Republic of the Philippines

Department of Education
Region V SHS
Division of Sorsogon

PRINCIPLES OF MARKETING
Quarter 4, LAS 10, Week 10
Price, New Product Pricing and Approaches

Name of Student: __________________________________________________

Learning Area-Grade Level: ________________________________________
Date: _________________________________________

I. Introductory Concept

This Learning Activity Sheet covers the second of the four P’s of marketing
(marketing mix), Price, and includes issues such as setting prices, new product pricing
and general pricing approaches. The primary takeaway that you should have after going
through this module is that price is not just means for generating profit but rather price
can be used to help communicate the nature of the product to the market.
II. Learning Competencies

Identify and describe the factors to consider when setting prices and new product pricing
and its general pricing approaches. (ABM_PM11-IIae-17)
After going through this Learning Activity Sheet, you are expected to:
1. Identify factors to consider when setting prices
2. Discuss new product pricing; and
3. Explain general pricing approaches/strategies.

III. Activities

A. LET US STUDY

Price
Price is the value measured in money term in the part of the transaction between two
parties where the buyer has to give something up (the price) to gain something offered by the
other party or the seller.

SETTING THE PRICE – Let us now attempt to understand the process of how firms set
prices. When does a firm set prices? A firm must set a price for the first time when it develops
a new product, when it introduces its regular product into a new distribution channel or
geographical area, and when it enters bids on new contract work. Is setting prices easy? It
involves making a number of guesses about the future. You would want to know how an
organization proceed? It follows:

1. Identify the target market segment for the product or service, and decide what share of it is
desired and how quickly.
2. Establish the price range that would be acceptable to occupants of this segment. If this
looks unpromising, it is still possible that consumers might be educated to accept higher price
levels, though this may take time.
3. Examine the prices (and costs if possible) of potential or actual competitors.

4. Examine the range of possible prices within different combinations of the marketing mix
(e.g. different levels of product quality or distribution methods).

5. Determine whether the product can be sold profitably at each price based upon anticipated
sales levels (i.e. by calculating break-even point) and if so, whether these profits will meet
strategic objectives for profitability.

6. If only a modest profit is expected it may be below the threshold figure demanded by an
organization for all its activities. In these circumstances, it may be necessary to modify
product specifications downwards until costs are reduced sufficiently to produce the desired
profit.

An organization goes through the following steps in setting its pricing policy.
Price is the amount of money that your customers have to pay in exchange for your product
or service. Determining the right price for your product can be a bit tricky.

A common strategy for beginning small businesses is creating a bargain pricing impression by
pricing their product lower than their competitors. Although this may boost initial sales, low
price usually equates to low quality and this may not be what customers to see in your
product.

Your pricing strategy should reflect your product’s positioning in the market and the resulting
price should cover the cost per item and the profit margin. The amount should not project
your business as timid or greedy. Low pricing hinders your business’ growth while high
pricing kicks you out of the competition.

There are a number of pricing strategies that you can follow. Some strategies may call for
complex computation methods and others are intuitive decisions. Select a pricing strategy
that’s based on the product itself, competitive environment, customer demand, and other
products that you offer.

Penetration Pricing

A low price is set by the company to build

up sales and market share. This may be done to
establish position in a market with preexisting
similar products on offer. Once a position is
created, the prices may be raised. A satellite
channel provider may offer an introductory price
and then increase as business grows.

Skimming Pricing

Here, the initial price is set high and may slowly

be brought down. This will allow the company to introduce the product step by step to
different layers of the market. Electronic and tech gadgets often start at a very high price
which is subsequently lowered with the lowest point reached right before a new model is
launched.

Competition Pricing

When trying to go head to head with competitors offering similar benefits, a company may
decide to:
a. price higher to create a higher quality perception or to target a niche market
b. price the same to show more benefits for the same price
c. price lower to try to gain a wider customer base

Product Line Pricing

Here, different products in the same range may be set at different prices. Television sets are
priced differently depending on whether they are HD or not, whether they have wifi features
of not and whether they are 3D or not.

Bundle Pricing

A group of products may be bundled together and sold at a reduced price. Supermarkets often
use this method through their ‘buy one get one free’ offers.
 Psychological Pricing

Often a company will make small changes to prices to make a customer think the item is
priced lower than it is. This is often seen in prices ending in 99. For example, an item market
199 will be perceived as closer in price to 100 than 200.

Premium Pricing
A high price is set to establish an exclusive product of high quality. Designer cars and
premium brand stores are a good example of this type of pricing.

Optional Pricing

A company may add optional extra items within the price to increase a product’s
attractiveness. For example, car sellers may offer car insurance for the first year.

Cost Based Pricing

Simply, a company may determine the exact cost of producing and selling an objective, add a
markup that may be desirable for profits and price accordingly. This method may be used in a
changing industry where even costs of production are unpredictable.

Cost Plus Pricing

A percentage is added to the costs as a profit margin to determine final price.

B. LET US PRACTICE

Exercise 1. Direction: Arrange the following event in chronological order by writing the number
concern in the blank provided.
C. LET US REMEMBER

Price is the money, good or service exchanged for the ownership or use of a good or service. It
is customary to quote price in many ways.

After product, pricing plays a key role in the marketing mix. The reason for this importance is
that where the rest of the elements of the marketing mix are cost generators, price is a source of
income and profits. Through pricing, the organization manages to support the cost of production, the
cost of distribution, and the cost of promotion.

Pricing the product or service is one of the most important business decisions you will make.

You must offer your products for a price your target market is willing to pay – and one that
produces a profit for your company – or you won’t be in business for long.

“Price should never be just about cost plus markup. It should also be a tool for communication
and for strategy.”

D. LET US APPRECIATE

Exercise 2. Direction: Tick (/) the sentence that expresses what is true about pricing.

_________1. When trying to go head to head with competitors offering similar benefits, a company
may decide to price lower to try to gain a wider customer base.
_________2. Low pricing is good for a business growth.
_________3. Designer cars and premium brand stores are a good example of optional pricing.
_________4. Select a pricing strategy that’s based on the product itself, competitive environment,
customer demand, and other products that you offer.
_________5. A common strategy for beginning small businesses is creating a bargain pricing
impression by pricing their product higher than their competitors.

E. EVALUATION

Exercise 3. Directions: Think and Match. Look for the best match of pricing strategies from the
given responses inside the word pool.
 IV. Answer Key

Let Us Practice Let Us Practice More Evaluation

Exercise No. 1 Exercise No. 2

What I Can What is It: 1.Penetration
Do: 1./ 2.Cost plus
a.4 3.Bundle
2. 4.Skimming
b.2
c.6
3. 5.competition
d.1 4./
e.3 5.
f.5

V. References

2020. Erucult.Files.Wordpress.Com. https://erucult.files.wordpress.com/2011/02/24274231.jpg.

Acutt, Mark. 2020. "Price - Marketing Mix Pricing Strategy". The Marketing Mix.
https://marketingmix.co.uk/price/.

Alcoran Alaric Brian. 2018. Principles of Marketing. Philippines: Bookline Publishing Corporation.

Prepared by: Validated by:

MICHAEL F. AREVALO DAISY G. ERESTAIN

Bulan National High School Casiguran Technical Vocational School

JESSICA B. LIM
Bulan National High School