PRICE

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

• 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 as 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 pricing or market skimming
7. Cost recovery
8. Subsidy pricing
9. Marginal pricing
The first three pricing 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. Profit, Revenue, and Market Share Maximization

Price Volume Total Total Costs* Total Profits Unit Cost
Revenues
₱10 100 ₱1,000 ₱800 ₱200 ₱8.00
₱12 90 ₱1,090 ₱750 ₱230 ₱8.33
₱14 75 ₱1,050 ₱675 ₱375 ₱9.00
₱16 60 ₱960 ₱600 ₱360 ₱10.00
₱18 50 ₱900 ₱550 ₱350 ₱11.00

*Assumes the following: Fixed Costs equal P300; Variable Costs equal P5 per unit
• Table 4.2 shows an example of a profit, revenue, and market share maximization pricing
strategies. Prices ranging from P10 to P18 per unit have been market tested as shown in
the first column. These prices have resulted in volumes (see second column) ranging from
50 units at the price of P18 per unit to 100 units at the price of $10 per unit.

• At 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 to 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 and reach
out to more people.

• Marginal pricing sets the price higher than the variable costs of a product but lower than the
full costs in order to increase overall profitability. This practice is done to utilize excess
production capacity that would otherwise be unused.

• There are other pricing objectives that 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
accommodate the lower purchasing power in poorer geographic areas. Discount pricing may
be given to loyal and regular customers to maintain their patronage.
Thank You and Stay Strong
Suzy and Jordan Paul