PRICING DECISIONS

PRICING OBJECTIVES:
1) To maximize profit or target margin.
2) To meet the desired sales volume or market share.
3) To maintain stable relationship between the company's and the industry leaders' prices.
4) To enhance the image that the company wants to project in the market.

FACTORS THAT INFLUENCE PRODUCT PRICING:

A) INTERNAL FACTORS
1) All the relevant factors in the value chain (from research and development to customer service)
2) The company's marketing objectives, as well as its marketing mix strategy
3) The company's capacity (Peak-load pricing--- prices vary inversely with capacity usage. The company's
products would be sold at higher prices if the company is not operating at full capacity).

B) EXTERNAL FACTORS
1) The type of market where the products/services are sold.
a) Perfect Competition- in this type of market, a firm can sell as much of a product as it can produce, all
at a single market price. Every firm in this market will charge the market price-- if a product is
priced higher than the market price, nobody will buy; if priced lower, the company would
sarcifice profit.

b) Imperfect Competition- the type of market wherein the firm's price will influence the quantity it sells
A company would have to reduce its prices to generate additional sales.

c) Monopolistic Market- in this type, a monopolist is usually able to charge a higher price because it has
no competitors.

2) Demand and supply

3) Customer's perception of value and price
4) Price elasticity of demand- the effect of price changes on sales volume
a) Highly elastic demand- small price changes cause large volume declines
b) Highly inelastic demand- prices have little or no effect on vlolume

5) Legal requirements- both local and international laws

C) PRICING METHODS
1) Cost-based Pricing- it starts with the determination of the cost, then a price is set so that such price will recover
all the costs in the value chain and provide a desired return on investment.
Price= Cost + Mark-up

2) Market-based Pricing (or Buyer-based pricing) - prices are based on the product's preceived value and competitors'
actions, rather than on the costs of the products/services.

3) Competition-Based pricing- price is based largely on competitior's prices.

4) New Product Pricing (Introductory Price Setting)

a) Price Skimming- the introductory price is set at a very high level. The objective is to sell to customers
who are not concerned about the price, so that the firm may be able to recover the research and
development costs.
 b) Penetration pricing- the introductory price is set at a very low level. The objective is to gain deep
market penetration quickly.

D) SOME "ILLEGAL" PRICING SCHEMES:

1) Predatory Pricing- establishing price so low to drive out competitors from the market, so that once the predatory
prices no longer has significant competition, it can dramatically raise prices.

2) Discriminatory Pricing- charging different prices to different customers for the same product or service.

3) Collusive Priciong- companies conspire to restrict output and set artificially high prices.