Principles of Marketing

Module 11
Principles of Marketing
Grade 11/12 : Module 11
First Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any

form without written permission from the copyright owners.

Development Team of the Module

Author: Ma.Paz F. Garcia, MT-II

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent

Vivian Luz S. Pagatpatan, Ph.D

Assistant Schools Division Superintendent

German E. Flora, Ph.D, CID Chief

Virgilio C. Boado, Ph.D, EPS in Charge of LRMS

Lorna O. Gaspar, EPS in Charge of ABM

Michael Jason D. Morales, PDO II

Claire P. Toluyen, Librarian II

 Target

Pricing Strategies

“Price should never be just about cost plus mark up. It should also be a tool for
communication and for strategy.”

Price is the value that is provided to a good or service and is the outcome of a
complex collection of estimates, research, understanding and risk-taking
capabilities. The pricing strategy tales into account segments, willingness to pay,
business dynamics, competition actions, trade margins and production costs, among
others. It is aimed at established customers and at competitors.
Pricing maybe defined as those activities involved in the determination of the
price at which products that will be offered for sale considering the various objectives
of the firm.
Pricing strategy is an approach that company use to increase their sales and
to maximize profits by selling their goods and services for appropriate prices.
In the previous module, you learned the conceptual information about what
is a product, its classifications, services and others.
This module covers the second part of our four marketing P’s, Price.
The primary takeaway that that you should have after going through the module is
that price is not just a means for generating profit. Price can be used to help
communicate the nature of your product to the market.
This will help learners to understand the process of assigning value or amount
to a product or service It will introduce you to the origin of pricing, its objectives,
selecting pricing strategy and the different pricing strategies or approaches.

At the end of the module, you are expected to:

1. Identify and describe the factors to consider when setting prices and new
product pricing and its general pricing approaches.
a. Define what is a price and pricing strategy
b. Describe the factors to consider when setting prices for a product or
service
c. Describe the different pricing strategies and/or approaches

Before going on, let us check how much you know about this topic.
Answer the pretest on the next page. Encircle it.
PRE-TEST

Directions: Read carefully each statement and select the letter with the best answer.
Write in your answer sheet.
1. It refers to the fair amount of return.
A. Fixed Cost B. Labor
C. Overhead Cost D. Profit Cost
2. This refers to the practice of setting low prices on selected products resulting
to less profits.
A. Loss Leader Pricing B. Odd-Numbered Pricing
C. Price Lining Pricing D. Price-Quality Relationship Pricing
3. The following are forms of promotional pricing EXCEPT…
A. Allowance B. Cash rebates
C. Low-Interest Financing D. Sale
4. What kind of market competition that has only few buyers competing in the
purchase of commodity?
A. Monopoly B. Oligopoly
C. Oligopsony D. Pure Competition
5. In a discriminatory pricing, identical products with different images are priced
at two different levels. This is known as _____.
A. Customer Segment Pricing B. Image Pricing
C. Location Pricing D. Product Form Pricing
6. Which statement best describe a Discount?
A. It encourages buyers to pay their bills quickly
B. It is a reduction from the list price that as given by sellers to buyers.
C. It is a reduction from the list price to buyers for performing some
activity
D. It is a price reduction given when a used product is part of the payment
on a new product
7. Which among the choices below is NOT an odd-numbered pricing?
A. Php89.15 B. Php100.00
C. Php48.75 D. Php99.95
8. Why are discounts given to customers?
A. To reward customers for buying more goods.
B. To encourage buyers to pay their bills quickly.
C. To reward customers for early payment volume purchase and off season
buying.
D. To help the manufacturer maintain production even at off season.
9. What is the degree of control over price by the seller in a monopsony market
competition?
A. It has a very slight degree of control over the price of the commodity.
B. It has a high degree of control over the price of the commodity.
C. It has a very high degree of control over the price of the commodity.
D. It doesn’t have a degree of control over the price of the commodity.
10. Which of the following is NOT included under geographical pricing?
A. Freight Absorption B. Location
C. Point-of Production D. Zone delivered
 Jumpstart

Let us try your understanding about the lesson by providing an answer to

the question. Have fun and good luck!

Activity 1: I Can Do It….

Direction: Answer the question inside the box. Write in your answer sheet.

A. Give an example of a brand that you find to be very expensive.

Brand: ____________________

Question: What make you believe that it is expensive and beyond the actual
price?

________________________________________________________________________
B.
__ A sub-standard good is a product that you will only buy if you have
limited budget but would otherwise not even consider buying it. Give
three (3) examples of what you feel are inferior goods and explain why you
believe them to be so.

1. ___________________________________________________________________

2. ___________________________________________________________________

3. ___________________________________________________________________

Rubric:

Criteria Excellent 4 Good 3 Fair 2 Poor 1

Clarity of All the thoughts Most of the Some thoughts The thought
thoughts were very clear. thoughts were were clear. can’t be
clear understood.
Reasoning The stand was The stand is The stand is not The stand is
well reasoned somewhat so reasonable. completely
out. reasonable. unreasonable.
 Discover

Let us discover how sellers assign value or price to certain product or service by
reading the selection below. Try to answer the questions after.

The Origins of Pricing

Chances are, you have already heard of the word “SRP”. Short for “Suggested
Retail Price.” It signifies the price that a consumer product is supposed to be offered
at over the counter and in supermarkets.

But once upon a time, there was no such thing as a suggested retail price.
Prices are always the subject of negotiation.

In reality, you would still see this pricing attitude whenever you go to tiangge
or market stalls or palengke (wet markets). In these places, the consumers are
actually supposed to haggle or make tawad with the vendors. In most cases, vendors
can also show resentment for buyers who do not bother to haggle!

However, the above condition is borne out by the time-honored “dance”

between the buyer and the seller. It is a socio-cultural norm that all parties are
expected to respect and abide by. Because the seller knows that the buyer is going
to ask for a discount (tawad), a generous level of price paddling is taken into
consideration. The buyer is expected to understand that the seller does and therefore
entitled to ask for a “tawad.” This is the reason why merchandisers can go as far a
to look at non-haggling shoppers with contempt.
What is the moral of the story? Haggle whenever you can!
There are two more lessons that can be extracted from the above scenario and
these are significance for understanding the nature of pricing.

1. Consumers do not really know what the real price of a product should be;
2. Sellers can have a pretty wide leeway on how to price their products.

Think about this, how can you tell if something is cheap or expensive?

You can tell if a product or service is cheap or expensive by comparing its price
with similar products in the supermarket. This is the point of reference for the buyer
if they will purchase the item.
How is Pricing Defined?

Pricing is a process of determining the value that is received by an organization

in exchange of its products or services. It is a crucial element of generating revenue
for an organization. The pricing decisions of an organization have a direct impact on
its success.

The price of a product is influenced by several factors such as manufacturing

cost, competition, market conditions, and quality of the product.

What are Your Pricing Objectives?

Before pricing a product, an organization must determine its pricing

objectives. In other words, what does the company want to accomplish with its
pricing? Companies must also estimate demand for the product or service, determine
the costs, and analyze all factors (e.g., competition, regulations, and economy)
affecting price decisions. Then, to convey a consistent image, the organization should
choose the most appropriate pricing strategy and determine policies and conditions
regarding price adjustments.

Companies set the process of their products in order to achieve specific

objectives. The following objectives are…

A. Profit – Oriented Objectives

Profit oriented pricing focuses on product and business finance. The profit of
a business is the money left behind after all costs have been covered. The price per
product is set higher than the overall cost of making and selling the product ensuring
that the business makes a profit from each sale. The company is guaranteed a profit
on every sale.
Profit-oriented objectives call for profit generation such as:
a. The Target Return Objective
The Return of Investment or ROI is the amount of profit that the
company aims to make on the basis of the amount of assets or resources it h
as tied up in the product.

b. The Profit Maximization Objective

Implies that prices are set in such a way that they help in achieving
maximum profit. According to Stanton, Etzel and Walker, “The pricing
objective of making as much money as possible is probably followed more than
any other goal.” Profit maximization is more beneficial in the long run as
compared to short run.

B. Sales-Oriented Objectives
Sales- oriented pricing objectives refer to those that will provide higher sales
volume. This maybe achieve through any of the following:
1. Increasing sales volume
Implies sales expansion by giving discounts to customers. In the short run,
an organization might be ready to bear losses by reducing the prices to
 increase the sales volume. For instance, the hotel industry faces low demand
during off–season; prefers to decrease its prices and offers discounts to
increase sales.

2. Maintaining or increasing market share

Plays a crucial role in the success of an organization. The organization tries
to gain market share by lowering down the prices as compared to its competitors.

C. Status quo-oriented objectives

Status quo-pricing requires maintaining the same prices for the company’s
products. This happens when the firm is satisfied with its current market share and
profits. Status quo pricing maybe due to (a) to stabilize prices; (b) to meet
competition; and (c) to avoid competition.

The Pricing Procedure

The pricing procedure refers to the series of steps adapted in the
determination of price. The series of steps are the following:
a. The determination of the realistic range of choice
b. The selection of pricing strategy
c. The evaluation of economic feasibility
d. The setting of the price

1. Determining Realistic Range of Choice

The first step in pricing is the determination of the realistic range of prices by
which a final choice shall be made.

2. Selecting a Pricing Strategy

The decision-maker may adapt market skimming strategy or penetration
strategy in selecting appropriate pricing strategy
a. Market skimming Strategy
It requires the setting of price at the upper limit of the realistic range of choice.
b. Penetration Strategy
Setting the price at the bottom of the realistic price range. The purpose is to
penetrate the market as fast as they could.

Pricing Approaches
Good pricing usually starts with customers and their perceptions of value.
Eventually, the customer will decide whether a product is worth its price or not.
Therefore, we start with customer value. When customer buys a product, they
exchange something of value (the price) to get something of value (the benefits of
having or using a particular product). Therefore, it is crucial to understand how
much value consumers place on the benefits they receive from the product and
setting a price that captures exactly this value.
 Prices of products and services maybe set based on any of the various pricing
approaches as (a) Cost-Based Approach; (b) Buyer Based Approach; and (c)
Competition Based Approach.

A. Cost-Based Approach
Cost-based pricing is a very simple approach. A company figures out how
much it costs to make a product or deliver a service and then sets the price by
adding a profit to the cost.
For example, if it costs a small toy manufacturer 10.00 to make its
signature stuffed animal (taking into account fixed and variable costs) and the
company wants a 20 percent profit per unit, the price to the retailer will be 12.00.

Types of Cost-Based Pricing:

a. Cost Plus Pricing. It calls for adding a percentage of cost on top of the total
cost. The added percentage constitutes the profit margin, while total costs
represents the direct costs and the overhead costs.

Price = direct costs + overhead costs + profit margin

Where direct costs = material + labor
Overhead costs = a share of fixed indirect costs
Profit margin = a fair amount of return

b. Target Rate of return Pricing. It enables a company to establish the level of

profits that it feels will yield a satisfactory return.

P = DVC + F/X + RK/X

Where P = selling price using the target rate of return method
DVC = direct unit variable costs
F = fixed costs
X = standard unit volume
R = Rate of Return Desired
K = Capital (total operating process) employed

B. Buyer-Based Approach
It deals with consumer perceptions or behavior as bases in determining the
selling price of a product or service. This method is composed of the following
methods:
1. Perceived Value Pricing
2. Price-Quality Relationship Pricing
3. Loss-leader Pricing
4. Odd-Numbered Pricing
5. Price Lining Pricing
1. Perceived Value Pricing. This method establishes the price for a product
based on the buyer’s perception. The value of the product to the market
becomes the basis for the price.
2. Price- Quality Relationship Pricing. Also known as prestige pricing strategy.
It is based on the premise that consumers will feel that products below a
particular price will have inferior quality. This approach hinges on the
observation that consumers associate high price with high quality and low
price with low quality.
3. Loss-Leader Pricing. It refers to the practice of setting low prices on selected
products which will result I n the generation of less profits, but with the
objective of increasing the sales volume of other products sold by the
company.
4. Odd-Numbered Pricing. Also known as “nine and zero effect”. This refers to
the practice of setting price even below peso mounts. Prices that end in a non-
rounded odd number give the consumers the perception that the prices are
not expensive. It is seen to be “friendlier” or more palatable than even
numbers.
5. Price-Lining Pricing. This method refers to the practice of selling
merchandise at a limited number of predetermined price levels. The different
price levels are intended to represent various levels of quality. The buyer is
then provided with various buying options increasing his chance of making a
purchase.

C. Competition-Based Approach

The competition-based pricing approach refers to the setting of prices based

on what prices are being charged by competitors. There are two kinds of pricing
under this approach namely (1) going-rate pricing and (2) sealed bid-pricing.

1. Going-Rate Pricing. Under this method, the firm adapts a price based on
the competitor’s price. It is proactive because it uses price as a
communication tool to inform the market about the value of the product.

2. Sealed-Bid Price. The firm sets its price to be a little lower the
competitor’s. Less attention is also given to the firm’s costs and demand.
 Explore

Here are some enrichment activities for you to work on to master

and strengthen the basic concepts you have learned from this
lesson.

Activity 2: Think… Recall… Do…

Direction: Fill the boxes with correct responses. Write in your answer sheet.

A. Pricing Objectives

B.
Pricing Approaches
C. Explain why fine dining establishments must have very high mark ups over the
cost of their foods. Is it possible to be a low-priced fine dining establishment?
Write in your answer sheet.
Rubric:
Outstanding Good Fair Poor Needs
Improvement
5 4 3 2 1
Well written Writes fairly Minimal effort. Somewhat Lacking effort.
and very clear. Good Minimal unclear. Very poor
organized. grammar grammar Shows little grammar
Excellent mechanics mechanics. effort. Poor mechanics.
grammar Good Fair grammar Unclear and
mechanics. presentation presentation. mechanics. does not
Clear and and Few Confusing address the
concise organization. supporting and choppy, topic.
statement. Sufficient details. incomplete
Demonstrate a effort and sentences.
thorough detail. Sufficient
understanding effort and
of the topic. details. No
organization
of thoughts.

Deepen

For us to understand better the topic on pricing strategies, below are some
strategies that might be very helpful to business owners in setting the price of their
goods or services. So get ready and together we will learn…

Price Adaptation Strategies

Price adaptation strategies are those that are used to address the variations
in geographical demand, costs, market segments, purchase timing, and other
factors. It includes (1) geographical pricing; (2) price discounts and allowances; (3)
promotional pricing; (4) discriminatory pricing.

1. Geographical Pricing.
It refers to pricing decisions related to products intended for customers in
different locations. The cost of shipping is a primary consideration which led
to the following strategies namely (a)point-of-production pricing; (b)uniform
delivered pricing; (c) zone-delivered pricing and (e) freight-absorption pricing.
Point of Production Pricing. The situation where the seller quotes the
selling price at the point of production, and the buyer selects the mode of
transportation and pays all freight costs.
 Under uniform delivered pricing. The seller quotes to all buyers the same
delivered price regardless of their locations.
Zone-delivered pricing. The seller sets prices that are different from zone
to zone.
Freight Absorption pricing. The seller pays for some of the freight charges
in order to penetrate more distant markets.
2. Price Discounts and Allowances
Discounts and allowances are price modifications designed to reward
customers for early payment volume purchase and off-season buying.
Discounts are reductions from the list price that are given by sellers to
buyers who either give up some marketing function or to provide the function
themselves. Allowances are reductions in price given to final consumers,
customers, or channel members for doing some tasks or accepting less
service.

Classifications of Discounts and Allowances

a. Cash Discounts. These are reductions in price to encourage buyers to pay
their bills quickly.
b. Quantity Discounts. These are reductions on unit costs for a larger order.
c. Functional or Trade Discounts. These are reductions from the list price given
by the manufacturer to reward wholesalers and retailers for marketing
functions they will perform.
d. Seasonal Discounts. These are price reductions given to buyers who buy goods
or services out of season. It helps the manufacturer maintain production even
during seasons of low demand.
e. Allowances. These are reductions from list prices to buyers for performing
some activity.
Types of Allowances
1. Trade-in Allowance. This is a price reduction given when a used
product is part of the payment on a new product.
2. Promotional Allowance. This is a price reduction granted by a seller as
payment for promotional services performed by buyers.
3. Promotional Pricing
Promotional pricing refers to the temporary reduction of prices of a
company’s products. Price reductions maybe in the form of:
a. Sale. The prices of the products are reduced for a limited time.
b. Special event-pricing. Under this form, special prices in certain seasons
are made to draw in more customers.
c. Cash Rebates. It is offered to customers to encourage them to make
purchases within a specified time period.
d. Low-interest Financing. Involves low-interest financing to customers.
e. Warranties and Service Contracts. It involves adding a free warranty offer
or service contract.
4. Discriminatory Pricing
Discriminatory pricing refers to modifications of the basic price to
accommodate differences in customers, products, and locations. The
company sells its products or service at two more prices.
 Forms of Discriminatory Pricing
a. Customer Segment Pricing. These are different prices for the same
product or service are charged for different customer groups.
b. Product Form Pricing. Different product versions are priced differently
without considering its costs.
c. Image Pricing. Identical products but with different images are priced
at two different levels.
d. Location Pricing. Different locations are priced differently even if the
cost of offering each location is the same.
e. Time Pricing. Prices varied by season, day, or hour.

Pricing Under Various Market Conditions

Knowing the price of the competitor’s products is important but anticipating

his pricing behavior may even be more important. The kinds of competitive
situations are the following:

a. Pure Monopoly.
This is a competitive situation where there is only one seller in a market.
The monopolist enjoys a very high degree of control over the price of his
products.

b. Oligopoly
Only a few firms compete in the sale of a commodity.

c. Pure Competition
There are great number of buyers and sellers in the market. Products
sold are regarded as homogenous and the buyers will be motivated to switch
from one seller to another because of price.

d. Oligopsony
Only a few buyers compete in the purchase of a commodity. The sellers
are helpless in controlling the prices of their products.

e. Monopsony
It is characterized by the presence of only one buyer. The monopolist has
a very high degree of control over the price of the commodity he is buying.
Activity #3: Fill Me Up…
A. Direction: Provide the data needed in the table.
Competitive Number of Number of Degree of Degree of
Situation Sellers Buyers Control Control
(Seller) (Buyer)
 B. List down three (3) examples of firms or institutions operating under
each of the following conditions:
a. Monopoly b. Oligopoly c. Pure Competition

C. Prepare a list of products (2 each) which are priced using:

1. Perceived value
2. Price-quality relationship
3. loss-leader
4. odd-numbered
5. price lining

Gauge
Direction: Fill in the blanks to complete the statement. Choose answers
from the concepts inside the box.

Market skimming location cost-based approach

Oligopoly allowances Pure Monopoly

1. The primary consideration for geographical pricing is the _______________.

2. Under the _____ pricing approach, the total costs are calculated and a margin
of profit is added.
3. Reductions from list prices to buyers for performing some activity is called
____________.
4. The _____ pricing strategy requires the setting of prices at the upper limit of
the realistic range of choice.
5. In an ______ kind of competition, only a few firms compete in the sale of a
commodity.

B. Match Column A with Column B. Write the letter of the correct answer in your
answer sheet.
A B
___ 1. to avoid competition A. odd-numbered pricing
___ 2. determination of the realistic B. price lining
range of choice
___ 3. setting the price even below C. image pricing
peso amount
___ 4. increasing sales volume D. status-quo oriented objective
___ 5. identical products but with E. first step in pricing
different images are priced F. sales-oriented objective
at two different levels
C. Read and comprehend the situation below.

Super Premium Hotel Rooms.

Choose a hotel and research (online or otherwise) on its room rates

as well as the amenities that it offers for the price. Identify the most
expensive room that it is currently offering.
You are to propose an even more premium-priced room, with a price
point that is very much higher than the current premium rates which the
hotel offers. Identify the amenities that you feel would justify the high price
point you are proposing, and then see if the rest of the class agrees that it
truly is worth the price you are asking for.

RUBRIC
Total Your
Criteria Details
Points Points
Price Canvassing Did you give clear picture of 5
the hotel’s prices?
Viability of How viable is the proposed 10
Proposal price and amenities?
Creativity How creative or innovative is 5
the proposal?
Total 20

References
Ilano, A.B. Principles of Marketing. Reprint, Philippines: Rex Book Store, 2017.

Medina, R.G. Principles of Marketing. Reprint, Philippines: Rex Bookstore, 2008

Alcoran, alaric brian. Principles of Marketing. Reprint, Philippines: Bookline Publishing Corporation,
2018.

Google.Com, 2020.
https://www.google.com/search?q=rubrics+for+positioning+map&source=lnms&tbm=isch&sa=X&ved
=2ahUKEwiY5fysprrqAhWLad4KHYkWDhYQ_AUoAXoECAwQAw&cshid=1594096114522792&biw=78
0&bih=756#imgrc=PFcDUCyxrAu-vM.

"Market Positioning - Creating An Effective Positioning Strategy". Corporate Finance Institute, 2020.
https://corporatefinanceinstitute.com/resources/knowledge/strategy/market-positioning/.

"Market Positioning | Business | Tutor2u". Tutor2u, 2020.

https://www.tutor2u.net/business/reference/market-positioning.

Wilkinson, Jim. "Market Positioning Definition | Positioning A Brand | Repositioning". The Strategic
CFO, 2020. https://strategiccfo.com/market-positioning/.

https://www.managementstudyguide.com/targetmarket

https://www. marketing91.com/target-market-selection

https://www.segmentationstudyguide.com/understanding-target-markets/target-market-selection/
 C: Answers may vary B: A:
6. D 1. Location
7. E 2. Cost-based approach
8. A 3. Allowances
9. F 4. Market Skimming
10.C 5. Oligopoly
Gauge
Monopsony
Activity 3 -A: Oligopsony
Answers may Pure Competition
vary Oligopoly
Pure Monopoly
Activity 3 -B: (Buyer) (Seller)
Buyers Sellers Situation
Answers may control Control
No. of No. of Competitive
vary
Degree of Degree of
Deepen
BUYER BASED
Perceived Value
Pricing
Price –Quality
Relationship
Loss-Leader Pricing
Odd-Numbered Pricing
Price-Lining Pricing
Activity 2-B: COMPETITION BASED
Going Rate Pricing
PRICING 1. B
Sealed Bid Pricing
APPROACHES 2. B
3. D
A. COST- 4. D
BASED Activity 2-A: 5. C
Cost Plus Pricing 6. B
Pricing Objectives 7. B
Target Rate of Profit Oriented 8. C
Activity 1: 9. C
Return Sales Oriented
A. Answers may 10. B
Pricing Status-Quo
vary
Explore Jumpstart Pre-Test
Answer Key