ANALYZING COMPETITION COST PRICE

A key to a marketing manager’s setting a price for a product is to find an “approximate price
level” to use as a reasonable starting point.
Four approaches in finding approximate price level
1. Demand oriented
2. Cost oriented
3. Profit oriented
4. Competition oriented
DEMAND ORIENTED
Demand oriented is a method of pricing in which the seller attempts to set price at the level that
the intended buyers are willing to pay.
Skimming - is a product pricing strategy by which a firm charges the highest initial price that
customers will pay and then lowers it over time
Penetration - is when businesses introduce a low price for their new product or service. The
initial price undercuts competitors, forcing them to match the offer or quickly apply other
strategies. Competitors' customers may switch over to the cheaper offer, and new customers
buy in too.
Prestige - is a pricing strategy that uses higher prices to suggest quality and exclusivity.
Odd-even - that involves setting prices a few peso or cents under an even number.
Target - is a method that businesses use to calculate the selling price for a product based on
market prices. First, a company decides on a competitive price for its product based on market
research and what similar products are selling for.
Bundle - is a pricing strategy used by retailers, where they create a bundle of products and
offer them at a lower price than if each product was bought separately.
Yield Management – the process of understanding, anticipating, and influencing consumer
behavior in order to maximize yield or profits from a fixed, perishable resources such as airline
or hotel room reservations.

COST ORIENTED
Cost oriented is the purest form of pricing method. A certain percentage of the desired profit is
added to the cost of the desired profit is added to the cost of the product to obtain the final price
of the product.
Standard Markup - the process of taking a product’s cost and increasing it by some amount to
arrive at a selling price is called markup. This process is critical to business success because
every business must ensure that it does not lose money when it makes a sale. From the
consumer perspective, the concept of markup helps you make sense of the prices that
businesses charge for their products or services.
Cost-plus Pricing - is one of the simplest cost-based pricing methods of the product. In cost-
plus pricing method, an affixed percentage, also called markup percentage, of the total cost (as
a profit), is added to the total cost to set the price.

PROFIT ORIENTED
The price per product is set higher than the total cost of producing and selling each product to
ensure that the company makes a profit on each sale.
Target Profit - is a strategy that tells the management the total units to be sold to achieve the
targeted profit for a particular period. Under this strategy, after considering total costs and profit
targets, the management decides on the total production and sales for a particular period.
Target return-on sales - a pricing method in which a formula is used to calculate the price to be
set for a product to return a desired profit or rate of return on investment assuming that a
particular quantity of the product is sold.
Target return on investment – is one way of considering profits in relation to the capital
invested.

COMPETITION ORIENTED
This involves setting prices based on competitors’ strategies, cost, prices, and market offerings.
Customary pricing - is defined as a pricing method in which goods are priced on the basis of
collective opinion of the consumers about its value.
Above, At, or Below Market pricing

 Above market: Your price is greater than those of your competitors.

 At market: Your price matches or remains close to those of your competitors. Products
or services that are largely indistinguishable across providers often follow at-market
pricing.
 Below market: Your price is below those of your competitors. Below-market pricing may
appeal to budget-conscious consumers.
Loss leader - an aggressive pricing strategy in which a store prices its goods below cost to
stimulate sales of other, profitable goods.