Marketing Mix (4P’s)

“Price”
Punzalan, Natalie Rose O.
MBA
PRICE
Price has multiple interpretations and definitions one of it that encompasses the
concept of price is as follows:

“Price is the amount of money charged for a product or service. It is the sum of
all the values that consumers give up in order to gain the benefits of having or
using a product or service.”

 “Price is the value placed on what is exchanged.

Something of value is exchanged for satisfaction and
utility, includes tangible (functional) and intangible
(prestige) factors.”
 Pricing Process

Step 4:
Step 1: Step 3: Analyzing Step 5: Step 6:
Selecting Step 2: Competitors’ Selecting a Selecting
Determining Estimating the Final
the Pricing Costs, Pricing
Demand Costs Prices, and Price
Objective Method
Offers
Step 1. Selecting the Pricing Objective

Pricing objectives are the goals that guide your business in

setting the cost of a product or service to your existing or potential
consumers

Survival

Maximize current profit

Market share

Maximize market skimming

Product - quality leadership

Step 1. Selecting the Pricing Objective

Survival
- Pricing is aimed at survival with a hope for growth in the
future.  Under this objective, pricing can be flexible – prices are
lowered in order to increase sales enough to keep the business going.

Maximize current profit

- companies estimate the demand and costs associated with
alternative prices and choose the price that produces maximum
profits, cash flows and return on investment.

Market Share
- companies believe that a higher sales volume will lead to lower
unit costs and higher long run profits. Hence they set the lowest
price .. often termed as penetration pricing
Step 1. Selecting the Pricing Objective

Maximize market skimming

- the company unveiling the new technology favor setting high prices
to maximize market skimming. Here the price start high and slowly drop
over time.

Product - quality leadership

- is where a company aims to provide the best quality product in the
market, and therefore charges more than its competitors. These companies
are usually the market leaders.

What is the difference between Product-quality leadership and survival

pricing?

Product Quality leadership is intentionally setting high prices while survival

pricing is intentionally lowering the price.
 Step 2. Determining Demand

• Price sensitivity (also called the elasticity of demand)

-is the degree to which demand changes when the cost of a
product or service changes.

Price Sensitivity= % change in Quantity Demanded

% Change in Price

Example:
Say that a clothing company raised the price of one of its shirts from 100
to 120. The price increase is 120-100/100 or 20%. Now let’s say that the
increase caused a decrease in the quantity sold from 1,000 shirts to 900 shirts.
The percentage decrease in demand is -10%. Plugging those numbers into the
formula, you’d get a price elasticity of demand of:

Price Sensitivity = -10% / 20%

= -0.5 or 0.5
Step 2. Determining Demand

• If there is little or no change in demand, it is said to be

price inelastic.

Ex: Food, Prescription Drugs and Tobacco Products

• If there is significant change in demand, then it is said to

be price elastic.
 Step 3. Estimating Costs

Demand sets a ceiling on the price the company can charge for its
product. Costs set the floor.

A company’s costs take two forms, fixed and variable.

Fixed costs, also known as overhead, are costs that do not vary with
production level or sales revenue.

Variable costs vary directly with the level of production.

Step 4. Analyzing Competitors’ Costs,
Prices, and Offers

Within the range of possible prices determined by market demand

and company costs, the firm must take competitors’ costs, prices,
and possible price reactions into account.

The firm should benchmark its price against competitors, learn

about the quality of competitor’s offering and learn about
competitor’s cost.
Step 5. Selecting a Pricing Method

The following are the basic policies recognized in pricing:

1. Cost-oriented pricing policy

2. Demand-oriented pricing policy

3. Competition-oriented pricing policy

 Cost-oriented pricing
Cost-oriented pricing is the most elementary pricing method. It involves the
calculation of all the costs that can be attributed to a product. whether variable or
fixed. and then adding to this figure a desirable markup as determined by
management.

Pricing Strategy
i. Markup Pricing
ii. Target Pricing
iii. Break-Even Pricing
 i. Markup
Pricing
-is a simple pricing method where a fixed percentage is added on top of the production cost for one
unit of product . This pricing strategy ignores consumer demand and competitor prices .
Markup Price = Selling Price – Unit Cost

Markup Percentage = Selling Price – Unit Cost

Unit Cost
100

ii. Target Pricing

-is the process of estimating a competitive price in the marketplace and applying a firm's
standard profit margin to that price in order to arrive at the maximum cost that a new product can
have.
 iii. Break-Even Pricing
-is the practice of setting a price point at which a business will earn zero profits on a sale.
The intention is to use low prices as a tool to gain market share and drive competitors
from the marketplace

BEP= (Total fixed cost / Production unit volume) + Variable cost per unit

Example: BEP = (Php50,000 fixed costs / 10,000 units) + Php 5.00 variable cost
= Php 10.00
 Demand-oriented pricing
-is any pricing method that uses consumer demand as the central element. Pricing factors
are manufacturing cost, market place, competition, market condition, and quality of the
product. These include: price skimming and penetration pricing.

Pricing Strategy

Price Skimming Penetration Pricing

 -is a pricing strategy in which a marketer  -is the pricing technique of setting a
sets a relatively high price for a product relatively low initial entry price, often
or service at first, then lowers the price lower than the eventual market price, to
over time. attract new customers
 Competition-oriented pricing

-is 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.

Pricing Strategy
Premium Pricing
-is a pricing strategy has the advantages of
producing higher profit margins, creating
tougher barriers to entry for competitors,
and increasing the brand's value for all the
company's products.
Discount Pricing ..
-is a pricing strategy where you mark
down the prices of your merchandise.
The goal of a discount pricing strategy
is to increase customer traffic, clear old
inventory from your business, and
increase sales
 Types of Discounts
Loyalty Member Discount Promotional discounts
- gives incentives on price or extra - this are discounts you offer for a limited time.
benefit or discounted rates for Some businesses choose to offer promotions
customers during holidays or other big events

Seasonal discounts Volume discounts

- used all the time and are potentially useful -with a volume discount pricing strategy, you offer
tool to help a business manage its uneven customers a discount when they buy in bulk. You give
revenue and ensure inventory turnover customers a discount when they purchase more
merchandise
 Step 6. Selecting the Final Price

Pricing methods narrow the range from which the company must
select its final price. In selecting that price, the company must
consider additional factors:

 Impact of other marketing activities

 Company pricing policies
 Impact of price on other parties
 Factors Influencing
Pricing Decision
Internal Factors External Factors

Demand
Company Objectives
Competition
Organization Structure
Buyers
Marketing Mix
Suppliers
Product Differentiation
Economic Conditions
Cost of the Product
Government Regulations
 Internal Factors
Company Objective

A company objective is a goal or outcome that you

want your organization to achieve.

This has considerable influence on the pricing

decisions of a firm. Pricing policies and strategies
must be in conformity with the firm’s pricing
objectives.
 Internal Factors
Organization Structure

The top management has full authority for framing

pricing objectives and policies. Some firms allow
workers’ participation in decision making and
therefore in such firms, all the employees give their
views and suggestions for the pricing policy. This is
helpful to the firm if the firm has several products,
requiring frequent pricing decisions and where prices
differ in different markets.
 Internal Factors
Marketing Mix

The marketing mix has been defined as the "set of

marketing tools that the firm uses to pursue its
marketing objectives in the target market”.
The pricing policy of a firm must consider the other
components of a marketing mix as well, because
these factors are closely related. Moreover, these
factors will change according to changing market
conditions and will be different for each market. 
Internal Factors
Product Differentiation

It is the process of distinguishing

a product or service from others, to make it
more attractive to a particular target market. This
involves differentiating it from competitors' products
as well as a firm's own products
Internal Factors
Cost of the Product

Pricing decisions are based on the cost production. If

a product is priced less than the cost of production,
the firm has to suffer the loss. But the cost of
production can be reduced, by coordinating the
activities of production properly, the firm can reduce
the price accordingly.
 External Factors
Demand

Demand is an economic principle referring to a

consumer's desire to purchase goods and
services and willingness to pay a price for a
specific good or service.

Competition
Competition is the rivalry between companies selling
similar products and services with the goal of
achieving revenue, profit, and market share growth
 External Factors
Buyers
Buyer is the entity that decides to obtain the product.
A buyer's primary responsibility is obtaining goods of
acceptable quality at a suitable price.

Suppliers

A supplier is a person, organization, or other entity

that provides something that another person,
organization, or entity needs.
 External Factors
Economic Conditions
Economic conditions are measured by economists
and analysts and take the form of quantifiable
economic indicators

Government Regulations
It is a law that controls the way that
a business can operate, or all of these laws
considered together
Thanks!