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Technical Vocational Education

Quarter 2 – Module 4:
DETERMINE COSTING AND PRICING OF
PRODUCTS AND SERVICES

ENTREPRENEURSHIP 10

Weeks 7 - 8
 10
Technical Vocational Education
Quarter 2 – Module 4:
DETERMINE COSTING AND PRICING OF
PRODUCTS AND SERVICES

ENTREPRENEURSHIP 10

Development Team of the Module

Writer : Annabelle E. Luma-ad

Editors : Marichu P. Carlon & Fernando P. Ampo
Reviewer : Bonifacio L. Piezas, Jr.
TVE Team : Marichu P. Carlon, Head Teacher II/Tech Voc Head
Marilou P. Dominguito, Master Teacher I – AFA Coordinator
Lorena L. Villarin, Master Teacher I – Co-AFA Coordinator
Melady D. Sales, Master Teacher I – HE Coordinator

Management Team: Wilhelm M. Sales, Principal I

Bonifacio L. Piezas, Jr., Asst. Principal II
 LESSON 2
Determine Pricing of Products and Services Using Pricing Model

Learning Objectives:

After reading this LESSON, YOU MUST be able to:

1. define and explain pricing strategy
2. enumerate and describe the different pricing strategies of business owners;
3. discuss the models in pricing goods and services; and
4. compute the price of owned products and services using the pricing model.

Code: TLE_ENTREP10PC-IIg-h-4

Let’s Define

Mark-up - represents the difference between what is paid for the

merchandise and its end price to the clients

Pattern - refers to an outline or model of one thing

Price - indicates value of a commodity or service in the form of

money

Product - the result of the input and process in the form of output

Services - is a type of business that has no product but purely

services

Strategy - is an approach or method used in business

WHAT IS PRICING STRATEGY

A business may use different pricing strategies when selling a product or service.
It can be used to protect an existing market against new entrants, to increase market
share in a market, or to enter a new market. The price can be set to increase profitability
of each unit sold or the marketplace as a whole. Businesses may take advantage of lower
or higher prices, depending on the needs and behaviors of customers in the particular
market. Finding the right pricing strategy is an important factor of your business'
success.

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 Through pricing strategies, the entrepreneurs are guided to understand how their
prices are computed objectively. It is their key secret to compete for the price of the
product or service to the market. Secondary concerns are focus on the competition for
cleanliness, convenience, delivery, easy credit options, guarantees, quality, safety and
service.

If you are a beginner in the business, what pricing strategy you can possibly
apply? You can consider these pricing strategies:

PRICING STRATEGIES

1. Value-Based Pricing
• price increases when there are evident
results;
• based on consumer perception
• price set by the company as per the perceived
value
• Example: status product / exclusive products

2. Psychological Pricing
• Setting price at important psychological
levels to trigger purchase
• Ex.: selling goods at P9.95 instead of P10 to
appear it cheaper; P24.50 instead of 25

3. Value Pack (Bundle Pricing)

• mixture of clustered products with varied
prices in one pack or bag;
• goods /services deliberately sold below cost
to encourage sales elsewhere;
• typical in supermarkets: e.g. at Christmas,
selling bottles of gin at 3 in the hope that
people will be attracted to the store and buy
other things;
• purchase of other items more than covers
“loss” on item sold
• Ex.: buy 3 for the price of 2 (buy 2 free 1)

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4. Cost-Plus-Pricing Method
• setting-up price targeting specific profit
• used to maximize the rates of return of
companies
• also known as mark-up pricing where cost +
mark-up = selling price
• most firms use either value-based pricing or
cost-plus pricing

5. High-Price Approach (Premium Pricing)

• aiming to set quality and status
• also called as prestige strategy
• used to enhance and reinforce a product’s
luxury image
• Ex.: Porsche in cars and Gillette in blades.
People will buy a premium priced product
because:
1. They believe the high price is an
indication of good quality.
2. They believe it to be a sign of self-worth,
it authenticates the buyer’s success and
status, and it is a signal to others that
the owner is a member of an exclusive
group.
3. They require flawless performance in this
application. The cost of product
malfunction is too high to buy anything
but the best.

6. Penetration Market
• done in order to establish market and build
up more customers
• price set to “penetrate the market”
• “low” price to secure high volumes
• typical in mass market products- chocolate
bars, food stuffs, household goods, etc.
• suitable for products with long anticipated
life cycles
• maybe useful if launching a new market and
prices will be raised once the promotion
period is over and market share objectives are
achieved

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 7. Free Tasting
• sampling approach

8. Result Pay Scheme

• trial method

Before you calculate the final price, you need to know the value of total revenues
(TR) and total costs (FC). When TR is greater than TC, your business gained profit. If the
TR is lesser than TC, it is loss. In instance that TR and TC are equal, there is neither
profit nor loss. It is called break-even. Break-even analysis is used as an instrument or
a tool to solve managerial problem helpful among business leaders and economists.

MODELS IN PRICING GOODS AND SERVICES

These Pricing Models will help you to know how you can compute prices of your
own product and service business. Find out if this pricing scheme is appropriate to use
in the production of your business.

1. PERCENTAGE ALLOCATION APPROACH (PAA). This is good for product

business. Decide for the percentage value to be added to the actual cost of your
product or service.

A. UNIT COST OF PRODUCT (UCP), TVE T-Shirt = P55.00

Target Profit in Percent (TPP) = 40%
Computation: = UCP + TPP
= P55.00 x 0.40 = P22.00
= P55.00 + P22.00
UNIT PRICE = P77.00

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 B. VOLUME COST OF PRODUCT (VCP), TVE T-Shirt by Volume Target Profit
(VTP) per dozens of Quantities (Q):
1 to 5 dozen = 38%
6 to 10 dozen = 35%
11 to 15 dozen = 32%
16 dozen and above = 30%

Computation: for 1 to 5 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP X QUANTITY (Q)
= P55.00 +38% x 60
= P55.00 + P20.90 x 60
= P75.90 x 60
Volume Price = P4, 554.00
Unit Price = P75.90

Computation: for 5 to 10 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP X QUANTITY (Q)
= P55.00 +35% x 120
= P55.00 + P19.25 x 120
= P74.25 x 120
Volume Price = P8, 910.00
Unit Price = P74.25

2. AVERAGE MARK-UP APPROACH (AMA). This is appropriate to the service type

of business. Mark-up consists of damaged merchandise, employee discounts,
mark-downs, operating expenses, profits and shortages. This is common in
industries but differ in the way they execute it supported by the company rules
and policies.

How to compute for the pricing of a service type of business?

a. Assume that you are operating a laundry service business
b. Decide for 60% profit against actual cost of every laundry service, where 20%
intends to support and finance some operating expenses like damaged
merchandise, employee discounts, markdowns, operating expenses, profits
and shortages.
c. Consider a 40% mark-up to be added to the cost of the service

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Price of laundry service per kilo:
Cost of laundry = P20.00
General Mark-up = 60% (40% Target Profit (TP); 20%Operating Expense (OE).

PRICE: = Cost of laundry + TP + OE

= P20.00 + 40% + 20%
= P20.00 + P8.00 + P4.00
= P32.00

When you compute for 5 to 10 kilos (maximum based) of laundry service,

rendered to a single client, you may charge her/him with a friendly discount of 5% from
the total charge. When you do it, it will not bring any business loss to you but an
investment of a good reputation and goodwill.

Let us find out how much you will sacrifice to invest for a possible goodwill using
the data above.

Unit price per laundry service of P32.00 x 10 kilos – 5% discount / 10

= P32.00 x 10 – 5%/10
= P320.00 – P16.00 / 10
= P30.40
Therefore, goodwill investment capital for 10 kilos of laundry service is only P1.60
(P32.00 unit price less P30.40 discounted price) per kilo of laundry service rendered to
your customer.

It is suggested that the following goodwill investment package chart be applied

on your laundry business. You may also change it for further improvement of your
services:
a.) 100% service fee of P32.00 per kilo of laundry
b.) 5% discount from 5 to 12 kilos of laundry
c.) 10% discount from 13 kilos and above laundry

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HOW MUCH HAVE YOU LEARNED?

Activity 1: COMPLETE ME!

Directions: Let’s find out if you are familiar with the acronyms associated to pricing
models. Give the correct answer and write it in your answer sheet.

1. TPP - _____________________________________________________________
2. VCP - _____________________________________________________________
3. TP - _____________________________________________________________
4. UP - _____________________________________________________________
5. AMA - _____________________________________________________________
6. PAA - _____________________________________________________________
7. VTP - _____________________________________________________________
8. UCP - _____________________________________________________________
9. VP - _____________________________________________________________
10. OE - _____________________________________________________________

Activity 2: PRICING STRATEGIES

Directions: Inside the box are the Pricing Strategies used by entrepreneurs in setting
the price of their product or service. Identify what Pricing Strategy is being
described in each business scenario. Write only the letter of the correct
answer in your answer sheet.

a. Value-based pricing e. High Price Approach

b. Bundle Pack f. Penetration Market
c. Psychological Pricing g. Free Tasting/Sampling
d. Cost-plus pricing h. Result Pay Scheme

_______ 1. “Kutis” is a bleaching soap widely used by women that has been proven to
whiten and make the skin look radiant. Its initial price is only P55.00 but
after one month in the market the price increased to P100/piece.
_______ 2. Mariel marks-up 25% from the unit cost of her lingerie items.
_______ 3. A bag item with price tag of P599.50.
_______ 4. Gaston prepared noodles for sampling to be offered in VCC Mall.
_______ 5. Buy 1 pack napkin, get 1 pack panty liner
_______ 6. Jag pants sold at P 2,500.00

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_______ 7. Café Honey is new in the market. Their coffee products are offered at promo
price
_______ 8. Free shampoo and conditioner are distributed in BNSF
_______ 9. EBCOR sale refrigerator units with one-year warranty
_______ 10. Consignment hardware products in one month and items will be returned
to the suppliers if not sold

Activity 3: COMPUTE THE PRICE

Directions: Read and analyze the problem below and compute the price of products or
services using the Pricing Models. Solve and write the final price in your
answer sheet.
1. Assuming that you need to supply a school canteen of packed sandwiches at a
cost of P5.00/sandwich. How do you determine the price per sandwich? Explain
your answer by showing the computation:

COMPUTATION:

2. If you will compute for the service of a lawyer’s professional fee of P500.00 per
consultation (inclusive of office rental, bills, etc), how much will be his service
fee? Discuss your answer below by showing the computation for 60% general
mark-up.

COMPUTATION:

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ASSESSMENT

Direction: MULTIPLE CHOICE. Select the letter of the correct answer and write it in
your answer sheet.

1. If you sell your canned goods at “Buy two; Take 1”, what type of strategy being
used?
a. value pack
b. cost-plus pricing
c. value-based pricing

2. If you added a 40% mark-up from the original price of your cosmetics products,
which of this is the pricing strategy being used?

a. cost plus pricing

b. penetration market
c. value-based pricing

3. What pricing model approach is best for product type of business?

a. Unit Cost of Product (UCP)

b. Volume Target in Percent (VTP)
c. Percentage Allocation Approach (PAA)

4. Long Navarro bought 10 bottles of perfume at P200 per bottle. If he will sell these
at P300 to his officemates. What do you call the P100 difference from what he
originally paid and the selling price?

a. profit
b. price
c. mark-up

5. How much will be the price of the ball cap when the cost is P80.00 with 36%
TPP?
a. P108.80
b. P118.90
c. P128.50

6. If you will sell 10 pieces body scrub at P175.00 per piece, how much is the selling
price if the TPP is equal to 45%

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 a. P2, 237.00
b. P3, 230.45
c. P2, 537.50

7. Which of this is the best pricing strategy if you are promoting your new product?

a. The Free tasting, to do free sampling of the product

b. The Value Pack Method, such as buy one; take one
c. The Penetration Market, lower the price to establish and build up
more customers

8. When Morina Sanchez visited Baisano Mall, a saleslady approach her and offered
a cup of noodles for free. It is a new variant of noodles. What strategy is used?

a. value pack
b. free tasting
c. cost plus pricing

9. How much the customer saved if you gave 15% discount in foot spa at a regular
price of P150.00?

a. P12.50
b. P22.50
c. P36.50

10. What pricing model approach is best for product type of business?

a. Unit Cost of Product (UCP)

b. Average Mark-up Approach (AMA)
c. Percentage Allocation Approach (PAA)

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 REFERENCE:

• Competency-Based Learning Material in Entrepreneurship 10

• Mirza, Muhammad Fahad A and et. al. “Presentation of Strategic Marketing.”
Institute of Management & Science, PakAims, 30 September 2014,
https://www.slideshare.net/fadikhisko/pricing-strategy-ppt
• Ilyani, Mumtazul. “Pricing Strategies in Marketing.” Pricing: Introduction to
Marketing, 12 December 2019, https://www.slideshare.net/fadikhisko/pricing-
strategy-ppt

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 ANSWER SHEET
ENTREPRENERUSHIP 10
Quarter 2 - Module 4 (Weeks 7-8)
School Year 2020-2021

Name: _____________________________ Grade & Section: ________________

Mobile No.: ________________________

Subject Teacher: ANNABELLE E. LUMA-AD Mobile No.: 09683243546

ACTIVITY 1: COMPLETE ME

1. TPP - _____________________________________________________________
2. VCP - _____________________________________________________________
3. TP - _____________________________________________________________
4. UP - _____________________________________________________________
5. AMA - _____________________________________________________________
6. PAA - _____________________________________________________________
7. VTP - _____________________________________________________________
8. UCP - _____________________________________________________________
9. VP - _____________________________________________________________
10. OE - ____________________________________________________________

Activity 2: PRICING STRATEGIES

1. _______ 4. _______ 7. _______ 10. _______
2. _______ 5. _______ 8. _______
3. _______ 6. _______ 9. _______

Activity 3: COMPUTE THE PRICE

COMPUTATION:
1.

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 2. COMPUTATION:

ASSESSMENT
1. _________ 6. _________
2. _________ 7. _________
3. _________ 8. _________
4. _________ 9. _________
5. _________ 10. ________