Pricing Strategies Based On Company'S Objectives: Week2 (AUGUST31-SEPTEMBER4,2020)

WEEK2
(AUGUST31–SEPTEMBER4,2020)
PRICING
STRATEGIES
BASED ON
COMPANY’S
OBJECTIVES
MKT 305
1st Sem, SY 2020 -2021

PRICING
STRATEGIES
BASED Discuss the internal factors to
ON
consider in Pricing
Explain the 3 groups of pricing

COMPANY’S objectives: differential,
OBJECTIVES competitive and product line
pricing strategy
KEY DISCUSSION
POINTS
MKT 305 | First Semester, SY 2020 - 2021

PRICE
It is the monetary value of a good, service or
resource established during a transaction. Price
can be set by a seller or producer when they
possess monopoly power, and are said to be
price makers, or set through the market itself,
when firms are price takers. Price can also be
set by the buyer when they posses

WWW.ECONOMICSONLINE.CO.UK
some monopsony power.

I
PRICE
*A pure monopoly is a single supplier in a
market. For the purposes of regulation,
monopoly power exists when a single firm
controls 25% or more of a particular market.
**Monopsonists are common in some small
towns, where only one large firm provides the
majority of employment. A monopsonist is a
WWW.ECONOMICSONLINE.CO.UK single buyer of labour, such as De Beers, the
diamond producer, and the major employer of
diamond workers in South Africa. Pure
monopsonists are rare because suppliers
normally have alternative outlets for their good

or service.
LET US PONDER
THIS PANDEMIC HAS

CHANGED ALMOST
EVERYTHING,
you too - for the better.
M.LAGAYA
PRICE
Twin component of product quality,
when combined, make up product value
or value proposition.
Amount of money asked or given for
"something".
lessor: rent, schools: tuition,
employees:wages, banks: interests

JOSIAH GO

WILLIAMS, 1982 When the consumers:
sees price as the concrete measurable

PRICE WOULD BE USED BY THE
CONSUMER AS HIS CUE FOR PRODUCT variable and a more trustworthy cue
QUALITY UNDER ONE OR SOME OF THE than other cues of quality
CONDITIONS: relates price to the needed effort to
acquire the product which is related to
his satisfaction
wants others to know that he could
afford something
sees that buying a higher-proiced item
is a risk-averting measure

PRICE
It is also the twin element of sales
volume, when combined, make up
sales revenues.
• TelCo companies

PRICE
The price charged for a product or service
should be no more than the sum of the
values of the benefits it provides to the
customers.
Coffee in the Manila Penn,
the Tapsilog at the airport

PRICE
Installment plans
aimed at profit maximization
major tool for business model
innovation
FUNCTION OF PRICE

INTERNAL
FACTORS IN
PRICING
PRODUCT COST OBJECTIVES
COMPANY'S OBJECTIVES

INTERNAL .
FACTOR 1:
It must be broken down to fixed and variable
cost, as most companies sell more than one
PRODUCT COST item and the fixed cost must be allocated to
different products in a sensible way.
Anticipated cost must also be considered.
The anticipation of cost structure is one of the
challenges that direct sales companies do
while preparing their monthly product catalogs.

2 COMMON
TYPES OF
SETTING PRICES
.
1. MARK UP where a standard percentage based on cost is
adopted

2 COMMON
TYPES OF
SETTING PRICES
.
2. TARGET PROFIT
where prices are set towards attaining a
satisfactory rate of return

TARGET PROFIT
PRICING
FORMULA TPP = Unit Cost + ( Target ROI x Investment)
/ Unit Sales
= P20 + (35% x P2,000,000)/ 100,000
= P 27

COST-BASED
PRICING
used when there is relatively little, if any, direct
competitors or when buyers are not price-sensitive

UNIT COST
FORMULA
Unit Cost = Variable Cost + Fixed Costs / Unit Sales
= P10 + (P1,000,000)/ 100,000
= P 10 + P10
= P20

COST VS. In numerical terms, small companies have a lower fixed
expense versus big companies. However, big
EXPENSE companies also have bigger sales volume. The reality is
STRUCTURE
that the small companies allocate a larger percentage
of total sales to cover fixed expenses. Big companies
that have bigger sales volume allocate a smaller
percentage of total sales to cover for fixed expenses,
therefore cost to sales ration is to the advantage of
the bigger firm.

There is alwasya a need to balance
INTERNAL
between profit and market share
objectives, and between regular
FACTOR #2 dividends and revenue growth.
Company objectives include taking
shared economies or cross-subsidies
into consideration. In shared economies,

COMPANY'S OBJECTIVES
one consumer segment for product
bears more of the average costs than
another, but the average price still
reflects cost plus acceptable profit.

PRICING STRATEGIES
BASED ON COMPANY'S
OBJECTIVES

DIFFERENTIAL Common examples are sale prices or special
PRICING
discounts occasionally provided by companies.
The marketer tries to maximize the number of
customers informed of the random discount at
his product's low price instead of at a
competitors low price. The marketer tries to
max the number of customers uninformed about

RANDOM DISCOUNTING
the random discount at his product's high price
rather than its low price.

DIFFERENTIAL only the second market segment enjoys savings
PRICING
through lower price
examples
UniLab and RiteMED
Tang and Kool=Aid
SECOND MARKET
May be a threat to trade intermediaries (same
DISCOUNTING
profit margin may cannibalize the amount of
profit

DIFFERENTIAL the manner of discounting is predicatable over
time and known to consumers and the discount
PRICING can be used by all consumers
PRICE SKIMMING
High prices are set initially, especially for
innovatibe products without competition and
PERIODIC DISCOUNTING lowered over time. This is used when the buyer's
interest for a product is high and are relatively
priice insensitive.

Prices are set high regardless of high or basic
product quality. The high price aims to
COMPETITIVE influence consumer's preception of high quality.
PRICING TWO VARIATIONS
1) Image Pricing. Makes use of high price to
signal high quality and uses the profit it makes
from higher priced versions to subsidize the
price of the lower priced version.

PRICE SIGNALING
2) Reference Pricing. A firm places a high
priced model next to an existing much higher
priced version to appear to offer better value.

COMPETITIVE
PRICING
Exploits economies of scale by having cheaper
cost, superior technology, and an efficient
organization.
A price-sensitive market is needed for

PENETRATION PRICING
penetration pricing to serve its purpose.

COMPETITIVE
PRICING
Exploits a firm's production experience as cost
decreases due to cumulative volume.
The firm must be more experienced than
competition so that their price can be set lower

EXPERIENCE CURVE
than competition.
PRICING

COMPETITIVE
PRICING
When there are adjacent markets separated by
transport costs rather than reservation or
transaction costs.
GEOGRAPHIC
PRICING

PRODUCT LINE
PRICING
It is not the same as price signaling as the
prices vary over different brands of the same
firm's product line. it is likewise not the same as
premium pricing since differences between

IMAGE brands are not real but only in the images
PRICING adopted.

PRODUCT LINE
PRICING
Buying the whole is cheaper than buying the
parts separately. The firm sells one product
below the accepatble price in one segment,
but compensates by selling both products to

PRICE BUNDLING both segments. Products must be
complementary.

PRODUCT LINE The firm sets a high price emphasizing on
unique product features.
PRICING
a) High price positioning must be consistently
established
b) there must be a valid product story like
superior features
PREMIUM PRICING c) the product quality actually delivers the
benefit in a superior way
d) consumers are receptive to the high-priced
brand

PRODUCT LINE a) Captive Pricing. The firm tries to price the
product low to attract buyers and recover from
PRICING the bigger volume expected in the accessories
or consumables.
b) Two-part Pricing. Refers to pricing
commonly used by service-based firms where
there is a fixed fee plus a variable fee charged
COMPLEMENTARY to the customers.
PRICING c) Loss Leader Pricing. Prices or well-know
brands are dropped to attract the traffic to the
store.

WEEK ENDER
MARKETERS HAVE DIFFERENT PRICING

STRATEGIES SUITED FOR THEIR RESPECTIVE
TARGET MARKETS.

Pricing Strategies Based On Company'S Objectives: Week2 (AUGUST31-SEPTEMBER4,2020)

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WEEK2

1st Sem, SY 2020 -2021

Explain the 3 groups of pricing

OBJECTIVES competitive and product line

MKT 305 | First Semester, SY 2020 - 2021

resource established during a transaction. Price

can be set by a seller or producer when they

possess monopoly power, and are said to be

price makers, or set through the market itself,

when firms are price takers. Price can also be

set by the buyer when they posses

MKT 305 | First Semester, SY 2020 - 2021

market. For the purposes of regulation,

monopoly power exists when a single firm

controls 25% or more of a particular market.

**Monopsonists are common in some small

towns, where only one large firm provides the

majority of employment. A monopsonist is a

WWW.ECONOMICSONLINE.CO.UK single buyer of labour, such as De Beers, the

diamond producer, and the major employer of

diamond workers in South Africa. Pure

monopsonists are rare because suppliers

normally have alternative outlets for their good

MKT 305 | First Semester, SY 2020 - 2021

THIS PANDEMIC HAS

when combined, make up product value

Amount of money asked or given for

lessor: rent, schools: tuition,

employees:wages, banks: interests

MKT 305 | First Semester, SY 2020 - 2021

sees price as the concrete measurable

QUALITY UNDER ONE OR SOME OF THE than other cues of quality

CONDITIONS: relates price to the needed effort to

acquire the product which is related to

wants others to know that he could

sees that buying a higher-proiced item

MKT 305 | First Semester, SY 2020 - 2021

volume, when combined, make up

MKT 305 | First Semester, SY 2020 - 2021

should be no more than the sum of the

values of the benefits it provides to the

Coffee in the Manila Penn,

the Tapsilog at the airport

MKT 305 | First Semester, SY 2020 - 2021

aimed at profit maximization

major tool for business model

MKT 305 | First Semester, SY 2020 - 2021

PRODUCT COST OBJECTIVES

MKT 305 | First Semester, SY 2020 - 2021

cost, as most companies sell more than one

PRODUCT COST item and the fixed cost must be allocated to

different products in a sensible way.

Anticipated cost must also be considered.

The anticipation of cost structure is one of the

challenges that direct sales companies do

while preparing their monthly product catalogs.

MKT 305 | First Semester, SY 2020 - 2021

1. MARK UP where a standard percentage based on cost is

MKT 305 | First Semester, SY 2020 - 2021

satisfactory rate of return

MKT 305 | First Semester, SY 2020 - 2021

= P20 + (35% x P2,000,000)/ 100,000

MKT 305 | First Semester, SY 2020 - 2021