Republic of the Philippines

Department of Education
DIVISION OF CALAPAN CITY

PRINCIPLES OF MARKETING
GRADE 12/Week 1&2- 2nd Quarter

CONTENT STANDARD: The learners demonstrate an understanding of the essence of new product
development, pricing, placing (distribution), and promoting a product or service.
PERFORMANCE STANDARD: The learners shall be able to design a new product or service, decide types
of pricing approach, and choose distribution methods and promotion tools that respond to market trends.
MOST ESSENTIAL LEARNING COMPETENCIES: The learners;
> define a product and differentiates the product, services, and experiences. ABM_PM12- II a-e
>identify and describe the factors to consider when setting prices and new product pricing and its general
pricing approaches. ABM_PM12- IIa-e11
SPECIFIC OBJECTIVES: At the end of the lesson, you are expected to;
>define a product
>differentiate the product, services and experiences
>identify the factors to consider when setting the price to a new product
>enumerate the general pricing approaches
Diagnostic Test
Directions: Fill in the blanks with the correct terms.
1.The ___________ is the first element in the marketing mix.
2.The ______________serves to contain and protect, and, sometimes, identify and promote the product.
3._______________ is the display of information about a product on its container, packaging, or on the
product itself.
4.Mark-up pricing is a pricing strategy that allows the seller a _________________markup every time the
product is __________________.
5.________________________is a method that allows a product manufacturer to recover a certain portion of
his/her investment every year.
6._______________is defined as any paid and public presentation of products, services, or ideas, by an
identified sponsor through a ___________________.
7.Public relations is creating and maintaining _____________of an organization’s various publics (customers,
employees, investors, suppliers, etc.) through _______________ and other non-paid forms of communication.
8.Publicity is a _______________ written and produced by public relations professionals intended to create a
favorable public image for a client.
9.Personal selling occurs when an individual salesperson sells a product, service, or ___________ to a client.
10.___________________are activities or a series of activities, usually short-term, that are intended to
____________________the sales of a product or service.

Developing the Marketing Mix

The 4Ps of Marketing

LESSON 1 : 4Ps of Marketing PRODUCT

Lesson Overview
The product is the first element in the marketing mix. After identifying a need in the market, a
company may already have a product that is capable of satisfying the need.
 READ THIS…
In order to appeal to its customers, organizations must align all of the four elements of marketing mix (4P’s
Product, Price, Place and Promotion) effectively. All four elements must focus on the target market. They
should create value by satisfying the customers’ needs and wants. In this chapter, you will be able to learn more
about the four elements of marketing matrix. We will start by discussing the first element in the marketing
matrix, which is the product. After identifying need in the market, a company may have a product that is capable
of satisfying the need.

PRODUCT – is the first element in the marketing mix. After identifying a need in the market, a
company may already have a product that is capable of satisfying the need.

Physical products have several added components:

Packaging – the packaging serves to contain and protect, and sometimes, identify and promote the product. A
product’s packaging is different from its label. Product packaging has several purposes:
 It protects the product en route to the consumer.
 It makes product storage and display more practical and effective
 It preserves the product for further customer use.

When deciding on product packaging, the following must be considered:

1.How much quantity of the product should be contained in the package?
Through surveys and observations, the marketer must determine the quantity of a product preferred by
the customer. This can be based on the usage and consumption habits of the customer. The result
could be the number of pieces for a box of chocolates, milliliters for shampoo, or fluid ounces for
soda. Marketers must take into account that when products bought frequently are sold in single use
packages, the customer may need to buy every day. This increases the possibility of the customer to
switch to a competitor’s brand. For this reason, some manufacturers have resorted to large size
packaging.
2.What physical attributes should the packaging have to facilitate customer use?
The design of the packaging must consider how the product is used. In order to do this, marketers
must determine how a product is used after purchase. Considering product handling, storage, the
nature of the product, and its shelf life, what type of package should be used? Products that go through
high heat sterilization process are packaged in bottles, cans, or tetra bricks. Products like beer and
wines are packed in amber-colored bottles to protect their quality. Some products that require
reheating, such as ready-to-eat- meals, may be packaged in microwavable containers.
3. How is the product opened and dispensed?
For the convenience of consumers, marketers should consider fitting canned products with easy open
pull-tabs. Tear-off packaging usually has perforations for easier opening. Liquids such milk may
necessitate spouts that fold to make pouring easier. If the product is for multiple use, how can it be
resealed and stored? Ziplock packaging is one of the more popular way to preserve the freshness of
items, such as chips and other salty and savory snacks. Almost all bottled products have resealable
features. This is particularly true for beverages that used to be sealed with bottle cap or “crowns”,
which have slowly shifted to resealable plastic bottles.
4. What legal requirements must the package comply with?
Under the law, all product packaging must be secure, leak-proof, and safe for customers. Legal
requirements are particularly strict for pharmaceutical products. Tablets and soft gel capsules are
packed individually in blister packs, while those sold in large quantities are packed in child and
tamper-proof containers.
5. What is the most appropriate shape of the product packaging?
Normally, product manufacturers consider functionality and storage in deciding on the shape of their
packaging. For these reasons, most products that come in rigid packaging are square or rectangular in
shape. This makes product handling, shipping, and storage efficient, as these packaging shapes permit
the greatest quantity of units in product cases and shipping containers. Moreover, square and
rectangular packaging also maximize the households’ storage space as large amounts oof the product
can be cupboards and cabinet.

After studying consumer behavior and usage, some product manufacturers of personal and hair
care products like shampoo, containers, and cosmetics have discovered that their bottle container are
better received by consumers when they are relatively wide and flat. It is common practice among
 Filipino consumers to invert containers when the contents of the bottle become lesser. Wide and flat
containers make the extraction of the milliliters of the product easier and more convenient.

Labelling, the other component of physical products, is a display of information about a product on its
container, packaging, or on the product itself.

The following factors must be considered in deciding on the labelling of a product:

 establish the image or personality of the product based on the taste and preferences of the target market;
 determine the most important features of the product to the target market;
 determine where the products will be sold and the applicable regulatory requirements, if any; and
 determine the placement of the product in relation to other products, particularly competitors.

Product labels play a vital role in a product’s marketing. Because products are sold through retailers,
they are displayed in supermarkets or convenience store shelves. They are expected to draw the consumers’
attention and hopefully persuade them to purchase the product. Labels are, therefore, a product’s “silent
salesman”. This is no easy task considering that there are many other competitive brands and products
displayed on the same shelves, all trying to attract the customer’s attention. A brand or product label must be
designed only after a careful study of competitors’ labels. Only then will the manufacturer decide on the
label’s material, size, shape, color, and textual content.
Legal requirements must also be considered in a product’s labelling for foods and beverages. All food
products must contain the name of the manufacturer, country of origin, net content, and its nutritional value
table.
Some marketers include other facts on their package label that enhance marketability and earn
customer trust. Examples are: the Sangkap Pinoy seal, organizational endorsements such as by the Philippine
Dental Association or the Department of Health, ISO Certifications, free from animal testing, or if it conforms
to the requirements of Muslim practices, the Halal seal. (note: Product label must also include the product
expiration date and applicable product handling and preservation requirements.)

NEW PRODUCT DEVELOPMENT

One of the most effective ways that companies can get ahead of competition is through the
introduction of new products. There are instances when customers are forced to buy existing products and
services in the market even if these only partially serve their needs. This is because there are only limited
product options available in the market.

History is full of successful new product launches that have changed the shape of entire industries and
created entirely new ones. The digital camera has rendered photographic film obsolete, computers have
completely replaced typewriters, the internet has made telegrams a thing of the past, and snail mail a non-
preferred communication option. Smartphones are slowly but surely phasing out basic feature phones.

Although product development and innovation may be a slow and expensive process, the rewards it
premises are worth the costs. Successful efforts at developing and launching new products have catapulted
companies to the top of their industries, and have driven complacent, slow-moving firms to bankruptcy.

Why do companies introduce new products? Here are some reasons:

To defend its market share
The PLDT Company has dominated and still dominates the Philippine telecommunications market
with a market share of 63.4%, against its closest and fiercest competitor Globe telecom, with 36.6% share.
To position ahead of competition in a market segment
Filipino women have been using feminine hygiene soaps and washes for many years. Sensing that
similar products would eventually be demanded by the local males, Elev8 Trading and Marketing Corp.
launched Freshman Masculine Wash in June 2010. Since then, other masculine hygiene wash brands have
been introduced into the market, e.g. Naturacentials, distributed locally by Alliance in motion Global, and
Intima, distributed in the Philippines by Watsons.
To establish a foothold in a future market
Up until 1980s, Filipinos were drinking tap water. Recognizing the growing public perception that
tap water was unsafe for drinking, metro Pacific corporation in 1990 launched Wilkins Distilled Water, the first
bottled water in the country.
To take advantage of strengths in product distribution
 Being a 125 years company, San Miguel Corporation (SMC) has built and cultivated an extensive
distribution network consisting of almost all of the country’s supermarkets, groceries, bars, restaurants,
convenience stores and sari-sari stores. This product distribution strength has permitted the company to develop
and launch its many different beer brands. Because SMC has exclusive arrangements with many retail outlets,
the company is able to restrict the distribution of many of the competitors’ brands.

NEW PRODUCT DEVELOPMENT PROCESS

Idea Idea Concept Business

generation screening development Analysis
and testing

Product Product
commercialization Market testing development

Step 1: idea Generation

This is the initial stage of the new product development process where any or all of several idea
generation techniques (need/problem identification, attribute listing, forced relationship, morphological
analysis, brainstorming, etc.) are used to generate as many new product ideas as possible.
Step 2: Screening
This is the stage where the ideas generated in the initial step are screened using predetermined criteria
to reduce them to a manageable few.
Step 3: Concept Development and Testing
This is where new product ideas are converted to customer-centered product concepts and tested by a
representative sample of consumers for acceptability, believability, and potential intent.
Step 4: Business Analysis
This is the pencil-pushing stage where, based on concept development and testing results, probable
sales of the new product are calculated together with its costs and potential profitability.
Step 5: Product development
This is the new product development stage where the product concept is converted into a tangible
working prototype.

Step 6: Market Testing

This is the stage where the new product is marketed in a limited geographical area to determine
whether fine tuning of attributes, positioning, pricing, advertising, and promotions program are necessary.
Step 7: product Commercialization
This is the final stage of the process where a new product is launched. Product commercialization is
making a product available in the market.

Lesson 2 4Ps of Marketing : PRICE

The price that a marketer charges for a product or service is a vital decision that has far-reaching
consequences. From the point of view of the business, products and services are offered with the intention of
making a profit. However, the customer has a specific price in mind that he/she considers as “fair” and
“:equitable”. This is in relation to the value or benefit that he/she expects to derive from the product or service.
This makes pricing tricky and challenging for marketers.

Product Cost Estimation

Before determining the price of a product or service, the total cost of production must be computed.
This is because it would make no business sense if the price is less than the cost of production. With physical
 products, two types of cost are calculated: unit variable cost and unit share of operating and other expenses or
what is sometimes referred to as fixed costs.
The unit variable cost is the amount to manufacture one unit of the product. This includes the cost of
direct material, direct labor, and direct overhead.
Direct materials used in the manufacture of shirt may include the fabric, thread, and buttons. For
example, if two meters of fabric , five meters of thread, six buttons, and one cardboard box for packaging are
used, its material cost would be:

Materials Cost Cost per Unit

Fabric P 100 per meter P 200
Thread P 4 per meter P 20
Buttons P 5 per piece P 30
Cardboard box P 10 per piece P 10
Total P 260

The total direct material cost for producing each shirt would be P 260.
Direct labor would include the wages of all workers directly responsible for making the shirt. If, for
example, workers are paid on a per-piece basis, its unit direct labor cost would be as follows.

Process Labor Cost per Piece

Fabric cutting P 30
Sewing P 25
Collar attachment P 5
Button attachment P 5
Total P 65
The total direct labor per shirt would then be P 65

The unit’s direct overhead is the amount that was in the manufacturing overhead (energy, water, and
other utility costs) for every shirt produced. This can be computed by dividing the total factory manufacturing
overhead in a month by the number of units of shirt produced within the same month. If the total factory
manufacturing overhead for a particular month is P20,000.00 and the total number of shirt produced within the
same month is 4,000 pieces, the direct overhead cost per unit would be P5 (20,000 ÷ 4,0000).
The sum of the three cost (direct materials, direct labor, and direct overhead which is P65) is the
product’s unit variable cost, or how much it costs to produce one unit of the product.
The second type of cost is unit share of fixed costs. Fixed cost are expenses incurred by the
organization that are not related to the manufacture of the product. These include executive and staff salaries,
office rental, advertising and promotions, professional fees, and other similar expenses. Total fixed costs
incurred in a specific period must be shared by all units of the product produced in the same period. This means
that if in a particular month, the shirt factory incurred total fixed costs of P400,000 and was able to produce
4,0000 units of shirt for the same month, each shirt would have to absorb P100 of fixed costs (P400,000 ÷
4,000).

Taking the entire costing example, therefore, the unit cost of each shirt would be.

Cost Component Amount

Direct Materials P 260
Direct Labor P 65
Direct Overhead P 5
Unit fixed cost P 100
Total P 430

Therefore, if the shirt factory is able to sell each of the 4,000 shirts it produced in a particular month at
its cost P430, the company will make no profit but will also incur no loss. This is called the break-even point.
This is the lowest possible price the company can set for its shirts (under normal circumstances).
If the company decides to sell its shirts at only P425, it will incur a loss of P5 per shirt. If in a given
month it is able to sell 4,000 shirts at this price, it stands to lose P20,000!
However, the shirt manufacturer may decide to price its shirts at P500. At this price, it shall make a
profit of P70 per shirt. If it sells it entire month’s output at this price, the company will make a profit of
P280,000.
 Service and experience costings are computed, with unit variable costs represented by the cost of the
service/ experience providers.

PRICING STRATEGIES

The following are strategies that can be used in pricing a product:

Markup Pricing – this is a pricing strategy that allows the seller a fixed markup every time the product is sold.
The biggest weakness of this pricing strategy id the inclusion of unit sales in determining the product’s markup
price. In reality, total unit sales is affected by the product’s final markup price.
See the example below to find out how to compute the markup price of a product.

FC
US = VC/U + -----
US

Where:

UC = Unit Cost; VC/U = Variable Cost per unit; FC = Fixed Cost; US = Unit Sales

Given:
VC/U = P 10
FC = P 300,000
US = 50,000 units
DMU (Desired Markup) = 20%

US= VC/U + FC/US MUP = UC/ (1-DMU)

=10 + 300,000/50,000 = 16/ (1-0.20)

=P 16 = P20

Markup price (MUP) is P20

Target Return Pricing – this is a pricing method that allows a product manufacturer to recover a certain portion
of his/her investment every year.
Because unit sales is also included in its target price determination, target return pricing has the same
weakness as that of markup pricing.
The formula for obtaining a product’s target return price is as follows:

TRP = UC + DR × IC / US
Where: Given:

TRP = target return price UC = P16

UC = unit cost DR = 25%
DR = desired return IC = P1,000,000
IC = invested capital US = 50,000 units
US = unit sales

TRP=UC + DR × IC / US = 16 + 0.25 × 1,000,000 / 50,000 = 21

Target return price (TRP) is P 21

Odd Pricing or Psychological Pricing – this is a pricing method premised on the theory that consumers will
perceive products with odd price endings as lower in price that they actually are.
As such, consumers may find products priced at P 99.95 closer to P99 than to P100. There are about
an equal number of researches that say this is true, and those that say it is inconclusive.

Loss Leader Pricing – this is a pricing frequently utilized by supermarkets. It is based on the practice of
housewives using only a few selected essential products like sugar, coffee, eggs, laundry detergents, and some
canned good products as their sole basis for price comparison. Supermarket retailers will deliberately price
these “loss leaders” or comparison items low to make their product appear more affordable than others. The
markup lost leader items are recovered from other items where markups are higher.

Price Lining – this is a pricing strategy designed to simplify a consumer’s buying decision. This method
involves reducing the number of price points on merchandise to as little as possible, in extreme cases to only
one price point. Japan Home Center for example, prices all the merchandise in their store at P66 or P88.

Prestige Pricing – this is a pricing strategy that disregards the unit cost of a product or service. Instead, it
capitalizes on the high value perception or positive brand reputation of a product or service. It charges a price
much higher than its unit cost.
This is a pricing strategy implemented by some fragrance and skin care products. Using prestige
pricing, it would not be unusual for a fragrance brand to have a unit cost of P1,300 and a selling price of P
3,500.

Marginal Pricing – this is where a business organization prices its product at a range below its unit cost but
higher than its unit variable cost.
This is order to offer the lowest price in a sealed bidding or other highly competitive situations. The
failure to adequately cover some or all of the company’s fixed costs is justified by citing that these fixed cost
are “sunk”, or would be incurred whether or not the order is acquired.
The main objective of marginal pricing is to outmaneuver competition, expand customer base, and
increase market share.

Predatory Pricing - this is a pricing strategy is where the firm prices its product lower than unit variable cost,
initially resulting in short-term losses.
The objective of this pricing strategy is to price a new or persistent competitor out of the market. After
its purpose is achieved, the product’s original selling price is restored and short-term losses recovered.
Predatory pricing is illegal in most countries including the Philippines (under Republic Act 8479)

Going Rate Pricing – this is a pricing strategy where a company prices its product at the same level or very
close to its competitors’ prices.
This effectively maintains the product’s price competitiveness in its market. The danger of going rate
pricing is that it may result in price wars, with each company trying to outprice another, to the detriment of all
industry participants.

Promotional Pricing – this is a pricing strategy involving a temporary reduction in the selling price of a
product/ service in order to induce trial or to encourage repeat purchase. Almost all companies, especially
those involved in fast-moving consumer goods (FMCGs), implement promotional pricing at one time or
another.
When new products are introduced into the market, one of these two pricing strategies can be used:
- Price Skimming
This is where the product’s selling price is way above its unit cost. This allows the company to recover
its research and development costs and expenses. This is usually accompanied by intense expensive
advertising and promotional campaign. This pricing decision is usually effective with electronic
products. This is especially true when similar products are still non-existent in the market. There is
hardly a way to compare prices. Customers are usually left with little or no choice. This was the
strategy employed by Motorola when it launched its mobile phone in the Philippines in the early
1980s. The Motorola phone was initially priced at almost P60,000. The price was reduced gradually
when similar devices were introduced in the country and initial advertising, promotions, and research
development costs were recovered. The inherent weakness of the price skimming strategy is that it
makes the market very attractive for would-be competitors because of the appeal of large price
markups.
- Penetration Pricing
This is a pricing strategy where the new product is priced only marginally above its unit cost. The
objective of this strategy is to capture a large part of the market at an early stage by making the
product affordable to the greatest number of people. An advantage of this strategy is that it can
discourage would-be competitors from entering the market because of low price markup. The major
disadvantage of this pricing method is that it can prolong the recovery period for research and
development, advertising, and promotion costs.
Pricing Strategy Selection

The choice of pricing strategy depends almost exclusively on a company’s objectives. The correspondence
between pricing strategy and objective is illustrated below.

Pricing Objectives Pricing Strategies

Maximum revenue Penetration pricing
Marginal Pricing
Going rate pricing
Promotional pricing
Maximum market share Penetration pricing
Marginal Pricing
Going rate pricing
Promotional pricing
Maximum profit Price skimming
Prestige pricing
Survival Marginal pricing

References:
Principles of Marketing by: Real C. So ; Oscar G. Torres ; Angeles A. De Guzman, DBA

Prepared by: Noted by:

Angelo B. Ahorro-Teacher II Leilanie D. Anonuevo – Master Teacher II

Subject Teacher Subject Group Head – ABM
 PRINCIPLES OF MARKETING

Name: Section: Date:

Activity Sheet
Activity 1

Directions: Use any art materials, (bond/oslo paper, color paper, crayon etc.), design your own
product packaging. Choose any product available in the market and create your own packaging.

Reflection
Reflect on these:
>What is the importance of product packaging?
>How does packaging affects the sales of a product?

Activity 2: Classification of Cost

Directions: A list of account items is given below. For each Item, indicate with a check mark (√) the
category in which the item is normally classified.

MANUFACTURING
Cost item Direct Materials Direct Labor Overhead Fixed Cost
Cutting department
Utilities, factory
Assembling department
Advertising
Professional fees
Material A purchases
Materials B purchases
Staff salaries
Secretarial salaries
Office rental

Compute the mark-up price of a 3-in-1 coffee using the given data below.

VC/U = P20.00 Computation

FC = 500.00
US = 200 units
DMU = 15%

Reflection

1.Is it important to set a mark-up price for a certain item/product?

2.As a consumer, how do you feel if a product you are buying is overpriced?