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LOGO Contents
LOGO
Definition of price
Chapter 6 Factors to consider when pricing
PRICE
Pricing objectives
STRATEGIES
Pricing methods

Pricing strategies

Price modification strategies

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1. Definition of price

• Price is the amount of money charged for a product

or service, or the sum of all the values that
customers exchange for the benefits of having or
using the product or service
• Price is the only marketing mix factor that brings to
the firm
• The most flexible marketing mix factor in 4P

2.1. The price vs the cost

• The price must be greater than the cost.

• The case in which the price is lower than the
cost:
1000 products
Cost of goods sold (COGS) $3000
Price $5
In which circumstance can we sell the
products for under $3 and still make profit?

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2.2. The price customers accept 2.3. Competitors' prices

• We need to know where we are in consumers'

price range • should be equal to competitors' price with small
difference
• Example: sponge cakes (size 20cm)
• The price difference must be for a good reason
Kinh Đô, Đức Phát 35,000 VND
• Example: if the competitor sells a cake for 24,000
Average stores 32,000 VND VND, we should sell a cake for 23,000 - 25,000
Kiosks in markets ? VND

2.4. Product quality 2.5 Scarcity

• The higher the quality is, the more expensive • Scarce goods can be sold at a high price
the product is. • If customers can't find alternatives for a
• The source of the materials to make a product product within an area, the product can be
will tell us the price of the product. sold at a high price.
• Example: a shirt made from high quality fiber
is more durable and expensive than normal
shorts.

2.6. Short and long -term strategies

• Prices change in accordance with Marketing

strategies
• Example: a cheap price at the start to attract
customers and then gradually increase the
price when customers are used to the product

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3.1. Survival 3.2. Maximizing profit

• Low prices to retain customers
• Survival is more important than profit
• Apply when the competition is fierce and
customers' needs change rapidly
• High price to recover costs and get greatest
profit
• When the intangible value of the product or
service is too high, it will supress the high
price.
• When do you buy a product that you clearly
know it's expensive?

3.3. Market share leader 3.4. Quality leader

• cheaper price, more customers • High prices to recover R&D, design and testing
• When the sales volume is high, the cost per costs
product unit will fall

3.5. Other objectives

• Prevent new competitors from entering the

market
• Stablize the market, avoid price war
• Maintain intermediaries' loyalty
• Avoid the government's interference

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4.1. Cost-plus pricing 4.1. Cost-plus pricing

• Price = COGS + COGS x a% Company A manufactures washing powder X. The
• Advantages: product is distributed through a wholesaler and a retailer
– easy and fast calculation and then to consumers. Its retail price is 31,200 VND for
– Costs arising during sales are included in the profit each pack and company A's manufacturing cost is 10,000
percentage VND. The retailer's and wholesaler's retail mark-up on
costs are 30% and 20% respectively.
• Disadvantages:
a. How much are the retailer's and wholesaler's costs?
– inflexible, unsuitable for products whose prices
change according to the change in the supply and b. How much is company A's percentage mark-up?
demand of the market
• Apply for products that are slow to change prices or
must be sold within a day after production.

4.2. Break-even analysis and target 4.2. Break-even analysis and target
profit pricing profit pricing
• Target price = Unit costs + Target profit/Expected
Break-even volume formula:
comsumption quantity
• Break-even volume formula: FC
BEV 
BEV 
FC P  VC
P  VC
• BEV: break - even volume
– BEV: break - even volume
• FC: fixed costs
– FC: fixed costs
• VC: variables costs
– VC: variables costs
• P: price
– P: price

4.2. Break-even analysis and 4.2. Break-even analysis and target

target profit pricing profit pricing
Company B manufactures product Y
- VC = 10,000 VND/unit
- FC = 300,000,000 VND
- IRR = 20%
- Investment: 1,000,000,000 VND
- Qexp = 50,000 units
1. Calculate the price to reach target profit
2. If cut or raise the price by 2000/unit -
calculate Q to reach the target profit

4

4.3. Perception-based pricing
• Price = COGS + buyer's perception
• If the customer is interested in the product,
the seller may charge a high price
• If the customer isn't interested in the product,
the seller should charge the original price.
• High quality products are expensive
• Example: When Apple launched iPhone, people used
• Market-skimming pricing : setting a high price for a new
• Purpose:
5.1. Innovative new product pricing
• Conditions:
– the product’s quality and image must support its
higher price
– enough buyers must want the product at that price
– the costs of producing a smaller volume cannot be so
high that they cancel the advantage of charging more
– competitors should not be able to enter the market
easily and undercut the high price.
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4.4. Competition-based pricing
• Competition-based pricing involves setting
prices based on competitors’ strategies, costs,
prices, and market offerings.
• Fast Moving Consumer Goods (FMCG) often
apply this pricing method, for example,
bottled water
5.1. Innovative new product pricing
button mobile phones
product to skim maximum revenues layer by layer from
those segments willing to pay the high price.
→ the company makes fewer but more profitable sales
– to skim maximum profit from each segment
– to quickly recover costs before competitors enter the
market
– to take advantage of the rich who love showing off
5.1. Innovative new product pricing
• Market-penetration pricing: companies set a low
initial price to penetrate the market quickly and
deeply
• Purpose: to attract a large number of buyers quickly
and win a large market share
• Conditions:
– the market must be highly price sensitive
– production and distribution costs must decrease
as sales volume increases
– the low price must help keep out the competition,
and the penetration pricer must maintain its
lowprice position
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5.2. Imitative new product pricing 5.3. Product mix pricing

• Example: Samsung's smartphone was • Product line pricing takes into account the cost
Plaunched after Apple's iPhone differences between products in the line, customer
evaluations of their features, and competitors’ prices.
• Premium strategy: If your product is superior
• An old model camera costs 5,490,000 VND
and your brand is stronger, you can charge a
• A new model camera with new features: 6,490,000 or
high price.
10,490,000 VND?
• Average strategy: average products with
average prices.

5.3. Product mix pricing 5.3. Product mix pricing

• Optional product pricing takes into account • Captive product pricing sets
optional or accessory products along with the prices of products that must be
main product. used along with the main
product.
• Example: shaving razors &
razor blade cartridges
• The manufacturer only
• Apply when the competition is fierce advertises the main product
and then collects profit from Gillette Fusion Proglide
the captive product.

5.3. Product mix pricing 5.3. Product mix pricing

• Two-part pricing (or two-part tariff): a form of
pricing in which consumers are charged both an
entry fee (fixed price) and a usage fee (per-unit
price)
• Example:
– landline telephones: a fee to use the service ('line
rental') and a fee per call.
– amusement parks: admission fees and per-ride fees
• Product bundle pricing combines several
products at a reduced price.
• Because customers might not intend to buy
everything included in the bundle so the
combined price must be low enough to make
them buy the bundle.
• VD: package tour, laptop with many office
softwares, wedding package, etc.

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6.1. Discount and allowance pricing

• Cash discount: price reduction to buyers who

pay their bills promptly.
• When a firm sells goods to another business
customer, the customer won't pay money
immediately and will owe the firm → hold the
firm's fund
• Example: “2/10, net 30,” means that although
payment is due within 30 days, the buyer can
deduct 2 percent if the bill is paid within 10
days.

6.1. Discount and allowance pricing 6.1. Discount and allowance pricing

• A seasonal discount is a price reduction to buyers

• A quantity discount is a price reduction to
buyers who buy large volumes.
• Example: A customer buys 300 Pepsi boxes
each months. If the customer buys 500 boxes,
they will receive a 10% discount.
who buy merchandise or services out of season.
• Example: the peak demand of student notebooks is
in Aug, Sep, Jan, Feb and May
Aug: 8,000 VND/notebook
Oct: 10,000 VND/ notebook
• Purpose: encourage customers to buy during low
seasons
• → less capital stuck in inventory and transfer the risk
of damaged goods to customers

6.1. Discount and allowance pricing 6.1. Discount and allowance pricing

• Allowances are another type of reduction from

• A functional discount (also called a trade
the list price, including:
discount) to trade-channel members who
perform certain functions, such as selling,
storing, and record keeping.
– Trade-in allowances: price reductions given
for turning in an old item when buying a new
one. Examples: automobile industry and
other durable goods like TV or fridges
– Promotional allowances: payments or price
reductions to reward dealers for participating
in advertising and sales support programs.

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6.2. Segmented pricing 6.2. Segmented pricing

• Customer-segment pricing: different customers • Product-form pricing: different versions of the

pay different prices for the same product or product are priced differently but not according
service to differences in their costs
• Examples:
– bus ticket price: lower for students
– theme park ticket price: lower for children

48,000 VND 39,000 VND

6.2. Segmented pricing 6.2. Segmented pricing

• Location-based pricing: a company charges • Time-based pricing: a firm varies its price by
different prices for different locations, even the season, the month, the day, and even the
though the cost of offering each location is hour.
the same • Example: karaoke service price:
• Example: in a music show, front seats have Morning: 50,000 VND/hour
the highest price, side seats have a lower price Evening: 80,000 VND/hour
and back seats are the cheapest ones.

6.3. Psychological pricing 6.4. Promotional pricing

• In using psychological pricing, sellers consider the
psychology of prices, not simply the economics Promotional pricing is characterized by temporarily
pricing products below the list price, and sometimes
• Many customers see price as an indicator for qualities.
even below cost, to increase short-run sales. Examples
• Image pricing (premium pricing): prices are set higher include:
because it’s believed that a premium price would also
• special-event pricing
increase consumer desire. Customers are often willing to
pay higher prices for branded items because of the image • limited-time offers
associated with them. Examples: supercars, luxury bags... • cash rebates
• Digit '9': sales prices usually end with digit '9' → look • low-interest financing, extended warranties, or free
cheaper maintenance
• Reference prices—prices that buyers carry in their minds
and refer to when looking at a given product.

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