WORDS TO STUDY

Mark-up - represents the difference

between what is paid for the
merchandise and its end price to the
clients.
Pattern - refers to an outline or model
of one thing.
Price - indicates value of a
commodity or service in the form of
money.
 WORDS
–
TO STUDY
Product - the result of the
input and process in the form
of output.
Services - is a type of
business that has no product
but purely services.
Strategy - is an approach or
method used in business.
 Pricing strategy is a part of the pricing
system wherein the government becomes
alert against those who are abusing and
making unreasonable prices. Keeping an
enterprise pattern when it comes to pricing
of commodities and services, serve as guide
for the entrepreneurs to understand how
their prices are computed objectively.
However, lowest price approach is the most
risky activity in pricing and it should be
avoided.
–
The key secret of the
–
business firms to compete
for the price is through the
various pricing strategies.
Giving focus on the
competition for cleanliness,
convenience, delivery, easy
credit options, guarantees,
quality, safety and service
are only secondary
concerns.
PRICING STRATEGIES:
Value-based pricing (price increases when there are evident
results)
 Posting P9.95 instead of P10; P24.50 instead of P25.00; and
others
 Value pack (mixture of clustered products with varied prices
in one
pack or bag)
 Cost-plus-pricing method (setting up price targeting specific
profit)
 High Price Approach aiming to set quality and status. It is
also called
as prestige strategy
 Penetration market is common to the new entrepreneurs.
They are
doing it in order to establish market and build up more
customers.
 Free tasting (Sampling Approach)
 Result pay scheme (Trial Method)
 Before you do the final pricing, you have to
know the value of the total revenues (TR) and
the total costs (TC). When TR is greater than
TC, your business gained profit. If the TR is
lesser than TC, it is loss. In instances that the
TR and TC are equal, there is neither profit nor
loss. It is called break-even. Break even
analysis is used as an instrument or a tool to
solve managerial problems helpful among
business leaders and economists.
 1. Percentage Allocation Approach
(PAA). This is good for product
MODELS business. Decide for the percentage
value to be added to the actual cost
IN of your product or service.

PRICING T-Shirt = P55.00

A.Unit Cost of Product (UCP), TVE

GOODS Target Profit in Percent (TPP) =40%

AND COMPUTATION = UCP + TPP

= P55.00 x .40

SERVICES = P55.00 + P22.00

UNIT PRICE = P77.00

B. Volume Cost of Product (VCP),
TVE T-Shirt by Volume Target
Profit (VTP) per dozen of
Quantity (Q):

1 to 5 dozens = 38%
6 to 10 dozens = 35%
11 to 15 dozens = 32%
16 dozens & above = 30%
COMPUTATION for 1 to 5 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP x Quantity (Q)

= P55.00 + 38% x 60
= P55.00 + 20.90 x 60
= P75.90 x 60
VOLUME PRICE = P4, 554.00
UNIT PRICE = P75.90

COMPUTATION for 5 to 10 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP x Quantity (Q)

= P55.00 + 35% x 120
= P55.00 + 19.25 x 120
= P74.25 x 120
VOLUME PRICE = P8, 910.00
UNIT PRICE = P74.25
2. Average Mark-up Approach (AMA). This is appropriate to the
service type of business. Mark-up consists of damaged merchandise,
employee discounts, markdowns, operating expenses, profits and
shortages. This is common in industries but differ in the way they
execute it supported by company rules and policies.

Here is how to compute for the pricing of a service type of

business.

a. Assume that you are operating a laundry service business

b. Decide for 60% profit against actual cost of every laundry service,
where 20% intends to support and finance some operating
expenses like damaged merchandise, employee discounts,
markdowns, operating expenses, profits and shortages.
C. Consider a 40% mark-up to be added to the cost of the
service

Price of laundry service per kilo:

Cost of laundry = P20.00

General Mark up = 60%
*40% Target Profit (TP); 20% Operating Expenses(OE)

PRICE = Cost of laundry + TP + OE

= P20.00 + 40% + 20%
= P20.00 + P8.00 + P4.00
= P32.00
When you compute for 5 to 10 kilos (maximum
based) of laundry service, rendered to a single
client, you may charge her/him with a friendly
discount of 5% from the total charge. When
you do it, it will not bring any business loss to
you but an investment of a good reputation
and goodwill.
Let us find out how much you will
sacrifice to invest for a possible goodwill
using the data above:
Unit price per laundry service P32.00 x 10
kilos -5% discount/10
= P32.00x10-5% /10
= P320.00-P16.00/10
= P30.40
Therefore, goodwill investment capital for
10 kilos of laundry service is only P1.60
(P32.00 unit price less P30.40 discounted
price) per kilo of laundry service rendered to
your customer.

It is suggested that the following goodwill

investment package chart be applied on
your laundry business. You may also change
it for further improvement of your services:
a)100% service fee of P32.00 per
kilo of laundry

b)5% discount from 5 to 12 kilos of

laundry

c)10% discount from 13 kilos and

above of laundry
LET US REMEMBER
As a future entrepreneur,
you have to value the
importance of honest and
accurate computation in
pricing. Pricing policy will
help every entrepreneur.
The use of models or
standard samples of
computation will facilitate
the correct pricing
procedure.