Republic of the Philippines

City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

TITLE: PRICING: UNDERSTANDING AND CAPTURING CUSTOMER VALUE

MODULE NO. 2

I. INTRODUCTION

A vital element of the 4 Ps is Price. All the other Ps in the marketing mix, Product, Place, and
Promotion, focus on creating value, while Pricing helps companies obtain the value created. Often,
price is a significant factor affecting buyer choice. It isn't easy to set the right price. Various factors
must be studied critically before deciding on what price to offer. Consequently, a strategic pricing
decision is critical to success.

II. LEARNING OBJECTIVES

After studying this module, you should be able to:

1. Discuss the importance if pricing in today’s fast changing environment;

2. Recognize the major pricing strategies and discuss the importance of understanding customer-
value perceptions, company costs, and competitor strategies when setting prices; and
3. Identify and explain other important external and internal factors affecting a firm’s pricing
decisions.

III. TOPICS AND KEY CONCEPTS

PRICE AND MAJOR PRICING STRATEGIES

Price
⮚ The amount of money charged for a product or service; the sum of the values that customers exchange
for the benefits of having or using the product or service.

Major Pricing Strategies

1. Customer Value-Based Pricing – setting price based on buyers’ perceptions of value rather than on
the seller’s cost
Types:
▪ Good-Value Pricing – offering the right combination of quality and good service at a
fair price.
▪ Value-Added Pricing – attaching value-added features and services to differentiate a
company’s offers and charging higher prices.

2. Cost-Based Pricing – setting prices based on the costs for producing, distributing, and selling the
product plus a fair rate of return for effort and risk.
Types of Costs:
▪ Fixed Costs (Overhead) – costs that do not vary with production or sales level.
▪ Variable Costs – costs that vary directly with the level of production.
▪ Total Costs – the sum of the fixed and variable costs for any given level of production.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Approaches:
▪ Cost-Plus Pricing (Markup Pricing) – adding a standard markup to the cost of the
product.
▪ Break-Even Pricing (Target Return Pricing) – setting price to break even on the costs
of making and marketing a product or setting price to make a target return.
3. Competition-Based Pricing – setting prices based on competitors’ strategies, prices, costs, and market
offerings.

INTERNAL AND EXTERNAL CONSIDERATIONS AFFECTING PRICE DECISIONS

Internal Pricing Considerations

1. Overall marketing strategy, objectives, and mix
Target Costing - pricing that starts with an ideal selling price and then targets costs that will
ensure that the price is met.
2. Organizational Considerations

External Pricing Considerations

1. The market and demand
Economic Markets:
▪ Pure Competition - market consists of many buyers and sellers trading in a uniform
commodity.
▪ Monopolistic Competition – market consists of many buyers and sellers who trade
over a range of prices rather than a single market price.
▪ Oligopolistic Competition – market consists of a few sellers who are highly sensitive
to each other’s pricing and marketing strategies.
▪ Pure Monopoly – market consists of one seller.
2. Economy
3. Government actions
4. Reseller needs
5. Social concerns

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

TITLE: MARKET INTERACTION

MODULE NO. 3

I. INTRODUCTION

Studying economics, especially market interactions, is one of the fundamentals of identifying the
primary relationship between demand, supply, and price. As believed, demand and supply are the
basis of economic pricing. Therefore, underlying factors affecting the demand and supply curve must
be understood.

II. LEARNING OBJECTIVES

After studying this module, you should be able to:

1. Explain the law of demand and supply;

2. Illustrate how to create demand and supply schedule and plot curves;
3. Discuss the factors affecting the demand and supply curve;
4. Explain how shifts in the demand and supply curve happens;
5. Discuss market equilibrium; and
6. Analyze the effect of surplus and shortage in business.

III. TOPICS AND KEY CONCEPTS

DEMAND

Quantity Demanded
⮚ The amount of a good that buyers are willing and able to purchase.

Law of Demand
⮚ States that, other things equal, the quantity demanded of a good falls when the price of the goods
rises.

Demand Schedule
⮚ Table that shows the relationship between price of a good and the quantity demanded.

Demand Curve
⮚ A graph of the relationship between the price of a good and the quantity demanded.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Factors Affecting the Demand Curve

1. Consumer income
▪ Normal good – a good for which, other things equal, an increase in income leads to an increase
in demand.
▪ Inferior good – a good for which, other things equal, an increase in income leads to a decrease
in demand
2. Prices of related goods
▪ Substitutes – two goods for which an increase in the price of one leads to an increase in the
demand for the other
▪ Complements – two goods for which an increase in the price of one leads to a decrease in the
demand for the other
3. Tastes
4. Expectations
5. Number of buyers

Shifts in the Demand Curve

⮚ Any change that raises the quantity that buyers wish to purchase at a given price shifts the demand
curve to the right. Any change that lowers the quantity that buyers wish to purchase at a given price
shifts the demand curve to the left.

SUPPLY

Quantity Supplied
⮚ The amount of a good that sellers are willing and able to sell.

Law of Supply
⮚ States that, other things equal, the quantity supplied of a good rises when the price of the good rises.

Supply Schedule
⮚ Table that shows the relationship between the price of a good and the quantity supplied.

Supply Curve
⮚ A graph of the relationship between the price of a good and the quantity supplied.

Factors Affecting the Supply Curve

1. Input prices
2. Technology
3. Expectations
4. Number of sellers

Shifts in the Supply Curve

⮚ Any change that raises the quantity that sellers wish to produce at a given price shifts the supply curve
to the right. Any change that lowers the quantity that sellers wish to produce at a given price shifts
the demand curve to the left.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

MARKET EQUILIBRIUM

Equilibrium
⮚ A situation in which the price has reached the level where quantity supplied equals quantity
demanded.

Equilibrium Price
⮚ The price at which the quantity demanded is equal to the quantity supplied.

Equilibrium Quantity
⮚ The quantity supplied and demanded at the equilibrium price.

Surplus
⮚ A situation in which quantity supplied is greater than quantity demanded.

Shortage
⮚ A situation in which quantity demanded is greater than quantity supplied.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

TITLE: ELASTICITY AND CONSUMER BEHAVIOR

MODULE NO. 4

I. INTRODUCTION

Elasticity is an important economic measure, especially for the sellers of goods or services.
Elasticity indicates how much of a good or service buyers consume when the price changes. Since
the buyer reacts to a particular change in prices, investigating consumer behavior more closely,
and showing how consumer choices are driven by the interplay of preferences and budget
constraints will give a clear understanding of the relevance of pricing in purchasing decisions.

II. LEARNING OBJECTIVES

After studying this module, you should be able to:

1. Discuss elasticity of demand and supply and its effect in pricing decisions;
2. Enumerate and discuss the different types of demand and supply elasticity and provide
examples for each;
3. Explain the determinants of demand and supply elasticity and how it affects pricing;
4. Recognize the economic significance of elasticity of demand;
5. Determine and discuss the costs of production; and
6. Evaluate consumer’s behavior in response to different elasticity.

III. TOPICS AND KEY CONCEPTS

ELASTICITY OF DEMAND

Price Elasticity of Demand/ Elasticity of Demand

⮚ A measure of the responsiveness of the quantity of a good demanded to a change in its price.

Types of Demand Elasticity

1. Elastic demand – a change in price results to a greater change in quantity demanded.
2. Inelastic demand – a change in price results to a lesser change in quantity demanded.
3. Unitary demand – a change in price results to an equal change in quantity demanded.
4. Perfectly elastic demand – without change in price, there is an infinite change in quantity demanded.
5. Perfectly inelastic demand – a change in price creates no change in quantity demanded.

Determinants of Demand Elasticity

1. Number of good substitutes (Demand is elastic for a product with many good substitutes.)
2. Price increase in proportion to income (If the price increase has very little effect on the income or
budget of the buyers, demand is inelastic.)
3. Importance of the product to the consumers.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.
 Republic of the Philippines
City of Olongapo
GORDON COLLEGE
Olongapo City Sports Complex, East Tapinac, Olongapo City
Tel. No. (047) 224-2089 loc. 314

Economic Significance of Elasticity of Demand

1. Wage determination.
2. Farm production guide.
3. Maximize profits.
4. Imposition of sales tax.

ELASTICITY OF SUPPLY

Price Elasticity of Supply/ Elasticity of Supply

⮚ A measure of the responsiveness of the quantity of a good supplied to a change in its price.

Types of Supply Elasticity

1. Elastic supply – a change in price results to a greater change in quantity supplied.
2. Inelastic supply – a change in price results to a lesser change in quantity supplied.
3. Unitary supply – a change in price results to an equal change in quantity supplied.
4. Perfectly elastic supply – without change in price, there is an infinite (without limit) change in quantity
supplied.
5. Perfectly inelastic supply – a change in price has no effect on quantity supplied.

Determinants of Supply Elasticity

1. Number of producers (The more producers there are, the easier it should be for the industry to
increase output in response to a price increase. Supply will therefore be more elastic.)
2. Spare capacity (The more capacity there is in the industry, the easier it should be to increase output
if price goes up. This makes supply more elastic.)
3. Time period (The firm cam invest in training and more equipment and more firms can join the industry,
so supply should be more flexible, more elastic.)
4. Factor mobility (The easier it is for resources to move into the industry, the more elastic supply will
be.)
5. Production period (the quicker a good is to produce, the easier it will be to respond to a change in
price.)
6. Inventories (A producer who has a supply of goods or available storage capacity can quickly increase
supply to market.)

THE COSTS OF PRODUCTION

Economic Costs
1. Total Cost – is the sum total cost of production.
2. Fixed Cost – is a kind of cost which remains constant regardless of the volume of production.
3. Variable Cost – is a kind of cost which changes in proportion to volume of production.
4. Average Cost – also called unit cost. It is equivalent to total cost divided by quantity.
5. Marginal Cost – the additional or extra cost brought about by producing one additional unit.
6. Explicit Cost – also called expenditure cost.
7. Implicit Cost – also called non-expenditure cost
8. Opportunity Cost – a foregone opportunity or alternative benefit.

Pricing Strategy – 1st Sem. AY 2023-2024 NOT FOR SALE. EXCLUSIVE FOR GORDON COLLEGE ONLY.