DPM 30043 : PRICING

CHAPTER 4:
PRICE CHANGE
ADJUSTMENT
PREPARED BY :
HASLINA BINTI ABU BAKAR
LECTURER OF COMMERCE DEPARTMENT
POLIMAS
At the end of this topic, students will able to:

4.1 Explain function to price change

4.2 Describe initiating and responding to price changes
4.2.1 Explain the price cuts
4.2.2 Explain the price increases
4.3 Determine reaction of consumers and competitors price change
4.4 Discuss responding to competitors’ price changes
4.5 Identify the price adjustment strategies
a. Discount and allowance pricing
b. Segmented pricing
c. Psychological pricing
d. promotional pricing
e. Geographical pricing
f. Dynamic pricing
g. International pricing

4.6 Identify external factors influencing price change adjustment

a. Economy
b. Government
c. Technology
d. Supplier
e. The market demand
 What is ?
1
A price change is the permanent change in the price of an item.

Companies are bound to face market situations where they are

required to2initiate price changes.

It means, either they are to cut the prices or increase the present
prices 3
to survive, maintain current price or further growth.

Initiating price changes involves two

4 of price cuts
possibilities
and price increases.
 FUNCTION TO
1
After developing their price structures and strategies,
companies often face situation in which they must initiate price
changes or response to price changes by competitors.
2
This situation occurred because the firms have to react towards
competitors price changes.
3

4
 INITIATING PRICE CHANGES
An organization may initiate price changes to deal with new forces
arising within the organization or the market.
The price change may occur at both directions: increasing price or
lowering prices.

PRICE CUT PRICE INCREASE

a reduction in the price of a good or An incremental in the price of a good or
service or the price of merchandise to service or the price of merchandise to
one lower than the usual or advertised one upper than the usual or
price advertised price

Price cut due to: Price increase due to:

a) Excess capacity a) Increase profit
b)Increase market share b)Lack of stock
c) Dominate market through lower cost c) Increase of demand
 COMPETITORS REACTION TOWARDS
PRICE CHANGES
A price rise that no competitor follows may turn customers away to competitors’
offerings. A price cut that is met by the competition will not result in increase in
1
sales of the initiator but may reduce industry profitability.

A company’s reaction to another company’s price moves is dependent on its

strategic objectives. A company is likely to follow price increase of its
2
competitor if its strategic objective is to hold or harvest. It will be able to
realize higher revenues without customers viewing it as a company which
instigates price rise.

If a company has excess capacity, it will follow the price cut of a competitor
because otherwise its customers will switch, which it cannot afford in view of
its already having excess capacity.

If a company raises price due to rise in inflation, competitors will follow suit
4
because they too are being affected by rise in inflation, and also because
customers expect prices to go up when there is rise in inflation.
 BUYERS REACTION TOWARDS
PRICE CHANGES
Product is more exclusive or better made

Company are going to raise up their profit in short term period

PRICE
INCREASE Company is greedy

Product is in a high demand or ‘hot’

Brand want to get a better deal on an exclusive products

PRICE
Product’s quality have been reduced
CUT
Company is trying to grab a larger market share
 PRICE
ADJUSTMENT
STRATEGIES
PRICE ADJUSTMENT STRATEGY DESCRIPTION

Discount and Reducing prices to reward customer responses such as paying

allowance pricing early or promoting the product

Adjusting prices to allow for differences in customers,

Segmented pricing
products or locations

Psychological pricing Adjusting prices for psychological effect

Promotional pricing Temporarily reducing prices to increase short-run sales

Adjusting prices to account for the geographic location of

Geographical pricing
customers

Adjusting prices continually to meet the characteristics and

Dynamic pricing
needs of individual customers and situations
International pricing Adjusting prices for international markets
 ECONOMY
GOVERNMENT EXTERNAL FACTORS
FACTORS FACTORS
INFLUENCING
PRICE
SUPPLIERS ADJUSTMENT
MARKET
FACTORS DEMAND
TECHNOLOGICAL FACTORS
FACTORS
 DEFLATION
Deflation is a persistent decline in the prices of goods and services
usually caused by slowing market demand with a level supply.
Purchasing power increases as a result of stagnant demand,
fixed-income securities become more appealing, and producers
ECONOMY
FACTORS

must lower their prices to compete for the limited demand.

INFLATION
Inflation is the economic condition characterized by continuously
rising prices for goods and services. As a result, the purchasing
power of a country's currency deteriorates as its value decreases
and interest rates rise.
 Demand for the products or services will have a great
influence on price.

Generally, the higher demand for your product, the higher

firm can price for product and services. Demand can also be
influenced by price. For example, lowering the price of a
product can increase demand temporarily.
FACTORS
MARKET
DEMAND

Price is the most crucial factor that affect the Market

Demand of a commodity.
As per the law of demand as the price of a Commodity rises
it's demand falls and as prices falls the demand increases.
( Ceteris paribus)
This makes sense as well because when the price of a
commodity ( say Potatoes ) rises the commodity becomes
expensive and the consumers willingness to buy that
commodity also falls thereby leading to a fall in demand.
 Government regulations
Depending on industry or how global the market is, local and
international regulations can sometimes influence the pricing
decisions.

For detailed information on pricing regulations, the firm will

GOVERNMENT

refer to rules and regulation of the country in term of import

FACTORS

and export.

Governments in most countries use three major tools to

intervene in market trading:
 Imposing a purchase tax.
 Providing subsidies.
 Setting minimum and maximum prices for specific goods.
 Technology also plays an important role in manufacturing,
and this role also impacts the pricing of the product.

Technology can improve the manufacturing process,

inventory control and automation.
TECHNOLOGY
FACTORS

By considering the savings and costs

of these technological advances, firm
can determine an appropriate price for
the product based on the actual
manufactured cost.

Technology can create a quality product which will due to in-

crease in price and some of the product can be produced in mass
which can reduce the cost which due to price cut.
 In many situations, if a supplier's markup percentage
was too high, customers would buy the goods or
services elsewhere.

So, the pricing of competing suppliers will force

some
SUPPLIERS
FACTORS

suppliers to limit their markup in order to match or

beat competitors' pricing.

Supplier factors will give impact to price changes in

term of cost for the raw material.
If the cost from suppliers is low,
the price for the product is low
and vice versa.
Thank
you