Lesson 6 Pricing Strategies

Republic of the Philippines
Sorsogon State University

COLLEGE OF BUSINESS AND MANAGEMENT
Magsaysay St., Sorsogon City
Chapter 6
PRICING STRATEGIES
By:
Oquindo, Princess F.
Panuga, Sheryl
Freo, Quennie
Hagos, Steven Sean
Gutierrez, Rica Mae
Postigo, Shiela
Borlain, Queenie Rose
Dichoso, Sophia Ann
Submitted to:
Mrs. Cristy Docdocos
BASIC PRICING POLICIES

by Princess Oquindo
What is a Pricing Policy?
A pricing policy is a company's approach to determining the price at which it offers a

good or service to the market. Pricing policies help companies make sure they remain
profitable and give them the flexibility to price separate products differently. Your
company might value having a well-defined pricing policy so it can make price
adjustments quickly and take advantage of products' strengths in one or more
markets.
Considerations for Pricing Policies

Companies often have different priorities when determining how to price their
products. Your new company might need to introduce its services while offering good
value to consumers, or it might be a well-established and highly profitable company
that sells in a market willing to pay higher prices. The most important considerations
for pricing policies are:
 Competition: Your business likely understands who its competitors are and
what they charge consumers. Pricing policies heavily consider competition
with other firms in the market.
 Profit Goals: You might choose a pricing policy to meet a specific profit goal for
your company.
 Sales Totals: Pricing policies directly affect how many people buy your
company's product and how much they purchase.
 Firm Health: The financial circumstances of your company may enable it to
prioritize market strategy over immediate profit, or you may need to earn
revenue as soon as possible to remain in business.
 Flexibility: Companies often react to market shifts by changing prices. Your
company might consider if your initial price enables you to respond to the
market without losing profitability.
 Government Regulation: To protect consumers, the government regulates the
pricing of certain goods and services. Depending on your industry, this may be
irrelevant or a central concern in pricing policy.
 Method of price adjustment: Increasingly, companies that sell vast amounts of
goods may automate pricing with specialized software. Pricing policies
consider how your company intends to change prices.
 Sales Venue: If your company sells the same product in wholesale, retail or
other venues, pricing policies may differ for each one.
Objectives for Pricing Policies

As with many businesses, you may have objectives other than simply making money
in the short-term. Your pricing policies are key tools for achieving the various goals
businesses commonly have, such as:
 Profit: The most basic business objective of making profit is still an important
one. For some businesses, it might be critical to maximize profit in the
immediate future.
 Firm Survival: Sometimes the only available pricing policy is the one that
enables your firm to continue operations.
 Limiting Competition: Your business may have structural advantages that
enable it to produce a good at a price point no competitor can match. Businesses
typically weigh the competitive consequences of any price point against profit
potential.
 Gaining Market share: Your pricing policy might aim at maximizing market
share. Earning a large portion of market share provides both strategic and
financial advantages.
 Accessibility: If your company values offering its product to as many people as
possible, your pricing policy might have to adapt.
 Consumer Satisfaction: Consumers' expectations change depending on the price
they pay for something. Your business might consider what expectations you
want to meet and price accordingly.
Types of Pricing Policies

Here are the common types of pricing policies companies use, with examples:
 Cost-based Pricing Policy

o A cost-based pricing policy calculates the average cost of production for
a good or service and then accounts for the profit margin your company
desires. This policy is a traditional approach to doing business because
it considers the costs of doing business in a straightforward and
adjustable manner. If a material you require for production goes up in
price, you simply raise the price of the good proportionally. One
downside of this policy is that it can be difficult to know what you need
to charge ahead of time or if the scale of production changes.
Example: A painter wants to sell paintings for twice as much as they cost to
make. Each painting uses an average of $20 worth of paint, a $10 canvas and
one day's labor, which the painter values at $150. Since the total cost of
production is $180, the painter doubles the cost for a sale price of $360.
 Value-based Pricing Policy

o Some companies have to respond to what consumers are willing to pay
for a product. To determine what this price is, your company would
conduct market research on market expectations, consumer preferences
and competitors' offerings. Value-based pricing tries to understand the
select factors distinguishing your specific good. It achieves this by:
Focusing on specific market segments: Value-based pricing policies attempt to be
as narrowly focused on the relevant market segment as possible. For instance,
if your company sells laptops, you would research laptops with the same
dimensions, functional purpose and typical buyer rather than all laptops.
Studying existing competition: Value-based pricing succeeds when a company can
make a meaningful and direct comparison to another product already on the
market, just like an actual buyer would. Your competitors are largely what
determine consumers' ideas of value.
Pricing for added value: Since your company is determining price from value, it
clearly defines what makes your product different from the nearest competitor
and researches the value of that difference in dollars. That dollar amount is
what you add to your competitor's price.
Example: A laptop manufacturer wants to use a value-based pricing policy for

its new gaming laptop which has an innovative display and wireless charging
ability. The manufacturer conducts research and finds most video game
players would pay $100 for better graphics and $150 for wireless charging. The
manufacturer's closest competitor costs $1100, so it introduces the new laptop
at a price of $1350.
 Demand-based Pricing Policy

o Consumer demand has different properties depending on the product.
Demand-based pricing policies maximize profit by responding to the
various consumer behaviors found in markets. Here are common

demand-related factors that can determine pricing:
Inelastic demand: If consumers demand the same amount of a product with
little regard for price, demand is inelastic. Governments often regulate
markets with inelastic demand because people often need the products for
survival, such as utilities or medicines.
Automated Pricing: Companies can use automated, or continuous, pricing so
that they immediately react to changes in demand. This allows them to take
advantage of high demand or quickly get rid of surpluses.
Lack of Competition: Innovative or unique products can enter a market at the
highest price a consumer is willing to pay since demand is often high and there
are no alternatives. This strategy, known as price skimming, maximizes initial
profits before competitors can offer a similar product.
Example: A family plans a vacation to Nashville and sees each ticket costs $185
round-trip for the weekend they want to travel. Before they purchase, the
organizers of a music festival scheduled for that same weekend cancel the
event. Ticket holders from out-of-state cancel their flights, leading to
thousands of open seats on flights. When the family returns to buy the tickets
later the same day, each ticket only costs $100 because the airlines' continuous
pricing responded to the low demand and high supply by dropping prices.
 Competition-based Pricing Policy

Competition-based pricing policy can be useful because it's a simple way to
determine price. It also can be both accurate and low-risk, since you likely
understand what your consumers already pay for what you're offering.
However, sometimes, this approach might lead your company to overlook
strengths of your product that could command higher prices. Since many
companies use a competitive-based pricing policy, one firm's inaccurate pricing
can also result in widespread pricing mistakes.
Example: A furniture company produces a new coffee table with a unique

design. It researches what competitors charge for tables of similar size and
materials and concludes the competition-based price is $350. Consumers think
the table's design is exceptional and better than even some of the luxury brand
offerings that are twice the price. The furniture company makes a profit selling
hundreds of tables but could have made much more money with a different
approach
ESTABLISHING BASE PRICE

A base price is the price for any standard commodity before applying
discounts and extras. Say, for example, you want to calculate the price of an
item so the final sale price, including sales tax, will come to a full dollar
amount, with no cents. If you apply a little reverse engineering, you will find
the base price.
Know Your Amounts
Identify the final price of the item, with all sales tax included. Also
identify the sales tax rate – for example, 7 percent.
Do the Math
Divide the grand total of the item by 1 plus the sales tax percentage. If,
for example, your total is $10 and your sales tax equals 7 percent, your base
price is $9.35.
BASE PRICE = GRAND TOTAL OF THE ITEM / ( 1 + SALES TAX )
DEMAND ORIENTED PRICING

by Sheryl Panuga
Demand Oriented Pricing is a pricing strategy in which the seller tries

to set the price at a level that the targeted customers are willing to pay. In
other words demand oriented pricing is a pricing approach in which a company
changes its price in response to demand changes. This method works well with
variety of cyclical or seasonal items.
Example of Demand Oriented Pricing :
o The most basic example is a local market. The greatest choices are
available when the morning market starts, but they are at the highest
costs of the day. As the market closes in the evening, sellers will
normally experience a fall in pricing as they want to prevent having a
product remain unsold.
o During the holiday season and the normal season, hotels may charge
various rates.
o Airlines in the airline industry provide low ticket rates during peak
seasons and reduced prices during off-peak seasons.
How the Demand Oriented Pricing Works?
You can see several industries implementing this strategy. Such as the
retail industry and the transportation industry. In peak periods, companies
see high demand for products and in regular periods, demand is low.
The periods may be days or even years. You may pay different prices for
a train ticket during peak and regular hours. Likewise, hotels may charge
different prices during the holiday season and regular season. You may find
airlines offering low ticket prices during high demand and lower prices during
regular seasons in the industry.
Demand Oriented Pricing Factors
 Demand Patterns - The company may divide it into two, peak season and
regular season
 Conditions of Market Supply - Supply condition must be taken into
consideration by companies.
 Price elasticity of Demand - it measures how sensitive demand changes
when a company changes the selling price of it's products. Setting high
prices when demand is elastic will only drive customers away, and sales
weak.
 Consumer Preferences - firms may use pricing discrimination if they can
correctly determine customers needs.
 Product quality - This will have an effects of people's willingness to buy.
Demand Oriented Pricing Methods
 Price Skimming - means identifying the highest price of a product that

customers wish to buy and gradually lowering it.
 Value-based Pricing - means the process of choosing a price for a product
that customers believe its worth it.
 Penetration Pricing - The process of attracting new customers to a product
is known as penetration pricing.
 Odd-even Pricing - The price is set a few dollars or cents under an even
number. It creates the illusion that the price is less than what it really
is.
 Yield Management - it is a practice of changing different prices to
maximize revenue for a set amount of capacity at any given time. The
price of the same product differs based on time, day, week, month or
season.
 Price Bundling - it is a bundle pricing that offer a product in addition to
the main item at a discounted price.
Name your Price
Name your price or pay what you think is worth pricing model. The goal
is to provide everyone with nutritious meal regardless of their status. There
are suggested donation amount on the menu board listing the price for the
meal at a regular café but ultimately the customers make a decision on how
much to leave.
COMPETITION ORIENTED PRICING

by Quennie Freo
What is Competition-Oriented Pricing?
A method of pricing in which a manufacturer’s price is determined more

by the price of a similar product sold by a powerful competitor than by
considerations of consumer demand and cost of production; also referred to as
Competition-Based Pricing.
Competition-based Pricing
is the pricing of goods and services that is based on what the competitors
are charging. The term can be used in a broad sense to include any competitive
strategy, including product design and marketing decisions, such as targeting
niches where competition is low or creating a new product designed to compete
with specific competitors.
The three main types of competitive pricing are:
 Higher-than-average price: When you want the premium price to signal

luxury to potential customers.
 Lower-than-average price: When you’re trying to undercut the competition
with a low price and acquire customers quickly.
 Matched price: When your pricing strategy will be in line with your
competitors.
Advantages and Disadvantages of Competition-Oriented Pricing
Like any strategy, competition-oriented pricing has advantages and

disadvantages that come with a certain level of risk for your business.
Advantages: Competition-oriented pricing can keep price competition down,
which could otherwise damage a business if prices are set too high. It can
prevent your business from losing market share to a competitor.
Disadvantages: Pricing products too low can hurt profits if your revenue doesn’t
cover production costs or other expenses. When you and a nearby competitor
price products too closely, you need other marketing tactics to attract
customers, which may cut into profits.
Competition-oriented pricing can also create a passive, rather than active,
price-setting mindset. If you are only basing prices on those of competitors, you
may not realize when prices need changing based on other factors, such as
consumer needs or changes in your market.
PRODUCT LIFE CYCLE

by Steven Sean Hagos
A product life cycle is the length of time from a product first being
introduced to consumers until it is removed from the market. A product’s life
cycle is usually broken down into four stages; introduction, growth, maturity,
and decline. The stages of the product life cycle include:
 Development stage:
o The first stage of the product life cycle is the development stage.
This is the process of figuring out what type of product you want
to introduce to the market.
For example, you might do some market research to take a
look at opportunities for potential growth. Then, you might
take a look at the capabilities of your company to figure out
how you can create a product that has been designed to
meet those needs. There might be a lot of testing that takes
place during this stage, and you will work hard to figure
out what product you want to roll out. Based on the
research you have conducted, you will customize your
product to address customer pain points before releasing it.
 Growth stage
o After you have introduced the market to your product for the first
time, he will watch the product become more popular. You need
to focus on your promotional strategy and growth marketing to
generate as much interest in your product as possible. As the
product becomes more popular, you might start to increase online
sales. Other companies are going to start to take note of the
product you have released, and they may change their marketing
strategy to try to tamp down some of your sales. As the market
for your product expands, you may tweak some of the features.
That way, you can make it more appealing based on the feedback
you get from your customers.
 Maturity stage:
o As the industry begins to reach market saturation, you will arrive
at the maturity stage. This is a sign that it is becoming more
competitive in the market, particularly as you spend more time
fending off competition. You might even notice that your sales
start to slow down. Your sales numbers do not necessarily start
to decline, but they are not increasing as quickly as they were
before. You may want to invest in some product bundling to
convince more people to purchase the product you sell.
 Decline stage:
o Even though you will do everything you can to keep your product
alive, including product recommendations, your product will
eventually decline. No product is going to stay on the market
forever. You might find that the operational costs are too high,
and you might realize that there are better products coming on
the market.
o When a product has reached this stage, your market share begins
to drop, and competition begins to deteriorate. You may also
realize that there is a change in consumer behaviour, and not as
many people are interested in the product anymore. This is just a
general overview of a product life cycle. Notice that there is
nothing that says how long each of these stages is going to last.
There are some products that might stay on the market for a few
months, and there are other products that might stay on the
market for a few decades. By figuring out the product
STRATEGIES IN PRICING PROCESS

by Rica Mae Gutierrez
Adjusting the Base Price
Marketers can use specific pricing strategies to fit different economic

and market conditions. To adjust base prices, marketers may employ any one
or more of the following pricing strategies: product mix, geographical,
international, segmented, psychological, and promotional pricing, as well as
discounts and allowances.
Product Mix
Product mix pricing strategies involve adjusting prices to maximize the

profitability for a group of products rather than on just one item. With this
method, one product may have a small profit margin while another may be
high to balance the effect of the lower priced one.
These include: price lining, optional product pricing, captive product
pricing, by product pricing, and bundle pricing.
 Price Lining
o Price lining is a special pricing technique that sets a limited
number of prices for specific groups or lines of merchandise.
o A store might price all its blouses at $25, $35, and $50. When
deciding on the price lines, marketers must be careful to make the
price differences great enough to represent low, middle, and high
quality items. Price lines of $25. $26, $27, and $28, for example,
would confuse customers because they would have difficulty
discerning their basis.
o An advantage of price lining is that the target market is fully
aware of the price range of products in a given store. In addition,
price lining makes merchandising and selling easier for
salespeople, who can readily draw comparisons between floor and
ceiling prices.
 Optional Product
o Optional product pricing involves setting prices for accessories or
options sold with the main product.
o One example is options for cars. All options need to be priced so
that a final price for the main product can be established.
 Captive Product
o Captive product pricing sets the price for one product low but
compensates for that low price by pricing the supplies needed to
operate that product high.
o Ink-jet printers are low in price, but the ink cartridges required
to operate the printers have high prices.
 By-Product
o By-product pricing helps business get rid of excess materials used
in making a product by using low prices.
o Wood chips that are residual by-products from making furniture

may be sold at a very low price to other manufacturing companies
that use that material in making their products.
 Bundle Pricing
o Bundle Pricing with bundle pricing, a company offers several
complementary products in a package that is sold at a single
price. The one price for all the complementary products and the
main item is lower than if a customer purchased each item
separately. Bundling helps businesses sell items (parts of the
package) that they may not have sold otherwise, which increases
their sales and revenue.
Geographical Pricing
Geographical pricing refers to price adjustments required because of the

location of the customer for delivery of products. The delivered price includes
the cost of the item and delivery charges. In this pricing strategy, the
manufacturer assumes responsibility for the cost and management of product
delivery.
International Pricing
When doing business internationally, marketers need to set prices that

take into consideration costs, consumers, economic conditions, and the
monetary exchange rate. Costs may include shipping, tariffs, or other charges.
Consumers’ income levels and lifestyles will require adjustments to the price.
PRICE SEGMENTATION
by Shiela Postigo
Price Segmentation is a strategy in which price are freely adjusted based

on “fences” like time of purchase, place of purchase, customer characteristic,
product characteristic etc.
Types of Segmented Pricing Strategies
 Customer-segment pricing is a pricing strategy in which a company

charges different prices to different customer segments, based on their
perceived value or ability to pay.
 Product-form pricing is a pricing strategy in which different versions of a
product, such as different sizes or colors, are priced differently.
 Location pricing is a pricing strategy in which different prices are charged
for the same product based on its location.
 Time pricing is a pricing strategy in which prices are adjusted based on
the time of day, day of the week, or other factors.
Advantages of Segmented Pricing
Increased Profits: Segmented pricing allows companies to tailor their pricing to

different customer segments in order to maximize profits. By offering lower
prices to certain customer segments, companies can increase their sales and
revenue.
Increased Revenue: By offering different prices to different customer segments,
companies can increase their overall revenue. This allows companies to
generate more income from the same product or service.
Attracts Customers: Segmented pricing allows companies to target specific
customer segments and offer them customized pricing. This helps attract new
customers, as well as retain existing customers.
Differentiated Products: By offering different prices to different customer
segments, companies can differentiate their products in the market. This helps
companies stand out from their competitors and can help attract new
customers.
Limitations of Segmented Pricing
Price Discrimination: Segmented pricing may lead to price discrimination, where

customers in different segments are charged different prices for the same
product or service. This may be viewed as unfair and can lead to customer
backlash.
Complicated Pricing Structure: Segmented pricing requires companies to keep
track of different pricing tiers and customer segments, which can be
complicated and time-consuming.
Increased Competition: Segmented pricing can lead to increased competition in

the market, as customers may shop around for the best deal. This can lead to
lower profits and reduced market share.
Unethical Practices: Segmented pricing can be used for unethical practices such
as price discrimination or predatory pricing. Companies should be aware of the
potential risks and ensure that their pricing practices are ethical
PSYCHOLOGICAL PRICING
by Steven Sean Hagos
What is Psychological Pricing?
Psychological pricing is a pricing strategy that utilizes the power of

psychology or the subconscious to influence customers to spend more. This is
usually a combined effort across different business functions (sales, marketing,
and customer success) to leverage market trends to create irresistible offers for
customers.
Psychological pricing can also be described as setting prices lower than
a whole number — for example, $3.99 is perceived as “cheaper” than $4. The
idea is that customers will perceive the slightly lower price as a deal and be
motivated to make the purchase. Discounting is another psychological pricing
tactic that retailers can use to frame the sale of their products.
Pros and Cons of Psychological Pricing
Like anything in life, psychological pricing comes with its fair share of
pros and cons. It can work tremendously well in many situations, but in some,
it can do more harm than good. Now, I’ll unpack a few pros and cons that you
should consider when evaluating your own psychological pricing tactics. Let’s
start with the good stuff.
Pros
 Attention boost: Any type of big promotion will boost attention to your
product. If you run a brick and mortar store, having big, red signs
detailing your product promotion will obviously force people to look at
what you’re selling. If people don’t purchase, at least your brand is

gaining attention.
 Simplified decision-making process: Most psychological pricing tactics
simplify the decision-making process for consumers. Having the
discount or promotion laid out will give consumers less of an investment
they have to think about. For retail stores that thrive off of one-time
sales, this is a good thing.
 High return: Psychological pricing discounts can offer a high return on
investments for one-time sales, especially during peak-volume seasons,
AKA, any holiday. With promotions that attract the masses, acquiring
a high return at the end of the day is likely.
 Sense of urgency: Depending on the strategy you use, psychological
pricing creates a sense of urgency. Customers will want to act fact so as
not to miss out on the deal. This will also boost a quick high return on
investments.
Cons
 Deceitful: Some people may see right through psychological pricing

tactics and perceive it as taking advantage of customers. Some, however,
may recognize the tactics and accept them as the essentials of doing
business.
 Misperceived value: With psychological pricing tactics, there’s always the
risk of misperceived value. Your price is how you convey value to your
customers. This type of communication hinges on your customer’s
perceptions of your pricing. If you lowball your prices just to trick your
consumers into a quick deal, they may think lower of your product
quality and expect those low prices continuously.
 Not a long-term solution: Employing psychological pricing tactics is
certainly not a long-term pricing solution. It may bring you quick
conversion for a short period of time, but B2B businesses should have a
more solid and long-term plan in place. SaaS businesses are built on
recurring revenue, and with that, comes a lot of trust from customers.
Utilizing pricing tactics may damage that trust.
4 Popular Psychological Pricing Strategies
There are popular strategies behind each discount, promotion,

advertisement, and deal out there. Here are the four most favored.
 Artificial Time Constraints
“BUY ONE GET ONE FREE! ONE DAY ONLY!” We’ve all seen
this ad to some tune. Stores will place an artificial time constraint on a
sale to create a sense of urgency. Stores employ time restrictions because
they act as a catalyst for consumers to spend. The psychological tactic
creates a sense of fear in consumers. If they don’t act now, they risk
missing out. The truth is, though, there will always be another sale.
 Charm Pricing
This is the fancy and more official name for all the prices you see
in-store that end with “9.” Researchers at MIT and the University of
Chicago found prices ending in “9” create increased customer demand
for products. The science behind this is that people read from left to
right. So, if they encounter a price at $1.99, they see the “1” first and
perceive the price closer to $1.
Charm pricing can have the opposite effect as well. Prices that
end in “9” connote a value price, meaning you’re getting a good deal. On
the flip side, prices that end in “0” may connote a prestigious price and
a higher quality product. If you want your product to be perceived higher
value, charm pricing is a bad idea.
 Innumeracy
When offered “Buy one, get one 50% off” versus “50% off of two
items” most people select the first option even though both result in the
same price. This scenario best describes innumeracy, a phenomenon in
which customers are unable to recognize the fundamental math
principles applied to everyday life.
PROMOTIONAL PRICING
by Queenie Rose Borlain
Promotional pricing is a sales strategy in which brands temporarily

reduce the price of a product or service to attract prospects and customers. By
lowering the price for a short time, a brand artificially increases the value of a
product or service by creating a sense of scarcity. Promotional pricing can help
with customer acquisition by encouraging cost-conscious shoppers to buy.
Types of Promotional Pricing
 Discounts: Discounting is when the price of a product or service is

lowered. There are various ways in which a business can offer products
at a discounted price.
 Flash Sale and Seasonal Sales
o Seasonal Sale. This is a discounting strategy that lowers prices for a
certain time of the year. This usually means lower prices over a
longer period of time when business demand is expected to be
especially low. For example, holiday decorations are often offered at
a price discount after the holiday passes.
o Flash Sale. While seasonal sales last at least a day, and frequently for
more than that, flash sales are over much quicker. Reduced prices
for only 2-3 hours are common. Flash sales can create a great sense
of urgency, but will often require deeper discounts than seasonal
sales would offer to work.
 Loyalty Programmes. A strategy in which a company provides its
customers with rewards and discounts for being loyal.
 Coupons. A coupon is a voucher entitling the holder to a discount for a
particular product.
 Free Delivery. Free delivery indirectly reduces customers’ costs. The
customer does not have to arrange for transport and worry about moving
goods. It is particularly attractive for customers of furniture or large
home appliances businesses.
 Gamified Promotion. Interactive marketing strategy in which you use
game-like elements as a means of promotion. To put it simply,
gamification is using games on your website to encourage engagement.
 Multi-stage Validation. Many organizations have loyalty programs under

which they offer membership cards to their selected users. Here,
customers win loyalty points when they shop with a brand or group of
brands. Once customers collect specific issues, they can use them for
various promotional prices.
Promotional Pricing Techniques
A key to successful promotional pricing is a detailed requirements

analysis and planning. The primary promotional pricing technique successful
brands use is as follows.
 Decide the objective of promotional pricing. A business must decide what it
wants to achieve by implementing promotional pricing.
 Plan implementation of a strategy. The first step of the planning stage is to
self-examine – decide what products need promotional pricing.
 Choose the right time. Festive seasons and holidays are usually times
when many businesses offer promotional pricing. Some companies may
swim in the opposite direction and offer promotions when no other
competitor is. Along with the time of promotion, businesses also need to
decide the duration of the promotion.
 Select the correct customer segments. Promotional pricing can damage
relationships with old customers if the business regularly targets new
customers via promotions. You may have seen that some companies
have a condition for getting a discount, e.g., ‘new customers only’. A loyal
customer may want to switch to a competitor if he sees regular
promotions like this.
 Decide a fixed budget. Businesses need to decide how much they can spend
on promotional pricing. Costs vary according to the type of promotional
pricing chosen. Generally, they include the marketing costs of
promotional pricing, new customer acquisition costs, etc.
 Collect feedback. Last but not least, businesses should collect feedback to
gain insights. Companies can collect data during the promotional period
and decide whether to cut it short or extend it. Other valuable metrics
that analysts can track are revenue generated, frequently bought items,
the time it took to make a decision, etc.
Advantages of Promotional Pricing
1. Motivates buying action: Promotions create a sense of urgency because of

the strict time frame. Hence, customers are motivated to buy the product
out of fear of missing out.
2. Attract new customers: Promotions are the best way to attract new
customers. Customers are motivated to try new products and services
without any pricing barriers.
3. Competitive advantage: Low prices give a brand a competitive advantage.
Most customers will always choose a discounted price for a similar
product if given a choice.
4. Clear inventory: Promotions are a great way to clear old stock. Old
merchandise may need to be destroyed if not sold over a specific time,
leading to a loss in revenue.
5. Improve customer loyalty: Businesses offering special prices to frequent
buyers are likely to have a high customer retention rate.
6. Publicity for a new product: Promotions attract new and old customers. If
newly launched products are on promotion, products will gain
popularity quickly.
Disadvantages of Promotional Pricing
Promotional pricing is a pricing strategy. If not exercised carefully,

strategy can adversely affect customer relations. Here are some disadvantages
of promotional pricing.
1. Changed price perception: If offered promotions regularly, customers may
think that actual prices are low, and promotions are used as a trick to
force customers into buying.
2. Affect brand loyalty: Loyal customers may feel betrayed if the brand stops
offering regular discounts. They may switch to another brand or wait
until the business introduces a promotion. Additionally, if a company
fails to keep its promise, it may lose customers and face legal action.
Promotional pricing is not illegal, but using promotional prices to trick
customers into buying is. Hackers use phishing attacks in the disguise
of promotions.
3. Demographic confusion: Consider a brand with a target demographic of
high-income individuals. If that brand starts offering discounts,
customers may perceive the brand as serving low-income individuals.

Hence, the brand image becomes hampered.
4. Price over quality approach: A brand that offers regular promotion may be
perceived as a low-quality brand. Customers may not value the brand’s
quality if it provides constant discounts.
5. Promotion cost: Businesses need to market promotions to work
effectively. People will not buy the product if they don’t hear about the
promotion.
DISCOUNT AND ALLOWANCE

by Shiela D. Postigo
A discount is a reduction in the full price due to either a sale or a

promotion. An allowance is also a reduction, but generally because the goods
are faulty or not fit for purpose.
Discount and allowance pricing are a pricing strategy in which a
company offers discounts or allowances on certain products or services. This
type of pricing is typically used to reduce the cost of a product for customers or
to increase sales. Companies offer discounts for bulk purchases, early payment,
or other reasons.
Types of Discount and Allowance
 Cash Discount
The discount given to the customers for purchasing goods or services for
hand cash or quicker payment of credit is called cash discount. Quick
payment of credit or for immediate cash payment reduces the collection
cost of the firm and the hand-cash or quicker payment of credit helps
the firm in business
 Trade Discount
In the process of business, the discount given to middlemen by reducing
from price list is called trade discount. Producers give this type of
discount to wholesalers and retailers to encourage them in purchasing
their goods or services.
 Quantity Discount
The discount given to customers for buying large quantity of goods at a
time is called quantity discount. The more quantity of goods the
customers buy at a time, the more discount is given from selling price
 Seasonal Discount
Seasonal discount is given to encourage off-season purchase. Seasonal
discount is given by reducing the price of off-season goods or services to
attract customers.
Concept and Types of Allowances
Generally, the reduction in price of goods or services to the customers

for their performance of assigned work is called allowance. There are two types
of allowances:
 Promotional Allowance
The allowance given by producers to wholesalers and retailers for their
promotional activities is called promotional allowance. Such allowance
is given to them for advertising, decorating and displaying goods in their
shops at local level. This type of allowance may be given in cash or
reduction in price of goods.
 Trade-in Allowance
The customers who buy goods or services regularly from a firm can
return old and unsold goods back to the firm and buy new goods from
the firm. This facility is called trade-in allowance. Such facility makes
customers loyal to the firm permanently.
 Pricing Process
Refers to the steps or activities involved in setting the price for a product
or service. The goal of the pricing process is to set a price that maximizes
profits while remaining competitive in the market.
THE PRICING PROCESS AND RELATED TECHNOLOGY

by Sophia Ann Dichoso
6 Major Steps Involved in Price Determination Process:
1. Market Segmentation
it allows businesses to create targeted pricing strategies that cater to

the specific needs and preferences of different consumer groups.
There are several ways in which market segmentation can be used in pricing
process:
 Demographic Segmentation where consumers are grouped based on age,
gender, income level, education level, and other demographic factors
 Psychographic Segmentation where consumers are grouped based on their
personality traits, values, and lifestyles.
 Geographic Segmentation where consumers are grouped based on their
geographic location.
 Behavioral Segmentation involves grouping consumers based on their
behavior towards a product or service.
2. Estimate Demand
Step in the pricing process for any product or service. By analyzing

various factors that affect demand and using appropriate methods such as
surveys and statistical analysis, businesses can determine the optimal price
point that maximizes revenue and profit.
3. The Market Share
The market share in pricing process refers to the percentage of total

sales within a specific market that is held by a particular company or product.
Market share can be calculated using various methods:
 Revenue-based market share calculated by dividing a company's total
revenue by the total revenue of all companies within the same market.
 Unit-based market shareon the other hand, is calculated by dividing the
total number of units sold by a company by the total number of units
sold by all companies within the same market.
 User-based market share is calculated by dividing the total number of

users or customers of a company by the total number of users or
customers within the same market.
4. Estimate of Costs
Cost estimation involves predicting the expenses associated with

producing and delivering a product or service.
The cost estimation process includes identifying all direct and indirect costs
associated with producing and delivering the product or service.
 Direct costs include materials, labor, equipment, and any other expenses
directly related to the production process.
 Indirect costs include overhead expenses such as rent, utilities,
insurance, and administrative costs.
5. Pricing Policies
Pricing policies are the guidelines and principles that businesses use to
set prices for their products or services. These policies can vary depending on
the industry, target market, and competition.
Pricing policies that businesses can adopt in their pricing process:
 Cost-plus Pricing Policy
This policy involves adding a markup percentage to the cost of producing
a product or service to determine the selling price.
 Skimming Pricing Policy
This policy involves setting a high price for a new product or service
during its launch phase to maximize profits from early adopters who are
willing to pay a premium price.
 Penetration Pricing
This policy involves setting a low price for a new product or service to
penetrate the market quickly and gain market share.
 Dynamic Pricing
This policy involves adjusting prices in real-time based on factors such
as demand, inventory levels, and competitor pricing.
6. The Price Structure
It is the framework that determines how prices are set based on factors
such as production costs, competition, and customer demand.
Price structure can be divided into two main categories:
Cost-based Pricing
involves setting prices based on the cost of producing a product or

service. This method takes into account all the costs associated with producing
and delivering a product or service, including labor, materials, overhead, and
other expenses.
Value-based Pricing
involves setting prices based on the perceived value of a product or

service to the customer. This method takes into account factors such as
customer needs, preferences, and willingness to pay.
Technological Factors That Impact Pricing Strategies
Technology plays a critical role in everything from manufacturing to the

sale of the final product, and you should, therefore, weigh technological factors
when pricing a product.

Lesson 6 Pricing Strategies

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Republic of the Philippines

Sorsogon State University

BASIC PRICING POLICIES

What is a Pricing Policy?

A pricing policy is a company's approach to determining the price at which it offers a

Considerations for Pricing Policies

Objectives for Pricing Policies

Types of Pricing Policies

 Cost-based Pricing Policy

 Value-based Pricing Policy

Example: A laptop manufacturer wants to use a value-based pricing policy for

 Demand-based Pricing Policy

various consumer behaviors found in markets. Here are common

 Competition-based Pricing Policy

Example: A furniture company produces a new coffee table with a unique

ESTABLISHING BASE PRICE

Know Your Amounts

DEMAND ORIENTED PRICING

Demand Oriented Pricing is a pricing strategy in which the seller tries

Demand Oriented Pricing Factors

Demand Oriented Pricing Methods

 Price Skimming - means identifying the highest price of a product that

Name your Price

COMPETITION ORIENTED PRICING

A method of pricing in which a manufacturer’s price is determined more

 Higher-than-average price: When you want the premium price to signal

Advantages and Disadvantages of Competition-Oriented Pricing

Like any strategy, competition-oriented pricing has advantages and

PRODUCT LIFE CYCLE

STRATEGIES IN PRICING PROCESS

Marketers can use specific pricing strategies to fit different economic

Product mix pricing strategies involve adjusting prices to maximize the

o Wood chips that are residual by-products from making furniture

Geographical pricing refers to price adjustments required because of the

When doing business internationally, marketers need to set prices that

Price Segmentation is a strategy in which price are freely adjusted based

 Customer-segment pricing is a pricing strategy in which a company

Increased Profits: Segmented pricing allows companies to tailor their pricing to

Price Discrimination: Segmented pricing may lead to price discrimination, where

Increased Competition: Segmented pricing can lead to increased competition in

Psychological pricing is a pricing strategy that utilizes the power of

what you’re selling. If people don’t purchase, at least your brand is

 Deceitful: Some people may see right through psychological pricing

4 Popular Psychological Pricing Strategies

There are popular strategies behind each discount, promotion,

Promotional pricing is a sales strategy in which brands temporarily

 Discounts: Discounting is when the price of a product or service is

 Multi-stage Validation. Many organizations have loyalty programs under

A key to successful promotional pricing is a detailed requirements

Advantages of Promotional Pricing

1. Motivates buying action: Promotions create a sense of urgency because of

Promotional pricing is a pricing strategy. If not exercised carefully,

customers may perceive the brand as serving low-income individuals.

DISCOUNT AND ALLOWANCE

A discount is a reduction in the full price due to either a sale or a

Generally, the reduction in price of goods or services to the customers

THE PRICING PROCESS AND RELATED TECHNOLOGY

it allows businesses to create targeted pricing strategies that cater to

Step in the pricing process for any product or service. By analyzing

The market share in pricing process refers to the percentage of total

 User-based market share is calculated by dividing the total number of

Cost estimation involves predicting the expenses associated with

6. The Price Structure