Republic of the Philippines

President Ramon Magsaysay State University

College of Tourism and Hospitality Management
(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683

College/Department College of Tourism and Hospitality Management

Course Code BMEC 2
Course Title BUSINESS MARKETING
Place of the Course in the Program Major or Minor Subject
Semester & Academic Year Second Semester AY 2022 - 2023

MODULE 8

PRODUCT PRICING

INTRODUCTION
Price is the only "p" in the marketing mix that provides revenues to a
firm. The rest—product, place, and promotions generate expenses. The firm's
decision to produce new products or enhance the existing products entails
expenditures. Choosing the right distribution channel for the product and
transporting the products to reach the distribution outlet, like supermarket and
department stores incur expenses. In terms Of promotion, the choice of
broadcast programs or print media, whether to utilize sales promotions or public
relations as mediums to reach target market adds to the budget consideration of
the company.

INTENDED LEARNING OUTCOMES

At the end of this module, students are expected to:

1. define price, its objectives and importance;

2. identify the major factors influencing price; and
3. recognize the different pricing strategies.

DISCUSSION
PRODUCT PRICING
- The pricing strategy that a company uses depends on whether its
operation is in domestic market or international market. Pricing schemes
also vary depending on the type of products and the type of market the
company is catering to.

What is PRICE?
- Price refers to the amount of money charged by product or service
providers to the market in exchange for their products or services. In
simple marketing exchange, the seller provides the goods that the market
needs, while the market in return provides payment.

PRICING OBJECTIVES
Companies set a particular price for a purpose. It can be that companies want to:

1. Meet their profit objective. Every company sets a specific profit target
for a particular product at a particular time. This profit objective or target
becomes the motivating force for companies' marketing efforts.
2. Maintain or improve market share. Right pricing scheme can
enormously build customer traffic and an important factor for brand shift
decision of market.

3. Control entry of new players in the market offering competing

brands. Companies do this by offering lower prices and sometimes much
lower than industry standard.

IMPORTANCE OF PRICE

1. Price dictates product demand. Market patronizes products because of

their prices. Some factors must be considered, like product quality and type
of services given to customers by the company's staff.

2. Price determines the level of expenditures of the market. Price influences

buyers' decision whether to buy the product or not.

DIFFERENT PRICING STRATEGIES

1. Pricing in relation to product quality

a. Premium pricing strategy involves setting high price to products produced

with high quality.

b. Economy pricing strategy involves setting the price low because the
product is of low quality.

c. Companies that offer the same high quality products but offer the customers
with more value for their money use the value pricing strategy.

d. In overcharging pricing strategy, products are high but the quality of the
products is low.

2. Other pricing strategies

a. Penetration pricing strategy involves setting low initial price for new
products offered in the market. The objective of penetration pricing is to be
able to enter the market immediately.

b. Market skimming pricing strategy involves setting high initial price for a
product or services offered, and after a definite period of time, companies
either lower the price of the offering or maintain its price.

c. Bundle pricing strategy involves setting one price for a set or

complimentary products. For example, spaghetti pasta and spaghetti sauce
are bundled and given a price of P 100. Some companies bundle fast-moving
products with products that are slow-moving. Services can also use bundle
pricing strategy, like when resorts offer packages that consist of
accommodation, airfare, and meals.
d. Geographical pricing involves setting price differently in different
locations. Producers of goods or channels of distribution like wholesalers set
geographical pricing scheme due to shipping cost or transport cost. Under
geographical pricing, seller offers varied schemes in different situations.

Some of these pricing schemes under geographical pricing are:

 Zoning Pricing. This is a type of geographical pricing where the seller sets
up zones where markets within the zone pay the same price for the products.
The farther the distance of the market from the seller's zone, the higher will
be the product price. Some examples of zoning pricing are done by logistics
providers, remittance, and courier firms. Telephone companies also charge
different long distance call rates depending on location or distance.
 Freight Absorption Pricing. In order to penetrate the market and to
maintain existing customers, some sellers shoulder part, if not, the entire cost
of the freight. Freight absorption strategy is practiced by some companies in
the belief that distribution cost will be compensated by business done in
volume.

Reasons for Price Change

There are reasons why companies desire to increase or lower the prices of their
products.

Companies cut price when:

1. There is excess capacity

2. There is continuous decrease in market share.
3. Competitors lower their price offering and other companies believe that it
is advantageous to their companies to follow the price decrease.
4. Company desires to regain lost market share and gain more customers.
5. Company is anticipating new product model or design.

On the other hand, companies increase price when:

 1. There is a desire to increase profit.
2. There is high demand for the product.
3. There is increase in the cost of raw materials or labor cost.

SUGGESTED READINGS
Go, Josiah and ChiquiEscareal-Go. 2010. Fundamentals of Marketing in the
Philippine Setting 2nd Edition. Josiah and Carolina Go Foundation, Inc.

Keegan, Warren J. and Mark C. Green. 2003. Global Marketing 3rd Edition.
Pearson Education, Inc.

Kotler, Philip and Gary Armstrong. 2001. Principles of Marketing 9th Edition.
Prentice Hall, Inc.

Kotler, et al. 2009. Principles of Marketing: A Global Perspective. Singapore:

Pearson Education South Asia Pte Ltd.
Pagoso, Cristobal and Manuel Dela Cruz. 2000. Principles of Marketing in the
Philippine Setting. Manila: Nelson Publication.

Pride, William and O.C. Ferell. 2009. Foundations of Marketing 3rd Edition.
Houghton Mifflin Co. Boston, New York.

RESOURCE AND ADDITIONAL RESOURCES

Balasan, M., 2014. Marketing Basics: A Modular Approach. 1st ed. 856 Nicanor
Reyes Sr. St., Sampaloc Manila: Rex Book Store, Inc.

Prepared by:

ROLANDO M. SOLANO JR.

Instructor I