positioning
in the marketplace. These brands have also been able to extend their good image to their other
product lines. Johnson and Johnson, Procter and Gamble, Pfizer, Ayala, and SM have been able
to leverage their enterprise brand image to all of their product lines. These enterprises have
assumed the reputation and image of top calibre establishments whose magic wand can
transform new products into instant successes.

Product

A product is the tangible good or the intangible service that the enterprise offers to its customers
in order to satisfy their needs and to produce their expected results. Products are often identified
with their brand names to distinguish them from other products in the market. Some products
have built up so much loyalty to the point that their brand names have become their best-selling
proposition.

There are four general types of products that are marketed by enterprises:

LET THE MARKET KNOW YOU BETTER pg. 2

 1. Breakthrough products
2. Differentiated products
3. Copycat products
4. Niche products
Breakthrough products offer completely new performance benefits. They may double the
performance at half the cost. They may be much more convenient and easy to use. They may
cater to a unique set of customer needs that have not yet been tapped. They may create a new
demand. Marketing breakthrough products need a higher level of customer education and
orientation.
Common examples of breakthrough products are borne out of the biotechnology field
particularly in terms of coming up with new vaccines to protect people from certain viruses.
Differentiated products try to claim a new space in the mind of the customer different from the
spaces occupied by existing products. The performance benefits may be close to existing
products but there would be additional benefits on special aspects of the product.
There are many different eyeglasses available in the market today but Transitions® lenses was
able to differentiate itself from the rest because the lenses they use adapt to changing light. With
this feature, the wearer gets additional protection against ultraviolet rays, glare, and eye fatigue.
Transitions® lenses become very clear while indoors and become darker outside, depending on
the sunlight and other sources of light and glare. It is actually a pair of eyeglasses and sunglasses
rolled in one.
Copycat products will not make much impression on the consumer’s mind. The marketer should
make up for this lack of mental space by offering more physical space in the shelves, lower
prices, easier access, promotional freebies, and the like. Aggressive advertising may add to
market demand but at a greater cost than lending brands.
A classic Philippine example of copycat product is the Beer na Beer brand of Asia Brewery
pitted against San Miguel Pale Pilsen. Both have amber colored bottles with similarly styled
white colored font printed outside the bottle. No wonder after Beer na Beer came out of the
market, San Miguel filed a law suit against Asia Brewery for trademark infringement. In this
case, San Miguel prevailed.
Niche products do not intend to compete directly with the giants. They are products with lower
reach, lower visibility, lower prices, and lower top of mind. They are content to play minor roles
in specific and smaller market segments.
Have you ever heard of the Dirty Rotten Flowers delivery service in the United States? In
contrast to romantics wanting to send the best and most beautiful flowers to their loved ones, this
company caters to the wronged ones or those who want to seek revenge.

Packaging

There used to be a time when products came wrapped in ordinary packaging that prominently
displayed the brand name, the main attributes of the product, the company’s logo, and its place
of business. Packaging came in small, medium, and large sizes without much variation in the
material, shape, and purpose of the packaging. That is a time long gone.

Now, packaging can even be more important than the product itself, if done imaginatively. One
example is the entrepreneur who took ordinary rocks from riverbeds and packaged them as “pet
rocks.”

Today, packaging serves several important purposes, which elevate it to one of the seven Ps of
marketing.

LET THE MARKET KNOW YOU BETTER pg. 3

First, packaging identifies the product, describes its features and benefits, and complies with
government rules on specifying its contents, weight, chemical composition, and potency.
Packaging provides easy brand identification for consumers.
Second, packaging differentiates the product from its competitors and even from its other brand
offerings. For example, liquor brands differentiate their premium scotch and brandy offerings by
packaging them in ceramic bottles.

Third, packaging lengthens the lifespan, physically protects, and extend the usefulness of the
product. Vacuum-packed or aseptically packed products prolong the shelf lives of many food and
beverage items. High-tech packaging protects fragile and sensitive products like crystal
sculptures, laptops, precision tools, and the like.

Fourth, packaging has become an environmental issue by itself. Many packages are discarded
after the content has been taken out. This generates waste and poses environmental hazards.
Recyclability and biodegradability are now a major concern of packagers and consumers alike.

Fifth, the aforementioned purposes of packaging have increased the cost of packaging and,
therefore, the price of the product. To counter act this, the packaging must possess its own value
proposition for the customers as well as for the enterprise. For the customers, they may put some
premium on environment-friendly packaging. Customers may even be able to convert the
packaging into money if the packaging were exchangeable for cash. Some packaging are so
beautiful, they create their own value as collectibles.

Packaging does not refer to the wrapper or container of the product. It can mean the bundle of
products or services that are put together to attract and delight customers. It can also mean the
terms and conditions attached to the sale or after-sale servicing of the product.

Place

“Location. Location. Location.” This is the often-recited mantra of salespeople who want to have
the best access to their customers. Although finding a good location proves to be challenging,
even more challenging is maximizing the potentials of that location.

Initial Location Screening

In finding a good location, one needs to consider the following:

1. The number of customers residing or working in the area, and the number of customers who
frequently pass through the area.
2. The density or number of customers per unit area.
3. The access routes to alternative locations and their traffic count in those routes.
4. The buying habits of customers or where they buy, at what time and how frequent.
5. Locational features such as parking spaces, foot access, creature comforts, and the like.

In a similar way, the entrepreneur must be able to determine the price that comes with the
location because it will spell out the success or failure of the business. The entrepreneur has to
consider the following:

1. The cost of buying or renting, renovating, and operating the location.

2. Customer volume, drop-in rates (what percentage of customer traffic would stop by the store)
and sales conversion ratios (what percentage of drop-ins would actually purchase something
from the store).
3. Revenues based on the volume and mix of goods and services expected to be sold at certain
prices.
4. Profits.

In addition to the above factors, the final choice of the location must be based on the following:

LET THE MARKET KNOW YOU BETTER pg. 4

1. Image and location conditions. This refers to the physical look of a location, sanity
conditions, crime and safety levels, etc. the reputation of a location is also important. For
instance, would it be better to put up your store in an upscale shopping mall or in a low-end
“tangge” or flea market?
2. Exact fit to target customers. Is the location traffic generally composed of your target
customers?
3. Clustering of competitor establishments. This often times results in drawing a bigger
market to the location.
4. Future area development. A certain location might not have the most customers or the best
economics in the short term, but it might become a central business hub within the next five
years. Watch out for signs of development like a construction boom or a new shopping mall
nearby.
5. Fiscal regulatory requirements. An entrepreneur would want to set up shop in a town or
city with low tax rates, good governance, excellent infrastructures, and great public services.

Relevant Location Drivers

It would benefit the entrepreneur to do an in-depth location analysis. The entrepreneur can make
use of the following relevant location drivers for location selection. These are the ‘musts’ in
choosing the location for your business.

1. Physical Proximity to Target Market

For most entrepreneurs, location are chosen based on how close it is to the target market. Ideally,
the best locations should be easily accessible from home or the workplace. However, physical
proximity is not always important. For instance, most parents will send their kids to the nearest
elementary or high school. However, when it comes to college, most students wouldn’t mind
going to a faraway university if it means getting the best education possible in the course of their
choice.

2. Customer Traffic Flow

Customer traffic flow refers to the people that regularly come into contract with your business
establishment. Your shop might not be near to customers’ homes or workplaces, but it might be
situated somewhere along their daily routes. Higher traffic flows mean higher drop-in rates for
stores along the traffic route. Important data to research include daily volume of the people
and/or vehicles passing through, as well as information on the “peak hours” and the “slow
hours.”

3. Industry Clustering

A lot of competitors clustered in one location usually draw in a bigger market to the area. Three
stores side-by-side offer more choices to customers than one stand-alone store. The downside is
that clustering also results in fiercer competition. As such, some entrepreneurs prefer to establish
a monopoly far away from competitors.

4. Convergence of Multiple Industries

Locations where multiple industries converge, such as central business districts, shopping malls,
and public markets are able to attract more customers because of one-stop shopping convenience.
But again, competition is usually strong in such areas.

5. Population Concentrations

Urbanization creates population concentrations. Where people live, goods and services follow.
The greater the number of people, the greater the number of needs and wants to be satisfied.

LET THE MARKET KNOW YOU BETTER pg. 5

Simply put, the more populous the location is, the greater is the opportunity for business and
profit.

6. Activity Hubs

Activity hubs such as large schools, high-rise buildings, public parks, transport terminals, and
entertainment centres provide good location potentials for food establishments and client-specific
services.

7. Growth Potential

Business are always looking for new areas to expand and grow. This is especially true when
crowded population centres become saturated with many providers of goods and services. Hence,
the new development site will be the natural greener pasture for early locators. The early locators
will catch the early customers.

8. Business Climate

Enterprises prefer locations that are conductive in doing business. This includes areas with:

 High economic growth

 Stable political situation
 Effective social services
 Good infrastructures
 Cheap utilities
 Efficient transportation and logistics
 Availability of skilled labor force
 Low crime rates
 Good fiscal incentives
 Trusted public officials

9. Cost of Doing Business and Producing Goods and Services

For industrial establishments, the more relevant criteria are those locations with lower cost of
doing business and lower cost of producing goods and services. Hence, these industrial
establishments would prefer locations outside the main population centers but with government-
supplied amenities.

Comparative Location Analysis

Perhaps the most common way by which an entrepreneur ‘surveys’ a potential location is
through comparing it with other locations with more or less the same features and tenant mix or
clusters of competitors. These locations must have that ‘extra something’ that makes competitors
fight for a store space within the same area. Keen observation is required for an entrepreneur if
he or she wants to draw several insights from these favoured locations.

Geography and Atmosphere Determinants

Another way of looking at a location or place to sell the product or service can be based on two
major place determinants: geography and atmosphere. Within each determinant, there are
extreme opposite qualities that create a dilemma for the entrepreneur. To better understand what
these dilemmas are, let us take a look at each one of these determinants.
For the geography determinant, there are six decision tensions:

1. Concentration versus Destination

2. Access versus Abundance

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 3. Clustered versus Dispersed
4. Development versus Underdevelopment
5. Physical versus Virtual
6. Upscale versus Downscale
It is natural for entrepreneurs to prefer places where there is a large concentration of target
customers (e.g, commercial centers, malls). Nowadays, modern transportation means and the
longing to be relieved from city living-related stress have paved the way for destination places.

Access is the ability to reach a place easily and inexpensively. Twenty-four-hour convenient
stores and nearby community or strip malls may offer easy access to the customers but their
product and service offerings may be limited unlike large commercial malls that offer a wider
range of products and services.

Clustered competitors allow customers to choose from a great variety of product offerings. The
clustering of many sellers attracts many buyers. On the other hand, dispersed competitors
experience better business results in certain industries because they practically “own” the market
located within the area of business.

There is also some tension in choosing to lacte in highly-developed areas of business versus
locating in relatively underdeveloped areas. Developed areas would have ready-made markets
and all the utilities and transportation systems in place but tend to be more expensive than
underdeveloped areas. The latter may be cheaper to lacte in, but the market would take time to
grow and all the usual amenities might not yet be in place.

The Internet has enabled the proliferation of virtual market places where customers and sellers
converge at the comfort of their own homes or whatever they are through computers, laptops, or
mobile devices. This defies the traditional way where the customer has no choice but to go to the
shop where the product or service is available no matter how long it takes them to get there.
Now, everything is just a click away and it does not make any difference whether you are just
buying one item or in bulk. In fact, some people find virtual shopping more convenient because
it spares them the hassle of getting stuck in traffic for long hours. However, there is limited
interaction between the seller and the buyer and the latter will not have the opportunity to taste,
feel, or smell what he or she is buying.

Finally, there is tension between choosing upscale places versus downscale places. The more
well-off customers can afford to spend more in upscale places. Downscale places have the
advantage of atracting the masses who might have lower purchasing power but greater numbers.

For the atmosphere determinant, theere are five decision tensions:

1. Formal versus informal

2. Exclusive versus public
3. Conservative versus adventurous
4. Aesthetics versus functionality
5. Minimalist versus maximalist

Atmosphere refers to the state or condition of the environment, which affects the mind and mood
of customers, either in a positive or negative way. Atmosphere brings out the intangible qualities
which customers are looking for (e.g., peacefulness, excitement, beauty, bliss, sorrow) through
the tangible or physical manifestations of the place (e.g., light, color, texture, shape, scent,
sound, temperature, taste, etc.)

A formal atmosphere projects a stylized, classy, highly-organized, and well-structured image for
the place. It gives customers the feeling of elegant tradition and civilized order. On the other
hand, an informal atmosphere projects a casual, easy-going, unstructured, and inpretentious
image for the place.

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Exclusivity is the preferred atmosphere by some customers who want privacy and elitist
isolation. The opposite feeling is desired bty customers who want a public atmosphere, one
where people from all walks of life can congregate.

Some customers do not want to take risk and want a conservative atmosphere, one where they
can feel safe and secure. These customers want to experience the familiar, the tried and tested,
and the “normal”. At the other end, customers crave for adventurism. They want to try out-of-
the-ordinary escapades.

There are customers who go for the aesthetics of a place while others go for the functionality of
the place.

There are customers who do not want clutter in the atmosphere. They like the minimalist
approach and believe in the adage that “less is more”. The opposite is true for customers who are
maximalists. They like everything to be in one place altogether.

The geography and atmosphere decision tensions provide alternative choices to the marketing
strategies. The final decision would depend on the positioning of the enterprise and its products
in the marketplace.

People

People are the ultimate marketing strategy. People sell and push the product. People search hard
to find the right market. People distribute, promote, price and sell the products in the most
attractive market places. People aim to please the customers through continuing service and
product enhancement long after the customers have bought the product. People are regular
contact points between the enterprise and its market.

The people in a marketing organization play crucial role in the success of the enterprise. At one
end of the spectrum, they are conducting the market and consumer research that would lead to
the development of product(s) and the formulation of the marketing strategy. At the middle of
the spectrum, they are devising the marketing plan and programs that would be translated to the
specific elements of the marketing mix. At the other end of the spectrum, they are contacting,
reaching, and convincing customers to but the product(s).

The market strategizing must be matched by the footwork that goes into distributing and selling
products. One without the other will fail. If the marketing research and planning work did not
produce the right products for the intended customers, then it would be extremely difficult to
distribute and sell the products. The wrong products need distribution channels and an effective
sales force.

The marketing efforts of people are organized at four levels: (1) to create customer awareness;
(2) to arouse customer interest; (3) to educate customers as they evaluate their buying choices;
and (4) to close the sale and deliver the products.

To arouse the interest of customers, the enterprise can use several people or organizational
modalities.

The first modality is to outsource the people from advertising agencies events management
outfits, call centers, and telemarketers. The second modality is to build in-house capabilities by
hiring market researchers, brand managers, salespeople, public relations officers, website writers,
orchestrators, etc. the third modality is to collaborate or enter into partnerships with principals,
distributors, dealers, and industry associations.

Educating customers in their evaluation process requires the enterprise to know the customer’s
decision-making process.

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 1. What and who are involved in the buying process?
2. Where are the customers in the buying process? Are they still canvassing and “shopping
around”? Are they currently focusing on a few candidates? Are they seriously evaluating
the company’s product?
3. What are the next steps of the customers and how can the company facilitate their next
steps? What else do the customers need to know and what issues must be addressed by the
marketer? The customer evaluation process may follow something similar to Table 4.1.

Table 4.1. Consumer Evaluation Process

INITIAL PROCESS MID PROCESS FINAL PROCESS
 Comparison of product  Customers who have tried  Taste tests
features and probable the products before  Physical demo
results by:  Professional evaluator’s  Free trial period
- Window shopping guidebook on competing  Money-back guarantee
- Internet browsing products offer
- Brochure collection  Testimonials from
and comparison credible endorsers
- Asking friends and  How often others are seen
relatives actually using the
 Word of mouth feedback products or services
 Gut reaction

Finally, the sale must be closed and the products should be delivered to the customer. Closing
the sale demands that the product be available, adequate, acceptable, and affordable.

Availability means that the enterprise has the goods or services on hand. Accessible means that
the customers can easily get the product from their usual buying places or the products can be
conveniently delivered to them. Adequate means the product meets the quality and delivery
specifications of the customer. Acceptable means that the customer is convinced by the selling
points of the product, finds very little or no objectionable features in the product, and accepts the
conditionality, warranties, and amenities given by the seller. Affordable means the price and
payment terms are right.

The organizational modality to educate the customers, to help them in their decision-making
process, and to close the sale would depend on four variables.

1. Is there a need for high contact (face to face) or will low contact (internet) be sufficient?
2. Is there a need for high accessibility? If so, the company requires distributors, dealers,
branches, and franchisees to expand their reach. Alternatively, they need a very fast, reliable
and economical delivery system.
3. How heavy or light is the transaction cost? High transaction cost products need new
competent people to sell them.
4. Does the customer need a lot of sale servicing and after-sales servicing?

Promotion

Promotion is the explicit communication strategy adopted by an enterprise to elicit the patronage,
loyalty, and support from its customers but also from its other signficant stakeholders.

Promition encompasses all the direct communication efforts of the enterprise, such as
advertising, public relation campaign, promotional tours, product offerings, point-of-sale
displays, website, flyers, emails, tlemarketing and others. Indirectly, the enterprise communicates
through the quality of its products and attractiveness of its packaging. It also communicates
inderectly through the services rendered by its people. It likewise communicates inderectly
through its location, its office premises and branches and its pricing strategy.

Effective promotion depends on three critical factors:

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  The credibility of the communicator;
 The message and the medium of the message; and
 The receptiveness of the audience to all that is being communicated.
Before crafting promotion and communication strategy, the communicator must profile the target
auidience very well. In business, this requires some research on who exactly is the market
audience, what they are looking for in a particular product offering and what it will take to
convince them to puchase the product offering.

For a business promoter, it is important to get a very positive emotional reaction from the target
audience. All messages must make an impact on the target audience-sensory, emotional and
intellectual impact at that. Therefore, all messages must start from where the customers are, not
from where the enterprise is. The only exception is when the enteroise has gained so much
credibility and loyalty from the audience that anything it says is taken as gospel truth.

In developing a promotion campaign, the enterprise should start with the target audience in mind.

At the beginning ot its operations, the enterpise may have a very limited market to cover. The
narrower the market coverage is, the more focused the promotion campaign should be.
Neighborhood flyers, word-of-mouth promotion, and house-to-house campaigns might suffice
for highly-localized businesses. For niche markets like vintage can enthusiasts or rae orchid
growers, trade magazines and active participantion in special trade show would be more effective
in directly reaching this exclusive audience. For the marketing of corporate services like
advertising, business-process outsourcing and management seminars, it is best to find contact
persons, write letters customized to the needs of the targeted corporate market, and make
impressive face-to-face presentations.

As the targeted audience becomes bigger, the marketer can shift from a rifle to a shotgun
approach. Electronic mails, websites, letter blastsm radio broadcasts, and print ads in certain
publication might serve the purpose.

For mass markets, television commercials, ubiquitous billboards and high-circulation

broadsheets, magazines or rabloids would already be cost effective and create quite an impact.
The idea is to match the size of the market with the medium used and the resources of the
enterprise. The enterprise should monitor the impact of its promotion campaigns.

Case Example 4: Ayala Group’s Credibility as Communication Strategy

The Ayala Group has been able to build tremendous credibility in over a century of service to
the Filipino people. Their bank, the Bank of the Philippines Islands, is a conservative, safe but
growing financial institution with a tremendous following from corporations, high net worth
individuals, and ordinary depositors. Its Ayala Land offerings sell upscale lots and
condominiums like hot cakes. Buyers know that Ayala can deliver quality properties and that
these properties would be able to gain market value easily. Ayala’s reputation is building
Makati City has spilled over to its numerous commercial centers and high-class subdivisions
in many key locations. All Ayala has to do in its promotion campaign is to announce that is
‘Ayala’ building the property and the people will buy.

Price

Princing depends on the business objectives set by the enterprise. While price is a majot factors
for the customer in buying a product, it is not the only factor such as in the case on buying
prmium products. Non-price factors outweigh the price factor whenever a cusotmer is buying a
premium item because he or she is more particular about the ‘premium-ness’ in temrs of quality,
the status or image that the product brings, shorter waiting time or immediate delivery, and other
such decision criteria.

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Finding the right price for a product is, therefore, not a simple matter of adding a mark-up on the
cost of a product or service, as some companies do.

The enterprise should set the prices of its products or services based on its business objectives
such a the following:

1. Profit maximization
2. Revenue maximization
3. Market share maximization
4. Attainment of the desired prestige or quality leadership
5. Penetration, survival or liquidation
6. Scarcity or market skimming
7. Cost recovery
8. Subsidy pricing
9. Marginal pricing

The first three prcing strategies pertain to the related dynamics of the different price ranges
applied across different product volumes or quantities while considering the product costs
incurred as these products are bought or sold. For a better appreciation let us take a look at Table
4.2.

Table 4.2. Proft, Revenue, and Market Share Maximization

Total Total
Volum Total Unit
Price Revenue Profit
e Costs* Cost
s s
10.0 1,000. 200.
100
₱ 0 ₱ 00 ₱ 800.00 ₱ 00 ₱ 8.00
1,080. 330.
₱ 12.00 90 ₱ 00 ₱ 750.00 ₱ 00 ₱ 8.33
1,050. 375.
₱ 14.00 75 ₱ 00 ₱ 675.00 ₱ 00 ₱ 9.00
960. 360. 1
₱ 16.00 60 ₱ 00 ₱ 600.00 ₱ 00 ₱ 0.00
900. 350. 1
₱ 18.00 50 ₱ 00 ₱ 550.00 ₱ 00 ₱ 1.00
*Assumes the following: Fixed Costs equal ₱ 300; Variable Costs equal ₱ 5 per unit

Table 4.2 shows an example of a profit revenue, and market share maximization pricing
strategies. Prices ranging ₱10 to ₱18 per unit have been market tested as shown in the first
column. These prices have resulted in vlomues (see second column) ranging from 50 units at the
price of ₱18 per unit to 100 units at price of ₱10 per unit.

The total revenues are computed by mutiplying price with quantity as provided in the third
column, the total costs are computed in the fourth column, assuming fixed costs of 300,
irrecpective of the volume level, and variable costs of ₱5 per unit. The fifth coloumn calculates
its delcines as volume goes up.

The revenue-maximizing price is dirived by multiplying the different prices by their expected
demand volumes. As shown in the table, the revenue-maximizing price is ₱12, generating total
revenues of ₱1,080. This revenue-maximizing orice model is easier to derive than the profit-
maximizing price. It should be used when the total costs are mainly fixed (little change over a
wide volume range).

Market share maximizzation is achieved by the price that obtains the highest volume of slaes
possible without sacrificing too much profitability. In the same table, this market share-
maximizing price is ₱10, with the volume of 100 units. At this low price, proficts are still

LET THE MARKET KNOW YOU BETTER pg. 11

realized. Perhaps bigger volume can be obtained at the lower price of ₱8 per unit. At this price
level, a possible demand for 110 units would produce revenues of ₱880 and total cost of ₱850,
yielding a miniscule profit of only ₱30. This point, going for market share might be sacrificing
profits too much.

One market research approach in estimating the demand, given the different price levels, is to
conduct a price tolerance survey of randomly selected respondents.

Assuming that 100 respondents are chosen (at 90% confidence level), the respondents should be
asked whether they would buy a product at, say, ₱10 a piece. After securing their answers, the
respondents should be queried if they would still buy at ₱12 a piece. The surveyer should,
subsquently, move up to the higher price levels. There would be less and less respondents
answering “yes” to the question. The percentage if respondents answering “yes” at the different
price levels could be multiplied by the estimated population of the target marget to obtain the
size of the demand.

As mentioned earlier, prices could be set at a premium to project a quality image and to distance
the product from its inferior competitors. The idea is to attract customers who are willing to pay
extra for the quality difference.

Ar the other end, prices can be set very low to survive in a competitive market or to get rid of
mounting inventories and convert them into cash. The other objective of a low pricing strategy is
to penetrate the market fully and overtake the competition.

Products that are very scarce or rare would appeal to wealthier customers who wish to belong an
exclusive club of owners.

Cost recovery pricing charges a price that allows the organization to merely recover its full costs.
The purpose is to reinvest the sales proceeds to produce additional products excess production
capacity that would otherwise be unused.

There are other pricing objectives which the enterprise may have. It may offer introductory or
promotional pricing to launch a new product. It may charge different prices in different
geographical areas to take care of additional logistics costs in farther locations or to accomodate
the lower purchasing power in poorer geographic areas. Discount pricing may be given to loyal
and regular customers to maintain their patronage.

LET THE MARKET KNOW YOU BETTER pg. 12