1 MODULE 1 – Introduction and Pricing Strategy

PROGRAM OUTCOMES
2 MODULE 1 – Introduction and Pricing Strategy

By the time of graduation, the students of the program shall be able to:

1. Articulate and discuss the latest developments in the specific field of practice.
2. Effectively communicate orally and in writing using both English and Filipino
3. Work effectively and independently in multi-disciplinary and multi-cultural teams.
4. Act in recognition of professional, social, and ethical responsibility.
5. Preserve and promote "Filipino historical and cultural heritage".
6. Perform the basic functions of management such as planning, organizing, staffing, directing and
controlling.
7. Apply the basic concepts that underlie each of the functional areas of business (marketing, finance, human
resource management, production and operations management, information technology, and strategic
management) and employ these concepts in various business situations.
8. Select the proper decision making tools to critically, analytically and creatively solve problems and drive
results.
9. Express oneself clearly and communicate effectively with stakeholders both in oral and written forms.
10. Apply information and communication technology (ICT) skills as required by the business environment.
11. Work effectively with other stakeholders and manage conflict in the workplace.
12. Plan and implement business related activities.
13. Demonstrate corporate citizenship and social responsibility.
14. Exercise high personal moral and ethical standards.
15. Analyse the business environment for strategic direction.
16. Prepare operational plans.
17. Innovate business ideas based on emerging industry.
18. Manage a strategic business unit for economic sustainability.
19. Conduct business research.
20. To participate in various types of employment, development activities, and public discourse particularly in
response to the needs of the communities one serves.

COURSE TITLE :

MARMA 8- PRICING STRATEGY

COURSE DESCRIPTION

Pricing is one of the most important decisions that businesses make in their efforts for profit
maximization. The course is a foundation for effective pricing decisions by teaching key economic, analytical,
and behavioral concepts associated with costs, customer behavior and competition. In addition, advanced
pricing techniques that aim to create additional value are introduced to the students.
3 MODULE 1 – Introduction and Pricing Strategy

COURSE OUTCOMES (CMO)

In this course, you should be able to:

1. Understand the key economic, analytical, and behavioral concepts associated with costs, customer
behavior and competition.
2. Understand and be able to apply advanced pricing techniques.
3. Comprehend and have a clear understanding of pricing strategies of different products, lifecycles,
and companies.
4. Understand and analyze price strategies of competitors in indifferent market situations through case
study scenarios.

INTRODUCTION

The first lesson focuses on the nature of the price. It establishes steps in developing the right price. It
elaborates on the factors that influence price determination. Price as determinants in making as sale will
greatly contribute to the growth or failure in the organization. It will greatly attract or pull away from he
potential markets from buying the product.
The second lesson discusses the full details of more than a hundred pricing strategy. It captures the
usage and functions of each price strategy. It helps the reader to appreciate the price strategy as a tool to
generate revenues. It can also contribute to the growth even the failure in the organization. This part of the
module will provide benefits from using one such particular strategy that will surely attract readers to
appreciate and applied.

This module is divided into two lessons:

Lesson 1 Nature of Price
Lesson 2 Absorption Costing and Transparent Pricing

MODULE LEARNING OUTCOMES

In this module, you should be able to:
1. define and determine the nature of price;

2. identify the steps in developing a pricing strategy; and

3. assess the importance of strategy and its effect on the profit of the business organization..

LESSON 1: Nature of Price

SPECIFIC LEARNING OUTCOMES

4 MODULE 1 – Introduction and Pricing Strategy

In this lesson, you should be able to:

1. determine the concept as a basis in determining the right price;
2. distinguish the relevance of the strategy to its implementation; and
3. analyze the factors tht influence price determination.

PRE-ASSESSMENT
True or False. Write T if the statement is correct and write F if the statement is wrong.

1. Price refers to the total cost for customers to acquire the product and may involve both monetary and
psychological costs such as the time and effort expended in the acquisition.
2. Price determines the value of a good or service to the buyers even to the sellers.
3. The concern of the company is to increase sales by offering new product design, product lines, and
promotional items.
4. Its thrust is to satisfy the investor/stockholders by providing them an immediate return of investment.
5. Broad Price Policy provides procedures, rules, and methods to act in one specific situation.
6. The preference of the mass majority of the market will be the basis of the price set.
7. The seller chooses a high price in order to determine who will really patronize the product.
8. Cost-based price strategy is when the firm sets prices by merchandise, services, and overhead costs
than adding the desired profit to those figures.
9. Normally the price of the product will not be easily changed.
10. The entrepreneur must consider the law of demand and supply. If there are sufficient supplies and
few demands, the price will increase and vice versa.

LESSON MAP
5 MODULE 1 – Introduction and Pricing Strategy

Nature of Price

Five Steps in Developing a Pricing Strategy

Determining the Right Price

Factors that Influence Price Determination

The map
above describes the topics of Introduction of Pricing Strategy

CORE CONTENTS

F
ENGAGE: Figure Analysis

Image Ana
Based on the figure above give your perspective on how these different department contribute to pricing
decision. Make your own research. At least to pharagraps.
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6 MODULE 1 – Introduction and Pricing Strategy

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EXPL

EXPLORE: Reading Concepts

Nature of Price
Nature of price refers to decisions surrounding "list pricing, discount pricing special offer pricing, credit
payment or credit terms". Price refers to the total cost for customers to acquire the product and may involve
both monetary and psychological costs such as the time and effort expended in the acquisition.
Price determines the value of a good or service to the buyers even to the sellers. It is the amount of
money needed in order to acquire a product or service and its accompanying service. It is the amount of
money charged for a product or service or the sum of the values that consumers exchange for the benefits of
having or using the product or service. The company must provide ways to conceptualize actions to attract
customer patronage using the price.
Price means the money value of a product or service expressed in terms of peso and or centavos. It
is also the amount of money needed in order to acquire a product or service and its accompanying services.
(Page 91, Elements of Marketing 4th edition by Mutya, 2007)

Five Steps in Developing a Pricing Strategy

1. The objective may be: sales-based, profit-based and status-quo based.
a. Sales Based. The firm is interested in sales growth and/or maximizing market share. The
concern of the company is to increase sales by offering new product design, product lines,
and promotional items.
b. Profit-Based. The firm is interested in maximizing profit earning a satisfactory profit,
optimizing the return on investment, or securing an early recovery of cash. Its thrust is to
satisfy the investor/stockholders by providing them an immediate return of investment.
c. Status Quo Based. The firm seeks to avoid reasonable government actions, minimize the
effects of competitor actions, maintain good channel relations, discourage the entry of
competitors, reduce demands from suppliers, and stabilize prices. The goal of the
company is to maintain a good image of the community by creating projects/programs that
protect its welfare and goodwill.
2. Broad Price Policy provides procedures, rules, and methods to act in one specific situation. It links
prices with the target market, image, and other marketing elements. It makes sure that pricing
decisions are coordinated by other sellers.
7 MODULE 1 – Introduction and Pricing Strategy

These are the following:

a. Penetration pricing uses low prices to capture/attract the larger/mass market for a product or
service. The preference of the mass majority of the market will be the basis of the price set.
b. Skimming pricing uses high prices to attract the market segment more concerned with
product quality, uniqueness, or status than price. The seller chooses a high price in order to
determine who will really patronize the product.
3. Price Strategies are ways or some actions to accomplish the goals and objectives of the company in
gaining profit. Price strategy can be classified into different categories.
a. Cost-based price strategy is when the firm sets prices by merchandise, services, and
overhead costs than adding the desired profit to those figures. After combining all the
expenses incurred during production of the product, the seller must also decide the best profit
part of the price of a product.
b. Demand-based price strategy is when the firm sets prices after consumer desires and
makes sure the range of prices is acceptable to target market. The firms conduct researches
regarding the saleability the product. If the product meets the criteria of the market, the firm
raise the price of the product because it can assure profit based on market demand.
c. Competition-based price strategy is when the firm sets prices in relation to the competitors.
The entrepreneur must research the prices set by their competitors
4. Implementing Price Strategy is the firm readiness to sell the product which would be effective if given
an attractive price strategy listed below:
a. Customary pricing is when one price is maintained over an extended period of time.
Normally the price of the product will not be easily changed. The entrepreneur must consider
the price of the product which is affordable to the majority of buyers.
b. Variable pricing is when the price responds to cost fluctuations or differences in demand.
The entrepreneur must consider the law of demand and supply. If there are sufficient supplies
and few demands, the price will increase and vice versa.
c. The one-price policy is when the price is charged to all customers buying the product or
service under similar conditions. The entrepreneur will set one price for all products available
for sale even though they differ from design.
d. Flexible pricing is based on the customer's ability to negotiate or buy the power of the
customer. The entrepreneur must meet the needs and wants of the customer so that they
need to adjust the price just to ensure continued patronage and loyalty.
e. Odd pricing is prices set at levels below even values. The entrepreneur uses odd numbers
to attract customers in pricing a product.
f. Price-quality association is when the consumers believed that high price represents high
quality and low prices represent low quality. The entrepreneur instilled in the mind of the
customers that having a high price contains high-quality materials.
g. Prestige pricing is when customers set price floors and will not buy at prices below those
floors. Above price ceilings, items would seem too expensive. The entrepreneur must
consider that products must follow the price floor and ceiling set by the government.
8 MODULE 1 – Introduction and Pricing Strategy

h. Leader pricing is selling key items at low prices to gain consumer loyalty within its product
line. It is hoped that the customers will buy regularly priced products together with the
specially priced one. The entrepreneur must be aggressive to win the respect of the
competitors so as they can value the actions that will take place.
i. Multiple-unit pricing is when the entrepreneur offers discounts to consumers for buying in
large quantities. The entrepreneur must consider that selling more units will produce more
profits. To prevent overstocking and maintain proper inventory, selling in bulk can increase
profit and promote growth.
j. Price lining is when instead of setting one price for a single model of a good or service, the
firm sells two models of different quality and features at different prices.
k. Price Bundling is when the firm offers a basic product, options, and customer service for one
total price. The entrepreneur will combine product and service to the price set in the product.
l. Unbundled pricing is when the firm sells by individual components and allows the customer
to decide what to buy. The entrepreneur will set the price of the product item from the other. It
can be sold separately and individually.
m. Geographic pricing is when the prices are set depending on the distance of the Buyer to the
seller. Normally this activity is done if both parties are far from each other. The two parties
must agree to the price before the transaction can take place. These are the sample
transactions:
n. FOB factory is when the buyer pays for all freight charges regardless of the distance. The
buyer must be willing to pay all the expenses incurred during the transfer of the product from
one place to another.
o. Uniform delivered pricing is when buyers pay the same delivered price for the same
quantity of goods. The entrepreneur shall considered the number of goods in setting the of
the product.
p. Zone pricing is when the buyers within the geographic zone pay a uniform delivered price.
The entrepreneur must provide the same measure of charges to one particular location.
q. Base-point pricing is when the cost of transporting the goods is computed from the base
point nearest buyer. In setting prices, the most accessible and nearest buyer need to
determine as a base point in distributing the product.
Terms of Payments are price agreement, including discount, the timing of payments, and
credit agreements. Discounts are a reduction in the selling price given to customers for varying
reasons: paying in cash, performing certain function, buying in large quantities, and off-season
buying.
5. Price Adjustments. Changes in cost, competitive conditions and consumer demand require changes
in price. Prices can be adjusted in the list prices, escalator clauses, surcharges, mark-ups,
markdowns, and rebates.
a. List prices are regularly quoted prices to customers, as in catalogs, price tags, and purchase
orders. The salesman must have a clear and updated price so when the negotiation takes
place, minor correction of the price will be made.
9 MODULE 1 – Introduction and Pricing Strategy

b. Escalator clauses happen when the contract which allows price increase after the sale is
concluded before delivery is made. The seller must communicate to the buyer that there is a
price adjustment due to some reasons (an increase of raw materials or gasoline) and must
agree to the new price.
c. The surcharge is supplementary to list prices. These are additional charges added to the total
price. The seller can include this or discharge to better gain customer loyalty and profitability
of the company.
d. Marks-up happen when the company is raising regular selling prices because demand is
unexpectedly high, or costs are rising. The entrepreneur must be careful to increase the price
of the product as it can affect customers' continuous loyalty.
e. Markdowns are reductions from original selling prices to meet lower prices of competitors,
overstocking, shop-worn merchandise, and increase customer traffic. This activity can affect
profit generation.

Determining the Right Price

How the firm prices its product or service is a very important component of the business plan. If the
firm wants to achieve its objectives, the right price for its product or service must be maintained. In
determining the right price, the following factors must be considered:
1. The customer's perception of the value of the kind of business firm;
2. The costs involved such as overhead, storage, financing, production, and distribution; and,
3. The profit objectives of the firm.
The price set by the firm may be established through any of the following methods:
1. Cost-plus pricing - this method covers all costs, variable and fixed, plus an extra increment to
deliver profit.
2. Demand pricing - this is a method of pricing where the firm sets prices based on buyer desires. The
range acceptable to the target market is determined.
3. Competitive pricing - this method of pricing calls for price-setting on the basis of prices charged by
competitors.
4. Market pricing - this is a form of cost-oriented pricing in which the firm sets prices by adding per-unit
merchandise costs, operating expenses, and desired profit.

Each of the various methods of pricing has corresponding advantages and disadvantages. In a given
situation, one pricing method could be the most effective. A company can use other strategies or combine
the multiple policies fitted to their product and market. To attain the objectives of the organization, one
company can use single or multiple strategies depending on the needs of the organization to meet its sales
objectives.

Factors that Influence Price Determination

There are factors that are within the internal control of the organization when setting price decisions. It
is the function of the marketing manager to determine the internal organizational factors that will set the
pricing objectives competitive in the market and at the same time maintain its profit objectives. These are the
10 MODULE 1 – Introduction and Pricing Strategy

marketing objectives, marketing mix strategy, and the cost-plus pricing strategy. The external factors in
pricing strategy such as market demand, competitors' strategy, and the economic and other social concerns.
(P.145 Principles of Marketing by Pereda, Pereda, Castillo 2014)

EXPLAIN: Review and Discussion

Intense comprehension of the context

1. Choose among the price strategy, what is the best strategy in order to attain high profits.
2. Create a situation that will manifest the steps in developing a pricing strategy.
3. Explain the concepts as a basis in determining the right price.
4. Classify and explain the relevance of the strategy to its implementation.
5. Enumerate and discuss the factors that influence price determination.

TOPIC SUMMARY
In this lesson, you learned that:
➢ Nature of price refers to decisions surrounding "list pricing, discount pricing special offer pricing, credit
payment or credit terms". Price refers to the total cost for customers to acquire the product and may
involve both monetary and psychological costs such as the time and effort expended in the
acquisition.
➢ Sales Based. The firm is interested in sales growth and/or maximizing market share. The concern of
the company is to increase sales by offering new product design, product lines, and promotional
items.
➢ Profit-Based. The firm is interested in maximizing profit earning a satisfactory profit, optimizing the
return on investment, or securing an early recovery of cash.
➢ Status Quo Based. The firm seeks to avoid reasonable government actions, minimize the effects of
competitor actions, maintain good channel relations, discourage the entry of competitors, reduce
demands from suppliers, and stabilize prices.
➢ Broad Price Policy provides procedures, rules, and methods to act in one specific situation. It links
prices with the target market, image, and other marketing elements.
➢ Price Strategies are ways or some actions to accomplish the goals and objectives of the company in
gaining profit.
➢ Price Adjustments. Changes in cost, competitive conditions and consumer demand require changes
in price. Prices can be adjusted in the list prices, escalator clauses, surcharges, mark-ups,
markdowns, and rebates.
➢ There are factors that are within the internal control of the organization when setting price decisions. It
is the function of the marketing manager to determine the internal organizational factors that will set
the pricing objectives competitive in the market and at the same time maintain its profit objectives.
11 MODULE 1 – Introduction and Pricing Strategy

REFERENCES

•
•
• 1. Acierto, Maaaraife Agustine, DBA,LPT, FRI(Rs),CPME & Acierto, Gilfred Abad. Pricing
Strategy,PhD, LPT, FrieDr., Unlimited Books Library Services & Publishing INC, 2022.
•
• 2.
• 2. Retrieved from:
https://www.google.com/search?q=nature+of+pricing+figure&sxsrf=ALiCzsYxpuOjL0eStaOq_sIpLzbZ
ETa7lg:1658976129590&tbm=isch&source=iu&ictx=1&vet=1&fir=RFsCRbU3JgrUIM%252C. retrieved
on July 27, 2022.