Fabillar &

Gatilao

PRICING POLICY
Chapter 5
 Managing
Expectations to
Impress Price
Realization
Enforcing price policies can affect
price structures.

Pricing Policies
• Are rules, or habits that determines how a company
views its prices when faced with factors other than value
and cost that threatens its ability to achieve its
objective.

• It is designed to mitigate the adverse consequences of

undefined policies.
 A good price policy helps companies make sure they remain profitable
and give them the flexibility to price separate products differently.

A poorly defined price policy creates a ruckus and makes things more
difficult.
Sample Problem:

A retail customer may believe that a new fall fashion is well worth the
price asked for it in September but still not but it if he/she expects that
the store will soon have a 20% off promo when the price will be even
better. A retail pricing policy of predictable discounting trains many retail
customers to wait for the "sale price".

Question:
How do we change the customers' expectation?
 Solution:

To treat each request for a "price exception" as a opportunity to create a pricing policy
that precludes the need for such requests in the future by doing adjustments in the
pricing (e.g., "everyday low price", "30-day discounts")
EXHIBIT 5-1: The Interaction of Expectations and
Behaviors
EXHIBIT 5-2: Strategic Capabilities of Procurement versus
Sales
 Policy
Development
Involves treating each request for a price exception as a
request to create or to change a policy that could be
applied repeatedly in the future.
POLICIES FOR RESPONDING
TO PRICE OBJECTIONS
The lack of policies for dealing with price objections
is not only a challenge for companies that sell
directly.
 The Problem with Ad Hoc Negotiation

'Ad hoc' refers to actions taken to address a specific

situation, circumstance, or problem, and not usually
intended to address other or ongoing issues.
 When policies are aligned
with the objectives and
clearly articulated for
the sales force, the sales
reps, distributors, and channel
partners are empowered and
motivated to sell on value
rather on price.

The effect of negotiation on pricing

depends on the negotiating skills
and positions of the parties, as well
as their commitment to pursue a long-
term business relationship
Policies for Different Buyer Types

EXHIBIT 5-3: Buyer

Types
 Buyer Types:
Value-driven buyers try to manage both the benefits in the purchase to get all the the
features and services that are important to them, as well as to push down the price as
low as possible

Brand-driven buyers are particularly of the type that is difficult to determine prior to
purchase because they prioritize the branding of a certain product. Also called
"relationship buyers".

Price-driven buyers are buyers that are not looking for a feature or service that exceeds
some level that they specify in advance.

Convenience-driven buyers are value, loyal in categories where they spend more or
buy more frequently, but will pay a price that is much more than the economic value
defined in the market.
Among the different kinds of
buyers, which one are you?
 Policies for Dealing with Power Buyers

Make power buyers compete.

Quantify the value to the power buyer.
Eliminate unnecessary costs.
Segment the product offering.
Resist "Divide and Conquer" tactics.
 Policies for
Managing Price
Increases
Policies for Most important increase
Leading an will result from:
• Increase in variable cost of the
Industry Wide production – increase in variable
cost is an increase in selling price
Increase
• Shortage of industry capacity – not
enough resources for production to
meet the demand hence selling
price increases
Policies for Leading an
Industry Wide Increase
1. Make your customers confident that it
will not lead to a competitive disadvantage
Through:
• Transparency – industries must let the public
know
Starbucks PH increases prices
by P5 as sugar prices rise
Rustan Coffee Corp. , Starbucks’ sole licensee in the
Philippines, said on Tuesday (September 13, 2022) it had
started implementing a P5-increase in the prices of all their
beverages.

The Philippine Chamber of Commerce and Industry (PCCI)

warned of an impending price increase on beverages and
food products almost a month ago, saying their members
would be forced to adjust costs if the problem persists. Reference:
https://business.inquirer.net/362325/starbucks-
ph-increases-prices-by-p5
Policies for Leading an
Industry Wide Increase
1. Make your customers confident that it
will not lead to a competitive advantage
Through:
• Transparency – industries must let the public
know
• Announce the size and effective date of the
increase
Policies for Leading an
Industry Wide Increase
1. Make your customers confident that it
will not lead to a competitive advantage
Through:
• Transparency – industries must let the public
know
• Announce the size and effective date of the
increase
• Empower through transition guarantee
Policies for Leading an
Industry Wide Increase
2. Safely make concessions for good
customers
• This is only applicable with timing and not
every time that there is an increase in selling
price.

• E.g. the supplier can build loyalty by

consideration, then when the company is
ready one may agree to increase the selling
price.
Policies for Transitioning
from Low One-off Pricing
To minimize the risk of transition and create time to test new policies
for managing price variation:
Begin with policies for managing the transition
• Price Banding - enables managers to estimate how much of the price variation is
illegitimate

• Focus on managing the outliers: (1) outlaws, and (2) at-risks

⚬ outlaws - who now enjoy prices much lower than other customers for the same
products, service levels, and commitments

⚬ at-risks - who are paying more than can be justified relative to the average.
Policies for Transitioning
from Low One-off Pricing
To minimize the risk of transition and create time to test new policies
for managing price variation:
Focus on managing the outliers: (1) outlaws, and (2) at-risks

a. Identify the outlaws and how they got that way

• Amendment is needed when the outlaw is in a unique industry or different market
whereas low price may imply low value and low cost-to-serve

b. Give-get (Trade-offs) Negotiation in an attempt to save the account (client)

c. Create a policy authorizing a period of transition to a legitimate pricing level in steps.

POLICIES FOR
DEALING WITH
AN ECONOMIC
DOWNTURN
Business Cycle
Economic Downturn
Economic growth = Expansion
Economy is down = Economic
Contraction/ Downturn
Caused by an economic shock
 Spending on recreation, travel, and
restaurants bounced back in the first half
of 2022, with household consumption rising
9.3%, from 0.9% in the first semester of
2021. It was the most significant
contributor to GDP growth in the period.

Services output grew 8.7% in the first half,

with a broad-based expansion noted
across the sector. This contributed to a
steady increase in overall employment,
with an additional 5.7 million jobs
generated from July 2021 to July 2022, two-
ADB Sees Robust 2022 GDP Growth thirds of which were in services, mainly in
for the Philippines wholesale and retail trade
The growth projection for 2023 is kept at 6.3% as monetary
policy tightening and accelerating inflation both crimp
domestic demand. Reference: https://www.adb.org/news/adb-sees-robust-2022-gdp-growth-
philippines?fbclid=IwAR2h9K_RAwcw9hp-UfwJ_MlstS1_msgowQeyiKrz1gsHkph6-W8ZgCf-
_r0
POLICIES FOR DEALING WITH
AN ECONOMIC DOWNTURN
Ways to manage pricing when dealing with an economic downturn to
minimize damage:
• Enforce a firm policy to not use pricing to take the market share from competitors

Big supermarkets absorb P10-loss

per kilo of sugar sold, says DTI
Leading supermarket brands SM,
Robinsons and Puregold are now
selling sugar at P10-loss per kilo,
according to the Department of Trade
and Industry (DTI).
Reference: https://business.inquirer.net/359647/sm-robinsons-and-puregold-absorb-
p10-loss-per-kilo-of-sugar-sold
POLICIES FOR DEALING WITH
AN ECONOMIC DOWNTURN
Ways to manage pricing when dealing with an economic downturn to
minimize damage:
• Enforce a firm policy to not use pricing to take the market share from competitors
• Enforce a policy that supports customers and maintains value while establishing a
mechanism for the price increase.
⚬ An alternative is to unbundle elements of your product or service that the
customer can no longer afford
POLICIES FOR DEALING WITH
AN ECONOMIC DOWNTURN
POLICIES FOR DEALING WITH
AN ECONOMIC DOWNTURN
Ways to manage pricing when dealing with an economic downturn to
minimize damage:
• Enforce a firm policy to not use pricing to take the market share from competitors
• Enforce a policy that supports customers and maintains value while establishing a
mechanism for the price increase.
⚬ An alternative is to unbundle elements of your product or service that the
customer can no longer afford
• Enforce a one-off pricing policy to markets you hope to gain incremental profit for a
short period of time.
Policies for
Promotional Pricing
Policies for Promotional
Pricing
Promotional discounts to induce product trial
• Search goods: Customers will investigate the offer
• Experience Goods: Taking the risk to encounter
• Disadvantage:
⚬ Decrease in willingness-to-pay in the future
⚬ Increase in volume despite lower sales
• To counter the disadvantage:
⚬ A policy of limiting the availability of promotional discounts and targeting
them to prospective buyers e.g. coupons
Policies for
Promotional
Pricing