Product line - a group of products that

are closely related because they function

in a similar manner, are sold to the same
customer groups, are marketed through
the same types of outlets, or fall within
given price ranges.
Price is the amount of money asked or given for
―something‖.

• It comes in different names. A lessor calls it rent,

schools call it tuition, employees call it wages, banks
call it interest, lawyers and doctors call it professional
fee, and even fixers call it ―consul-tancy fee‖.

• Pricing is the twin component of product quality which

when combined make up what is called product value.
 Pricing has the dual marketing function of
1. Making products affordable to its target market
2. Reflecting the value of the product.

Take a cup of coffee as common example.

A cup of coffee in a canteen may only cost P20 but may
cost ten times more if ordered in a 5-star hotel as it
reflects the value of the product given the ambience of
the hotel.
To make the price of a product affordable and attractive to more
customers, firms offer installment plans, for example:

• By firms in franchising like McDonald’s and Generics

Pharmacy to accelerate the growth of the number of
their stores versus competition.

• By retailers like BLIMS furniture using credit cards to

make their products more affordable by way of no
interest over three-to 12-month installment
periodically.
Pricing strategy can be defined as ―a reasoned choice
from a set of alternative prices (or price schedules) that
aim at profit maximization within a planning period in
response to a given scenario‖ (Gerard Tellis, 1986)
• Caterpillar is priced 15 to 50% above its Japanese counterpart
because it has extended warranty, longer life span, and a buy
back provision with high resale value.
• Airlines like Philippine Airlines and Cebu Pacific Air have
different pricing for early booking and walk-in passengers
where rates are much lower when flights are booked way
ahead of time.
Nowadays, pricing is a major tool for business
model innovation.

• Software can be offered free of use in anticipation of

upgrades to premium version (also known as
―freemium‖ strategy)

• Mobile phones can be given for free in exchange for

receiving a few texts or MMS advertising daily.
 Internal Factor 1: Product Cost
• Cost – Based Pricing Strategy (Mark-Up and Target Profit
Strategy) – used when there is relatively little, if any, direct
competition (which is rare) or when buyers are not price-
sensitive.
• Cost-plus pricing (markup pricing) – simplest pricing method;
adding a standard markup to the cost of the product.
• Target Profit Pricing – prices are set towards attaining a
satisfactory rate of return.
 Types of Costs
• Fixed Costs (Overhead) - are costs that do
not vary with production or sales level.

For example, a company must pay each month’s bills for

rent, heat, interest, and executive salaries—whatever the
company’s output.
 Types of Costs
• Variable Costs - vary directly with the level
of production.

Each PC produced by HP involves a cost of computer

chips, wires, plastic, packaging, and other inputs.
Although these costs tend to be the same for each unit
produced, they are called variable costs because the total
varies with the number of units produced.
 Types of Costs
• Total Costs - sum of the
fixed and variable costs.
 Major Pricing Strategies
2. Value – Based Pricing - Setting
price based on buyers’ perceptions of
value rather than on the seller’s cost.
 3. Competition – Based Pricing

• Setting prices based on

competitors’ strategies,
prices, costs, and market
offerings
 Two common ways in setting prices in
competition – based pricing strategy
1. Going Rate – marketers begin and work within the
prevailing market price.
 commodities like gasoline have similar prices except for self-
service stations, which charge a little less.
 firms can price their products lower than the going rate, or
price their product at parity with competition and emphasize
their product value.
 Two common ways in setting prices in
competition – based pricing strategy
2. Sealed bid – marketers price their product or service
depending on how competitors are expected to price
theirs.

 most of the time, this pricing policy is required by

government offices.
 In assessing competitors’ pricing strategies, the
company should ask several questions:
• How does the company’s market offering compare with
competitors’ offerings in terms of customer value?
• How strong current competitors and what are their
current pricing strategies?
• What principle should guide decisions about what price to
charge relative to those of competitors?
 Price Adjustment
When to increase price When to cut price
Lower Cost (Supplies or Raw
Inflation
Materials)
Foreign Exchange Falling Market Shares
Shortages Excess Capacity
Product Repositioning Excess Inventory
When to sell below cost Discourage Competition
Socialized Pricing (Price
Perishable Goods
Discrimination)
Phase-out Products New Market Segment
Damaged Products Availability of New Substitutes

Subsequent Sales
Competitive Trends
Increase Competitive
Vulnerability (or decrease
competitive strengths)
• The brand equity concept is like the owner’s
equity concept. While owner’s equity refers to
the net worth of a company, brand equity refers to
the net worth of a brand.

• The idea is that brands have a value of their own

and are not solely ―owned‖ by the company but
are shared with consumers through an on-going
relationship.