NATIONAL ECONOMICS UNIVERSITY

MARKETING FACULTY
Marketing Department

ENGLISH FOR MARKETING

• Lecturer: Le Thi Thu Mai, PhD.

• Mobile: 0946203410
• Email: maile@neu.edu.vn
CHAPTER 8: PRICING & PRICING STRATEGY
 OBJECTIVES

• Understand basic pricing terms and pricing strategies,

understand the vocabulary, phrases, and expressions of these
terms
• Develop and master the use of key terminology in pricing
activities
 CONTENTS

• PRICING CONSIDERATIONS
• PRICING APPROACHES
• PRICING STRATEGIES
 PRICING CONSIDERATIONS
Reading 1. Costs of making products
Sometimes companies minimize or ignore the importance of demand and decide to price
their products largely or solely on the basis of costs. Prices determined strictly on the basis
of costs may be too high for the target market, thereby reducing or eliminating sales. On the
other hand, cost-based prices may be too low, causing the firm to earn a lower return than it
should. Nevertheless, costs should generally be part of any price determination, if only as a
floor below which a good or service must not be priced in the long run.
The idea of cost may seem simple, but it is actually a multifaceted concept, especially for
producers of goods and services. A variable cost is a cost that varies with changes in the
level of output; an example of a variable cost is the cost of materials. In contrast, a fixed
cost does not change as output is increased or decreased. Examples include rent and
executives’ salaries. Costs can be used to set prices in a variety of ways. While markup
pricing is relatively simple, break-even pricing uses more complicated concepts of cost.
1. Why do cost-based prices mean that the company ignores the importance of
demand?
2. What kinds of costs are mentioned in the text?
 WHAT IS A PRICE?
Price is the amount of money charged for a product or service. It is the sum
of all the values that customers exchange for the benefits of having or
using the product or service

Price is the only element in the marketing mix that produces revenue; all
other elements represent costs

Pricing: Pricing is the process whereby a business sets the price at which it
will sell its products and services.
 Exercise 1.1: Match the terms with their definitions.
A. A corporate expense that changes in proportion to how
C Cost much a company produces or sells
B. The difference between a product or service’s selling
F Fixed cost price and the cost of production, or the ratio of profit to
revenue.
A Variable cost C. The monetary value that has been spent by a company
in order to produce something
D. The sum of the fixed and variable costs for any given
B Margin level of production
E. The amount of money for which a product or service
D Total costs must be sold to cover the costs of manufacturing or
providing it.
E Break-even price F. Expenses that remain the same regardless of
production output.
 Exercise 1.2: True or False?
T 1. In the narrowest sense, price is the amount of money charged for a product or
a service.
T 2. Broadly speaking, price is the sum of all the values that customers give up to
gain the benefits of having or using a product or service.
T 3. Price remains one of the most important elements that determine a firm’s
market share and profitability.
F 4. Price plays a small role in creating customer value and building customer
relationships.
T 5. If customers perceive that the product’s price is greater than its value, they will
not buy the product.
F 6. If the company prices the product below its costs, the company’s margin will
increase.
T 7. The price the company charges will fall somewhere between one that is too
low to produce a profit and one that is too high to produce any demand.
Ex1.3. Find eight common words connected with price in the word square
 PRICING APPROACHES

² Customer value – based pricing

² Cost – based pricing
² Competition – based pricing
Reading 2
Apple applied flexibly many pricing approaches. For cost-based approach, if it
costs Apple $200 to produce their iPhone and they are aiming for at least a 20%
profit margin, they would need to price their iPhone for at least $240. For
competition-based approach, Apple’s main competitor, Samsung, has a competing
smartphone that they are selling for $400. This product provides customers a value
of $600 from the benefits it provides. Therefore, customers get $200 in value from
purchasing this product. If Apple’s customers get a value of $1,000 from
purchasing an iPhone, Apple will need to give customers at least $200 of value to
make customers purchase an iPhone instead of a Samsung smartphone. Therefore,
Apple can charge a maximum of $800 for their iPhone. For value-based approach,
Apple’s pricing begins and ends with the customer. They are a classic example of
the brand name being more valuable than the product, overall.
How does Apple set price for their products?
 COST – BASED PRICING

Design a good
product Determine
product
costs
Set price
based on cost

Convince buyers
of product’s value
 CUSTOMER VALUE – BASED PRICING

Assess Set target Determine Design

customer price to costs that product to
needs and match can be deliver
value customer incurred desired
perceptions perceived value at
value target price
COMPETITION – BASED PRICING

Setting prices based on

competitor’s strategies, prices,
costs,
and market offerings
 Target costing
Companies often position their products on price and then tailor other marketing
mix decisions to the prices they want to charge. Here, price is a crucial product-
positioning factor that defines the product’s market, competition, and design.
Many firms support such price-positioning strategies with a technique called
target costing. Target costing reverses the usual process of first designing a new
product, determining its cost, and then asking, “Can we sell it for that?” Instead,
it starts with an ideal selling price based on customer value considerations and
then targets costs that will ensure that the price is met. For example, when Honda
initially designed the Honda Fit, it began with a $13,950 starting price point and
highway mileage of 33 miles per gallon firmly in mind. It then designed a stylish,
peppy little car with costs that allowed it to give target customers those values.
1) What is target costing?
2) What are the advantages and disadvantages of target costing?
 Exercise 2.1: Match the terms with their definitions.

C Cost-based A. A pricing method that involves setting a company’s

approach prices in relation to the prices of its competitors.

B. A system under which a company plans in advance for

A Competition-based the price points, product costs, and margins that it wants to
approach achieve for a new product.

C. Setting prices based on the costs for producing,

Value-based distributing, and selling the product plus a fair rate of
D approach return for effort and risk

D. A strategy of setting prices primarily based on a

B Target costing consumer’s perceived value of a product or service.
Ex2.2. True or False? F 1. Budget-priced goods are sold at a
The following decisions were taken regarding pricing higher price than they were offered at
strategy for the new year. before.
1. Budget-priced goods will only be sold in Category “C” T 2. The recommended retail price is
stores. These stores are in locations with a particular the price the manufacturer thinks a
consumer profile. We expect high volume sales with low retailer should charge for a product.
margins. T 3. A discount is a reduced price
2. Goods can only be sold at a sale price where they have offered after a period on offer at a
already been offered at the recommended retail price for a higher price.
period of not less three months. T 4. The margin is the difference
3. Agents shall be instructed from January 1; we do not between the cost of a product to a
allow discounts on any goods not sold at a previously manufacturer or retailer and the price
higher price for a period of three months. the manufacturer or retailer receives
4. Decisions on pricing must realize margins for the retailer when the product is sold.
of up to 25%. Margins below 15% are unlikely to be F 5. The factory gate price is the cost of
economic for any of our retailers. producing the product for the factory.
5. Similarly, our own factory gate price must allow the
company to cover all production costs and also to realize a
profit of between 25 to 35%.
Considerations affecting pricing decisions
Internal External
Considerations Considerations
ü Overall marketing strategy,
ü The Economy
objectives and mix
ü Other External Factors
ü Organizational considerations
ü The market and demand
§ Pricing in different types of
markets
§ Analyzing the price-demand
relationship
Ex2.3. Fill-in the blanks with given words.

ceiling internal prices floor perceptions cost-based

price greater profits external produce value-based

The (1) ___________

price the company charges will fall somewhere between one that is
produce
too high to produce any demand and one that is too low to (2) ___________a profit.
Figure 10.1 summarizes the major considerations in setting price. Customer (3)
perceptions
___________of ceiling
the product’s value set the (4) ___________for prices. If customers
greater
perceive that the product’s price is (5) ___________than its value, they will not buy
floor
the product. Product costs set the (6) ___________for prices. If the company sells
profits
the product below its costs, the company’s (7) ___________will suffer. In setting its
price between these two extremes, the company must consider several
internal
(8)___________and external
(9) ___________factors, including competitors’ strategies and
prices, the overall marketing strategy and mix, and the nature of the market and
demand.
 PRICING STRATEGIES
²New – Product Pricing Strategies
²Product Mix Pricing Strategies
²Price Adjustment Strategies
 NEW PRODUCT PRICING STRATEGIES
Market – Skimming Pricing Market – Penetration Pricing

ü Setting a high price for a new ü Setting a low price for a new
product to skim maximum product to attract a large
revenues layer by layer from number of buyer and a large
the segments willing to pay the market share
ü
high price, the company
Purpose?
markets fewer but more What types
profitable sales of products?
 PRODUCT MIX PRICING STRATEGIES
Ex3.1. Match terms with
their definitions.
D Product line pricing
E Captive product pricing
A Optional product pricing
By – product pricing
C
B Product Bundle Pricing
A. The pricing of optional or accessory products
along with a main product.
B. combines several products at a reduced price.
C. Setting a price for by-products to help offset the
costs of disposing of them and help make the main
product’s price more competitive
EXAMPLE?
D. Setting the price steps between various products in
a product line based on cost differences between
the products, customer evaluations of different
features, and competitors’ prices
E. Setting a price for products that must be used
along with a main product, such as blades for a
razor and games for a video- game console
 Ex3.2. Match these terms with their definitions.
c
d

h
e
f
g
a

b
 Ex3.3. True or false?
T 1. Using by-product pricing, the company seeks a market for these by-products to help
offset the costs of disposing of them and help make the price of the main product more
competitive.
F 2. Many companies use captive-product pricing—pricing optional or accessory products
along with the main product.
F 3. Examples of optional products are razor blade cartridges, video games, printer
cartridges, single-serve coffee pods, and e-books.
T 4. In segmented pricing, the company sells a product or service at two or more prices,
even though the difference in prices is not based on differences in costs.
F 5. In by-product pricing, sellers consider the psychology of prices, not simply
the economics.
F 6. Product bundle pricing might make customers interested in buying the device in the
first place or cause discomfort during use after purchase
T 7. The by-products themselves can even turn out to be profitable—turning trash into Cash.
Ex3.3. Listed below are a series of pricing strategies/polices. Place them onto the
correct section of the matrix.
1. Holiday Inns tries to fill hotels
during winter weekends.
2. Burger King introduces a new
1 4 2 6 range of value meals.
3. Microsoft launches a new
smartphone.
4. Wall-Mart launches a new
range of own-label soups.
5 3 5. VinGroup launches two new
cruise ships.
6. A cable TV provider moves into
a new area and needs to achieve
a market share.
 GROUP WORK

Identify three online price-comparison shopping sites or apps and shop

for a product you are interested in purchasing.
Compare the price ranges given at the three sites. Based on your
research, determine a “fair” price for the product.
PRICE ADJUSTMENT STRATEGIES
Ex3.4. Which pricing strategy is applied?