Republic of the Philippines

Laguna State Polytechnic University

ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

LSPU Self-paced Learning Module (SLM)

Course PRICING & COSTING
Sem/AY First Semester/2020-2021
Module No. 1
Lesson Title STRATEGIC PRICING
Week
2-3
Duration
Date
This lesson covers topics related to strategic pricing. The objective is to provide
Description you with a pricing “toolbox,” i.e., a set of pricing techniques, which might apply when
of the selling a product or service.
Lesson Strategic pricing strategies can be set to maximize profitability for each unit sold
or from the market overall. It can be used to defend an existing market from new
entrants, to increase market share within a market or to enter a new market.

Learning Outcomes

Intended Students should be able to meet the following intended learning outcomes:
Learning 1. Have an insight about the economic forces that determine the profitability
Outcomes change in pricing & costing

Targets/ At the end of the lesson, students should be able to:

Objectives 1. Have a sound knowledge of the regulation, market information, consumer
preferences or relative cost change.
2. Recognize and understand the importance of the Pricing

Student Learning Strategies

Online Activities A. Online Discussion via Google Meet

(Synchronous/ You will be directed to attend in a Three-Hour class discussion on the
Asynchronous) nature and types of educational technologies. To have access to the
Online Discussion, refer to this link: ____________________.

The online discussion will happen on _________________________--

(For further instructions, refer to your Google Classroom and see the

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
schedule of activities for this module)

B. Learning Guide Questions:

1. What is Strategic Pricing?
2. Discuss the Role of Pricing in Product.
Note: The insight that you will post on online discussion forum using Learning
Management System (LMS) will receive additional scores in class participation.

Lecture Guide
PRICING & COSTING MODULE 1

Unit - 1: STRATEGIC PRICING :

1.1 What is Strategic Pricing?

Offline Activities
(e-Learning/Self-
Paced) 1.1 What is STRATEGIC PRICING?
1.2 How do you charge for your services?
1.3 What is a Price?
1.4 Role of Pricing
1.5 Pricing Strategy for New and Existing Products
1.6 New-Product Pricing
1.7 Pricing Existing Products/Services
1.8 Determining Specific Prices And Policies
1.9 Summary
1.10 Self Assessment Questions

One of the most powerful strategies available to any professional service

firm is pricing. Regardless of the service, the reputation of the provider, the
sophistication of the buyer, the quality of the service or any other aspect of a
firm's position in the marketplace, price plays a significant role in a client's
decision to purchase a service. And, of all of the factors affecting profitability
(price, utilization, leverage and margin), price is the only one that does not
have a directly adverse impact on some other factor when it is increased. As a
result, small adjustments in price have a major effect on net profit. In fact, it is
hard to envision a firm trying to create a strategic direction without answering
three basic pricing questions: How do you charge for your services? How do
you set your prices? What is your pricing strategy?

1.2 HOW DO YOU CHARGE FOR YOUR SERVICES?

This is an age-old debate in professional service firms. On what basis

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
should fees be charged? Law firms, particularly since the advent of
computerized billing systems, have defaulted to hourly billing systems.
Accounting and consulting firms, on the other hand, have mostly opted to
charge fixed fees. But suddenly, the discussion of how lawyers charge has
become a polarizing topic and attempting to defend the use of hourly billing is
viewed as politically incorrect. But the fact is that most law firms have built
entire billing systems and compensation standards on hours charged. And,
despite the publicity around alternative billing, there has not been an outcry
from most clients to get rid of the billable hour. But, outside the issues
surrounding billing by the hour, the structure a firm utilizes to price its services
carries increasingly significant strategic implications. For example, many firms
are now implementing advanced technologies as an integral part of legal
service delivery. They then strategically use this technology as a differentiating
factor in establishing a position in the marketplace. Other firms are creating
strategies based on using knowledge management to increase client value and
retention. Such strategies are expensive to implement and intentionally reduce
the number of hours required to produce legal work. If the firm continues to
charge by the hour, increasing hourly rates is its only means of recovering the
strategy's costs or of using them to contribute to increased profitability. In
1989, the ABA published Beyond the Billable Hour (which it calls "a landmark
book") describing ways lawyers could bill clients other than by billable hours.
But in the 20 plus years since the ABA told lawyers it was okay to bill with fixed
or value-based fees, little has changed in the pricing of legal services, except
that hourly rates are more entrenched than ever and rates have risen
dramatically. Frankly, unless clients scream for a change away from hourly
rates (which, amazingly, is not happening), the billable hour is likely to remain
the pricing standard far into the future. As such, if firms are going to insist on
charging by the hour, the strategy for setting price becomes even more
important.

1.3 What is a PRICE?

 The amount of money charged for a product or service

 Price is the only element in the marketing mix that produces revenue;
all other elements represent costs

Customer Perceptions of Value Price

Understanding how much value consumers place on the benefits they
receive from the product and setting a price that captures that value
1.4 Role of Pricing

1)Signal to Buyer
 Price offer a fast and direct way of communicating with the buyer

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
 Price are visible to the buyer
 Price provide the basis for comparison between with brands
 Price may be used to position the brand as HIGH QUALITY product

2)Instrument of Competition
 One of the important parts of competition
 Price offers a way to quickly attack competitor
 Price strategy is always related to competition, whether firms use a
higher, lower or equal price

3)Improving Financial Performance

 Prices and costs determine financial performance
 Pricing Strategies directly impact on Firms’ Financial Statements, both
in shirt and long run
 Revenue and Cost need to be taken into account in selecting pricing
strategies
• Role of Pricing

4)Marketing program considerations

 Prices may substitute for selling efforts, advertising and sales promotion
 Prices may be used to reinforce the activates in the marketing –
mentioned above
 Management evaluates the prices to Competitive Positioning, probable
buyer reactions, financial requirements

1.5 Pricing Strategy for New and Existing Products

A. Set Pricing Objectives
1. Gain market position
2. Achieve financial performance
3. Product positioning
4. Influence competition

B. Analyzing Pricing Situation

1. Customer Price Sensitivity
2. Product cost
3. Competitor likely Responses
4. Legal and Ethical Constraints

C. Selecting Price Strategy

Pricing Strategy must be coordinated with development of marketing
program

Two main point that for Management prospective

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
* Determine extent of pricing flexibility
* Price position relative to cost and make product visible in the market

Pricing Strategy for New and Existing Products

factors in Setting Price
PRICING POLICY AND DECISION
1. Company objective
2. Cost of the product
3. Economic conditions
4. Customer Need and Characteristics
5. Competition
Pricing Strategy for New and Existing Products

1.6 New-Product Pricing

• Price skimming – charging the highest possible price that buyers who
most desire the product will pay
• Penetration pricing – prices set below competing brands to penetrate
market and gain market share quickly
• Stages in the Product Life Cycle
• Elasticity of Demand
• Consumers’ responsiveness or sensitivity to changes
in price.
• Elasticity of Demand
• Factors that Affect Elasticity
• Market-based Pricing

1.7 Pricing Existing Products/Services - 3 options

 Pricing below market prices è price wars
 EX: airlines, store brand vs. manufacturer’s brand
 Dumping
 Pricing above prevailing market prices for similar products è
Higher Quality
 EX: Sony è higher price = higher quality?
 Pricing at or near market prices
• Determinants of Pricing Flexibility
• Demand and cost factors determine the extent of pricing flexibility
• Upper and lower boundaries, competition and legal & ethical
consideration
• Pricing strategy influenced by competitor strategies, present and future
and legal and ethical consideration
• Narrow gap simplifies the decision and wide gap provide a grater range
of flexibility
• How Much Flexibility Exists?

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

1.8 Determining Specific Prices And Policies

• Determining Specific Prices
• Policies to Manage Pricing Strategy
A. Pricing Strategy for New and Existing Products
1. Cost Based Pricing– a peso amount to the cost of the product
2. Cost-Plus pricing – adding a specified dollar amount to the seller’s
costs
3. Markup – Adding to the cost of the product a predetermined
percentage of that cost
4. Demand-Based Pricing
 Customers pay a higher price when demand for the product is
strong and a lower price when demand is weak
 Product
1. Quality
2. Range
3. Nature- essential/luxury
4. Substitutes
 Support
1. Service at point of sale
& after
2. Advertising/promotion
3. Distribution Methods
 Market
1. Degree of competition
2. Competitor action/reaction
3. General economic conditions
5.Competition-Based Pricing
 Pricing influenced primarily by competitors’ prices method
increases when:
• competing products are homogeneous
• organization is serving markets in which price
is a key consideration

B. Policies to Manage Pricing Strategy

• Policy : Discounts, allowances, returns, and other operating guidelines
• Pricing Structure: Product mix and line pricing relationships.
• How individual items in the line are priced in relation to one another.

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

Performance Tasks

Discussions:
1. What Is Strategic Pricing - And Why Is It Important?
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2. Discuss the role of pricing in daily business activities.
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Understanding Directed Assess

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited

RUBRICS

CRITERIA Excellen Very Good Needs

t Good Improveme
nt
1. Completeness Does your response directly answer 5 4-3 2 0-1
each part of the assignment
question(s)?
2.Knowledge Does your response clearly show 5 4-3 2 0-1
you have read and understand the
lesson content by correctly defining
key terms, key persons and
summarizing concepts?
3.Analysis Have you clearly state analysis and 5 4-3 2 0-1
give examples to back them up?
Does your response provide
analysis to the larger concepts of
the lesson?
4.Writing Skills Do you write clearly, in complete 5 4-3 2 0-1
sentences, with minimal errors in
grammar and spelling? Did you use
the APA Method of Citation where
needed?

Reminders:
For online classes:
1. AVOID PLAGIARISM, include the source/reference of the performance task output.
2. SAVING FILES – Use the following format for saving the submitting the file Surname, Week No.,
Performance Task., eg. SAN JUAN,Week01-AssessmentTask_1.
3. Upload it on the submission link provided.

For offline classes:

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA
 Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Province of Laguna
Level I Institutionally Accredited
1. AVOID PLAGIARISM, include the source/ reference of the performance task output.
2. Since this activity has no worksheet please write your output on a short bond paper following the
format provided indicating the following information. And for word doc submission please use
the file naming convention provided example: SAN JUAN,Week01-AssessmentTask_1. save it
per week on your folder.

Learning Resources

 De Leon, Norma (2016 ) Cost Accounting

 Nagle Thomas, et al (2011) The Strategy and Tactics of Pricing-A Guide to Growing
more Profitable (5th Edition), Pearson Education Inc.
 www.pearsonhighered.com

LSPU SELF-PACED LEARNING MODULE: PRICING AND COSTING

Prepared by: ALVIN C. DE VILLA, MBA