CHRISTIAN KING S.

ILARDE

Case 5: Pricing Products

1. Promotional pricing generates a sense of urgency and excitement. However, recognizing

the dangers of this pricing approach, your boss has asked you to design an alternative
pricing strategy that will generate the greater long-term sales and customer loyalty. What
pricing strategy do you recommend? Will this strategy work as well as promotional pricing
in the short term? Explain.

Giving one loyalty point/rewards point for every P100 worth of goods/services purchased. Loyalty is an
archaic term that has traditionally been used to describe fidelity and enthusiastic devotion to a cause or
an individual. In a business context, it refers to a customer's willingness to continue buying from a
company over time, preferably exclusively, and recommending the company's products or services to
friends and associates. Customer loyalty is essential As a key determinant of a firm's profitability. Your
goal should be to make your customers feel good about shopping with you and want to return.

2. You are an owner of a small independent chain of coffeehouses competing head-to-head

with Starbucks. The retail price your customers pay for coffee is exactly the same as
Starbucks. The wholesale price you pay for roasted coffee beans has increased by 25
percent. You understand that you cannot absorb this increase and that it must be passed
on to your customers. However, you are concerned about the consequences of an open
price increase. Discuss three alternative price-increase strategies that address your
concerns.

Customers may react negatively to this price increase because of the increase in price for roasted coffee
beans, resulting in lower sales, but it may have some positive implications for buyers. Customers may
believe that the coffee is more exclusive or better made. Customers, on the other hand, may believe
that your company is simply being greedy by charging what the traffic will bear.

When raising prices, the company must avoid the perception of being a price gouger. When gasoline
prices rise rapidly, for example, angry customers frequently accuse the major oil companies of enriching
themselves at the expense of customers. Customers have long memories, and they will eventually
abandon companies or even entire industries that they believe are charging exorbitant prices. In the
extreme, allegations of price gouging may result in increased government regulation.

There are some methods for avoiding these issues. Any price increase should be accompanied by a
sense of fairness on the part of the company. Price increases should be accompanied by company
communications informing customers of the reasons for the increase. Wherever possible, the company
should think about how to meet rising costs or demand without raising prices. As an example,may
consider more cost-effective methods of producing or distributing its products. It can "unbundle" its
market offering by removing features, packaging, or services and pricing elements that were previously
part of the offer separately.

Application:

1. If total amount of order =P87,821.75

Start of selling season- November 15, 2010

Date of order- September 15, 2010
Date of invoice- September 29, 2010
Date of shipment- October 28, 2010
Date of arrival- November 2, 2010

Determine respective amount of discount, amount payable and maturity date for the
following datings:
a. 12/6 Receipt of Goods, net 55 days
b. 10/8 Receipt of goods
c. 8/10 End of the month dating
d. 6/12 indirect dating
 e. 5/10 season dating

CAS AMOUN %DISCOUN DISCOUN NET DATE OF NO OF MATURIT

E T T T PAYBLE INVOICE/ARRIVA DAYS TO Y DATE
L AVAIL
DISCOUNT
S
A 87821.75 12 10538.61 77283.1 11/2/2010 6 11/7/2010
4
B 87821.75 10 8782.18 79038.5 11/2/2010 8 11/9/2010
8
C 87821.75 8 7025.74 80796.0 9/30/2010 10 10/10/2010
1
D 87821.75 6 5269.31 82552.4 9/29/2020 12 10/10/2010
5
E 87821.75 5 4391.09 83430.6 11/15/2010 10 11/25/2010
6

a.) 12/6 Receipt of Goods, net 55 days - To pay the net of P77,283.14, a discount of 12% -
10,538.61 is given on the total price of 87,821.75 if paid until November 7, 2010 but net price of
87,821.75 within 55 days of payment

b.) 10/8 Receipt of Goods - To pay the net of 79,039.58, discount of 10% - 8782.18 is given on
the total price of 87,821.75 if paid until November 9, 2010

c.) 8/10 End of the month dating - To pay the net of 80796.01, a discount of 8% - 7025.74 is
given on the total price of 87,251.75 if paid on or before October 10, 2010

d.) 6/12 indirect dating - To pay the bill on or before October 10, 2010 – 12 days to avail 6% -
5269.31 discount, net of 82,552.45

e.) 5/10 season dating - Net of 83,430.66 5% - 4,391.09 discount if paid 10 days on or before
November 25, 2010