INTRODUCTION

TO PRICING
STRATEGY
Things to be considered in setting
up the price:

1. Nature of the product/service;

2. The price of comparable product/service
in the market
3. Target audience or for whom the product
is manufactured such as high, medium or
lower class
4. The expenditure of production such as
labor cost, raw material cost, machinery
cost, inventory cost, transit cost, etc.
5. External factors such as economy,
government policies, legal issues and so
on
Different Perspectives on Price

1. Customer’s view
❑ the one who seeks satisfaction for a
need or set of needs by buying a
certain product or a set of products.

2. Society’s view
❑ Price is used by society to control its
economic health. It could be all-
encompassing or restricted.
Importance of price

1. Profit Margins - determine how much

money you are making and represent the
overall financial health of your business.

2. Sales Volumes - is the number of units

sold within a reporting period.

3. Position - it reflects about the business,

the products and service w/c created the
perceived value.
 Importance of price

4. Market Share – the price set for a product or

service makes it relatively competitive in the
marketplace w/c affects the share of the
market’s quantity.

5. Loss Leaders - A loss leader is a pricing strategy

where a product is sold at a price below its
market cost to stimulate other sales of more
profitable goods or services.
Pricing Objectives
1. Survival – to price it’s product or service to the
most advantageous in order to survive the
competition.

2. Maximizing the current profits – a lot of

companies seek to earn the greatest amount in
profit. They approximate their demand and
supply of goods and services. The product
demand and the substitutes existing to fulfill
that demand become the bases for pricing.
2.1. Capturing huge market share – Capturing
more market share doesn’t necessarily mean a firm
will earn higher profits, though. Nonetheless, many
companies believe capturing a maximum amount of
market share is downright necessary for their
survival.

2.2. Market skimming – is pricing highly products

and services offered by the companies that utilized
innovation, and uses modern technology but later
reduce the price. The price are reasonably kept
high owing to the high cost of production acquired
because of up-to-date technology.

2.3. Product-quality leadership – the price of the

goods and services are base in the line with the
quality perceived by their customers.
Setting the Price of a Product
Setting the price of a product is a continuing
process. It is not sufficient to set a price, then
leave it and suppose it to be lucrative.
Companies must research and study their
market landscape regularly and make price
adjustments as a result.
Consideration in Price Setting

1. Cost – if the product or service revenue is

sufficient revenue to cover up all expenses.

2. Customers – understanding one’s customers

will provide the information on precisely
pricing a product. Are the company’s
customers bargain hunters, indulge on techy
products or value quality?

3. Competition – companies must know how

competitors are pricing their products. The
product’s value must be reflected in its price
to be competitive.
Consideration in Price Setting

4. Tiered pricing – is a way of selling products

or services at different price points. The product
rates are packaged into individual pricing tiers.

A pricing structure that considers good, better

and best choices for products or services
increasing levels of value can be tried by
companies that wanted to apply tiered pricing.
This pricing model is useful when a company
desires to penetrate a bigger pie of the market
through giving several options for a range of
customers.
Consideration in Price Setting

5. Odd Number Pricing– this pricing is

considered psychological and based on the idea
that certain price ranges are more attractive to
consumers.

Ex. Php99.99 instead of Php100.00

Pricing Strategies

❑ Identifying the most advantageous price for a

product;

❑ Centers on producing revenue and eventually

profit for the company;

❑ Intensified with precision on market

conditions, an understanding of the
consumer’s unsatisfied want, and the amount
of money consumers are ready to pay to
meet such want.
Premium Pricing

❑ Is setting a higher price than competitors for

a unique brand with a strong competitive
advantage.

❑ This strategy works effective for small

businesses and ideally used during the early
days of a product’s life cycle.

❑ A higher price tag calls for a high perceived

value from among the consumers – high
prices are charged for luxuries,
Premium Pricing is highly effective in
the following conditions:

1. Early introduction - premium pricing can be

highly successfully instituted when a product
is first launched to the market;

2. Uniqueness - small businesses that have

inimitable products can make a distinction of
their products with higher prices and a
quality reputation;

3. Luxury products – consumers distinguish that

the product is a lavish product and has
remarkably high quality or elite design;
4. Strong barriers to entry – if a company has
paid a big sum of money to set up its products as
premium merchandise, then competitors would
have to use large amount of money to situate
their products in similar category;

5. Limited production – the seller can produce

uniqueness through restricting the quantity of
products accessible in the marketplace.

6. No substitute – companies can make it

complicated for competitors to fake their
products through taking tough lawful procedures
every time comparable products come out.
7. Patents – possessing a patent or copyright on
a design or some other inimitable elements of a
product is a powerful restriction to other
competitors who might desire to sell the same
product.
Penetration Pricing

❑ prioritizes market share over profits for a

given time period.

❑ the goal is to generate demand, rapidly build

a customer base, and maximize brand loyalty
in a short time.

❑ It is when businesses introduce a low price for

their new product or service. The initial price
undercuts competitors, forcing them to match
the offer or quickly apply other strategies.
Penetration Strategy is mostly implement:

1. Penetration pricing strategy is employed to

attract consumers when market saturation
situation is at its fullest;

2. It is also used when there is great number of

substitute brands existing for similar product
to satisfy the need of the consumers.

3. it is employed by the marketers for products

when consumers are price sensitive and can
make control of the market on basis of price.
4. It is intended for the price-elastic demand
products for which there is direct relation that
exist with the price and consumer value their
money through asking low price by adjusting the
price of similar product.

5. For those products upon which consumer

comes to a decision on the basis of price
differentiation on what to adopt and what
product to leave out.

6. It is strategy used when there exist in the

market an adequate number of products that
for its product life the company has to control
on low earnings.
7. This price penetration is for the market when
there is an opportunity that current
competitors will also shift to low prices in the
upcoming time so the company has to adopt
this pricing strategy for new product.

8. It is usually for the products anticipating long

life cycle like household items to attain big
market share and lock the market through
progressing with such strategy.
Economy Pricing

❑ is a pricing strategy where products have

lower prices due to low production costs.

❑ allows businesses to price products according

to their production value because they don’t
acquire the extra costs of advertising or
marketing.

price has an intense effect together with

product, place and promotion
Three factors behind economic pricing
❑ Production cost is the amount of money that
goes into creating a product. It includes a
variety of expenses, from labor to raw
materials.

❑ Profit margin indicates the profitability of a

product or service.

❑ Businesses should consider both these factors

to determine how low they can make their
prices.
Economy Pricing Advantages
1. Increase in Brand Awareness - to sell
products using a private label.

2. Low cost - these products do not receive

heavy advertising or marketing — if it all —
companies can save on this additional cost.

3. Customer acquisition - allowing businesses to

bring in new customers at a relatively
inexpensive cost. - Budget shoppers don’t
care about "brand names"
Economy Pricing Disadvantages
1. Competition - Unless you’re selling a novelty
product, there will be at least one brand
directly competing with you.

2. Customer loyalty - Since many customers are

primarily motivated by low price tags,
economy pricing doesn’t typically invoke
feelings of brand loyalty.

3. Low quality - Economic pricing aims to

create low production costs and low prices.
But this can lead to low-quality products for
customers.
Price Skimming
❑ is a type of pricing strategy in which
businesses initially charge a high price for
their product/service, before gradually
reducing the price to attract a more price-
sensitive market segment.

❑ often used when a new product is launched,

❑ It’s goal is to maximize your revenue to the

greatest extent while interest from consumers
is high and your business is facing limited
competition.
Advantages of price skimming?
❑ It can help produce a brand image built
around quality.

❑ owning your products becomes synonymous

with prestige, ensuring that you’re able to
charge higher prices for future products.

❑ worth remembering that it can help your

business to recover your costs/expenses more
quickly, while you’ll also be able to generate a
higher profit margin.
Disadvantages of price skimming?

❑ only works for a short amount of time, and if

you reduce your prices too late, your
customers may look to cheaper competitors,
leading to a loss of revenue.

❑ It may not be effective for follow-up products,

especially if the product doesn’t exhibit
considerable improvements over the original.