Bus Marked

PRODUCT/services/
experience
◦PRODUCT
◦PRICE
◦PLACE
◦PROMOTION
IS PRODUCT PACKAGING IMPORTANT?
PRODUCT
◦A good, a service, or an idea received in an
exchange
◦Can be tangible, intangible, or a combination
of both
◦Can include functional, social, and
psychological utilities, or benefits
Questions about the PRODUCT
1. What needs does it satisfy?
2. What value does it offer to its customer?
3. What makes it unique?
4. What is its Unique Selling Proposition?
PACKAGING
◦the science, art, and technology of
enclosing or protecting products for
distribution, storage, sale, and use.
◦the activities of designing and producing
the container for a product.
https://www.slideshare.net/ANUJYADAV6880/packaging-labelling
Types of
Packaging
1. Primary Packaging
2. Secondary
Packaging
3. Tertiary Packaging
Objectives of
Packaging
1. Physical Protection
2. Barrier Protection
3. Containment or
Agglomeration
4. Security
5. Convenience
6. Portion Control
7. Marketing
http://ecoursesonline.iasri.res.in/mod/page/view.php?id=30543
LABELLING
◦Any written, electronic, or graphic
communications on the packaging or on a
separate but associated label
◦Display of information about a products on its
container, packaging, or the product itself
https://www.slideshare.net/ANUJYADAV6880/packaging-labelling
Objectives of
Labeling
Brand Identification
Objectives of
Labeling
Description
Promotion
Objectives of Labeled product plays the role of
advertisement. In this way, label provides
Labeling promotional help to the producer, or
distributors, or sellers.
1. Differentiate the three
types of packaging.
2. What are the
objectives of
packaging?
3. What are the
objectives of labeling?
4. How else can you get
ahead of competitors?
NEW
PRODUCT
D
E
V
E
L
O
P
M
E
N
T
PROCESS
https://searchcio.techtarget.com/definition/product-development-or-new-product-development-NPD
Task: Product Package & Label-making
◦Draw your own product packaging. Choose any

product available in the market and create your own
packaging and labeling.
4 Major attributes of Services
1. Intangibility
2. Variability
3. Inseparability
4. Perishability
REFLECTION
◦What is the importance of product packaging?
◦How does packaging affect the sales of a product?
MARKETING MIX: PRICE
PRICING STRATEGIES
REVIEW: MODIFIED TRUE OR FALSE
1. To recover from production cost, manufacturers usually introduce
products at a price higher than its actual value. This is called
mark-up.
2. In penetration pricing, the price is set low in order to gain market
share in a short amount of time.
3. When companies want to recover manufacturing costs and let go of
overhead expenses, it uses marginal pricing.
4. Charm pricing is a type of psychological pricing wherein all numerical
values are rounded into a whole to make buying decisions easier for
consumers.
5. Loss Leader Pricing involves sacrificing one item in order to get a
sale on another.
REVIEW: MODIFIED TRUE OR FALSE
1. To recover from production cost, manufacturers usually introduce
products at a price higher than its actual value. This is called
skimming.
2. In penetration pricing, the price is set low in order to gain market
share in a short amount of time. TRUE
3. When companies want to recover manufacturing costs and let go of
overhead expenses, it uses marginal pricing. TRUE
4. Prestige pricing is a type of psychological pricing wherein all
numerical values are rounded into a whole to make buying decisions
easier for consumers.
5. Loss Leader Pricing involves sacrificing one item in order to get a
sale on another. TRUE
P ri ce
ow to s
H d u c t
r P ro
yo u
MARK-UP PRICING
◼ the method of adding a certain percentage of a markup
to the cost of the product to determine the selling price
◼ Benefit: simple and commonly used
◼ Limitations: demand for the product is ignored;
perceived value of the customer and the amount of
competition is overlooked
https://www.entrepreneur.com/article/193986
https://corporatefinanceinstitute.com/resources/knowledge/accounting/markup/
MARK-UP PRICING
TARGET RETURN PRICING
◼ a method wherein the firm determines the price on the basis of a
target rate of return on the investment i.e. what the firm expects
from the investments made in the venture
◼ the firm calculates the amount invested in the business activities
and then determine the return they expect from these assuming
a particular quantity of the product is sold
◼ Benefit: easy to calculate and understand; ROI-driven
◼ Limitations: the quantity for which the set ROI is achievable will
be same for all the other quantities
https://www.entrepreneur.com/article/193986
https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/1119
9-target-return-pricing.html
TARGET RETURN PRICING
SAMPLE PROBLEM:
If a shoe company sets a target return of 15 percent

on ₱5 million that was invested into the development of a
new shoe. The manufacturing cost per unit is ₱150, and
the company expects to sell at least 10,000 units within
the specified timeframe.
https://corporatefinanceinstitute.com/resources/knowledge/accounting/m
SAMPLE PROBLEM:
Suppose an entrepreneurship group has invested ₱15,000

pesos in their business project and wants to set a price to earn a
20% ROI. The manufacturing cost of per hat is ₱162. Assuming
that the sales can reach 1,000 units, the Target return price will
be?
ACTIVITY
CLASSIFY THE FOLLOWING UNDER A- DIRECT MATERIALS / B –
DIRECT LABOR / C – OVERHEAD / D – FIXED COST
◼ Cutting department ◼ Material A purchases

◼ Utilities, factory ◼ Material B purchases
◼ Assembling department ◼ Staff salaries
◼ Advertising ◼ Secretarial salaries
◼ Professional fees ◼ Office rental
Read the problem and using the given, determine whether to use
MARK-UP or TARGET RETURN Pricing. Compute.
1. A 3-in-1 coffee is produced at ₱ 20.00 apiece. How much

would it cost with a desired mark-up of 15%, expected
sales of 200 units, and a fixed cost of ₱500.00?
2. How much would a skateboarding company charge for a
skateboard with a 35% ROI on skateboards if each board is
manufactured at a cost of ₱320 each with an investment
capital of ₱250,000? They were able to successfully
manufacture 500 pieces.
Principles of Marketing
Quarter 2 – Module 1:
The Product
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Published by the Department of Education

Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio
SENIOR HS MODULE DEVELOPMENT TEAM
Author : Charina C. Dizon

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Quarter 2 – Module 1:
The Product
Introductory Message
For the facilitator:
Welcome to the Principles of Marketing – Grade 12 Alternative Delivery Mode (ADM) Module on
The Product!
This module was collaboratively designed, developed and reviewed by educators both from
public and private institutions to assist you, the teacher or facilitator in helping the learners
meet the standards set by the K to 12 Curriculum while overcoming their personal, social, and
economic constraints in schooling.
This learning resource hopes to engage the learners into guided and independent learning
activities at their own pace and time. Furthermore, this also aims to help learners acquire the
needed 21st century skills while taking into consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of the module:
Notes to the Teacher

This contains helpful tips or strategies that will
help you in guiding the learners.
As a facilitator you are expected to orient the learners on how to use this module. You also need
to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
For the learner:
Welcome to the Principles of Marketing – Grade 12 Alternative Delivery Mode (ADM) Module on
The Product!
The hand is one of the most symbolized part of the human body. It is often used to depict skill,
action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand in
this learning resource signifies that you as a learner is capable and empowered to successfully
achieve the relevant competencies and skills at your own pace and time. Your academic success
lies in your own hands!
This module was designed to provide you with fun and meaningful opportunities for guided and
independent learning at your own pace and time. You will be enabled to process the contents of
the learning resource while being an active learner.
This module has the following parts and corresponding icons:
This will give you an idea of the skills or

What I Need to Know
competencies you are expected to learn in the
module.
What I Know This part includes an activity that aims to check

what you already know about the lesson to take.
If you get all the answers correct (100%), you may
decide to skip this module.
What’s In This is a brief drill or review to help you link the

current lesson with the previous one.
What’s New In this portion, the new lesson will be

introduced to you in various ways such as a story, a
song, a poem, a problem opener, an activity or a
situation.
What is It This section provides a brief discussion of the

lesson. This aims to help you discover and
understand new concepts and skills.
What’s More This comprises activities for independent

practice to solidify your understanding and skills
of the topic. You may check the answers to the
exercises using the Answer Key at the end of the
module.
What I Have Learned This includes questions or blank

sentence/paragraph to be filled in to process what
you learned from the lesson.
This section provides an activity which will help
What I Can Do
you transfer your new knowledge or skill into real
life situations or concerns.
This is a task which aims to evaluate your level of
Assessment
mastery in achieving the learning competency.
Additional Activities In this portion, another activity will be given to you

to enrich your knowledge or skill of the lesson
learned. This also tends retention of learned
concepts.
Answer Key This contains answers to all activities in the

module.
At the end of this module you will also find:
References This is a list of all sources used in developing

this module.
The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the module.
Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities included in
the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not hesitate to
consult your teacher or facilitator. Always bear in mind that you are not alone.
We hope that through this material, you will experience meaningful learning and gain deep
understanding of the relevant competencies. You can do it!
What I Need to Know
This module covers the first of the four P’s of marketing (marketing mix), Product, and includes
issues such us product development, classification of products, branding, packaging and
product life cycles. It will help learners to have a clear understanding on how to assess the
current market for new product opportunities.
At the end of the lesson, the learners will be able to:

1. Define a product. ABM-PM11-l1a-e-16;
2. Classify the products;
3. Define branding;
4. Define packaging; and
5. Identify the stages of the product life cycle.
What I Know
Consumer products are classified into different types in order to better understand consumer’s
behavior, to assist in the design and to support the crafting of marketing mix. Your task is to
appropriately classify the following list of products into convenience goods, shopping goods,
specialty goods, and unsought goods.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A company has to be good at both developing new products and managing them in the
face of changing tastes, technologies, and competition. Evidence suggests that every product
goes through a life cycle with different phases of sales and profits. Now, your task is to identify
the product life cycle accordingly.
11 12 13 14
Lesson
The Product
1
Organizations assess the current market for new product opportunities and, when
potentially profitable, develop new product prototypes to test feasibility of production.
Product Classification
Business Products
✔ Products that are used

to manufacture other
products.
Consumer Products
✔ Products purchased for

personal used
Consumer Goods
Consumer products referred to all those products that were meant for personal use
or direct consumption by the consumer. Based on the shopping habits of the target consumer,
Consumer goods are further classified as follows:
a. Convenience goods
Products that are often purchased by the consumer and do not need much forethought
or effort on the part of consumers are called as Convenience Goods. Such goods are consumed
often and thus are purchased immediately with minimum effort. Examples of convenience goods
are Newspapers and most of the FMCG (fast moving consumer goods) products such as food
staples, toiletries and others
b. Shopping Goods
These products are planned purchases where a consumer evaluates various brands –
based on price, features offered and other traits – and then makes the decision. Unlike the
purchase of convenience goods, shopping goods involve considerable expenditure and thus
Consumers are ready to invest effort and time comparing shopping products before making
the final decision. Examples of shopping goods would be the purchase of clothing, home
furnishings and furniture.
c. Specialty goods
These are goods for which consumers need to make the considerable effort before
making the purchase. The products have unique features and brand characteristics and
thus consumers do not compare between different brands. Rather, they might compare
between different models of the same product in the same brand. An example here would be a
purchase of a car.
d. Unsought goods
These are products that the consumer is unaware of and thus has no intention of buying.
Products such as Mutual funds or Life Insurance come under this kind the and need to be
advertised to entice consumers.
Business Goods
These are products that are used to manufacture other products. They can be used as
raw materials, spare parts, capital supplies or consumables. Business goods are further
classified as follows:
a. Materials and parts

As the name suggests, these goods are used as raw materials for the production of
goods or enter the business as manufactured materials or as component parts. Examples of
raw materials would be cotton that is used to manufacture fabric. Manufactured materials are
component materials such as iron
or zinc that are used to manufacture other products. Component parts, such as integrated
circuits, are products that enter the final product without being changed.
b. Capital Items
These are long-lasting goods that assist developing or managing the finished product.
c. Supplies and business services

These are products that facilitate developing or managing the finished product supplies.
This category is further divided into Operating supplies such as writing papers and maintenance
and repair products such as painting.
What’s In
Understanding the logic behind the product development. Express your thought by writing
AGREE or DISAGREE on the following expressions.
1. Internal and external factors impacting production and demand should all
be considered during the product development period.
2. The most important thing to keep in mind is that the product itself must
successfully fill an unwanted need in the market.
3. A product is basically a need-satisfying offering.

4. A product may serve different purposes, take different forms and serve
different types of buyers.
5. Since products can be of various kinds, it becomes pragmatic to divide

different kinds of products into similar classes.
6. Dining table is an example of a convenience goods.

7. Consumer goods are used as raw materials for the production of goods.
8. A product can be anything from a hotel stay, a flight, a language course, to
clothes, food or a toothbrush.
9. A product can be easily copied by other players in the market.
10. Convenience goods involve considerable expenditure.

´GET ON BOARD, LISTEN TO YOUR CUSTOMERS NEEDS!´
(Dizon C. 2020)
What’s New
Read
COLGATE AND ITS VALIANT ATTEMPTS TO

STRECTH THE BRAND
Colgate has been (and probably always will be) known as a

brand for oral care. In fact, this is its core strength. Colgate
brand of toothpaste is the leader in the many markets
globally while the colgate brands of toothbrushes and
mouthwashes can always be relied upon to be either number
one or number two in their respective categories. But if you
were an ambitious marketer, you would be seeing this
success from a different perspective; you would think that
colgate is such a powerful brand that it deserves to be on
more products. By not doing this, it would be a waste of
brand potential.
So, in 1982, the company launched

Colgate Kitchen Entrees that was a line of
frozen food which hope to capitalize on
the growing demand for microwaveable
meals. Furthermore, the idea here was
that after eating a Colgate meal, the happy
consumers would move on to brush their
teeth with colgate products.
Result: not only did the product turn out to be
a horrendous flop but it also dragged the
entire colgate oral care line down with it as
sales for Colgate toothpaste and related
products fell.
The lesson here was that if your brand is

heavily associated with a particular product
category, trying to stretch it toward other
categories may only end up hurting your
flagship products as the association of the
brand with the original category gets diluted.
What is It
“A brand is a name, term, design, symbol,

or any other feature that identifies one
seller’s good or service
as distinct from those of other sellers” “Branding is endowing
products and services with the
(American Marketing Association).
power of a brand” (Kotler &
Keller, 2015)
Branding is important because not only is it what makes a memorable impression on

consumers but it allows your customers and clients to know what to expect from your company.
It is a way of distinguishing yourself from the competitors and clarifying what it is you offer that
makes you the better choice. Your brand is built to be a true representation of who you are as a
business, and how you wish to be perceived.
The objective is to attract and retain loyal customers and other stakeholders by delivering a
product that is always aligned with what the brand promises.
Brand definition: purpose,

values, promise
Brand positioning statement
Advertising and
communications: TV, radio,
magazines, outdoor ads,
website, mobile apps…
Companie
Sponsoring and
s tend to
partnerships
use
different
tools to
Product and packaging
create design
and shape
a brand.
For
example, In-store experience
branding
can be
achieved Workspace experience and
through: management style
Workspace experience and

management style
Customer service
Pricing strategy
Packaging
Packaging is more than just your product's
Definition: The
wrapping material pretty face. Your package design may affect
around a consumer everything from breakage rates in shipment
item that serves to
to whether stores will be willing to stock it.
contain, identify,
describe, protect,
display, promote and
otherwise make the
product marketable
and keep it clean
The Product Life Cycle is a model that predicts the general trend that most successful
products or services will follow during their lifetime. This life cycle can be reviewed across an
entire category, or in the context of an individual companies product. It is a strategy tool that
helps companies plan for new product development and refine existing products
There
are
stages 4
to
life
the
process
cycle
in
shown
the
table
below. can be
decline
While
avoided by
reinventing
elements of the
product, it also
recognizes that
some products
never move beyond the introduction phase whilst others move through the life cycle much
faster than others.
What do the PLC stages mean?
Stage 1: Introduction Stage 2: Growth
Introducing a new Here, the product is being

product where it’s bought and with volume, the
unknown and price declines.
products are small. Distribution increases and
The price is often promotion focuses on
higher as
product benefits
distribution is
limited, and
promotion is
personalized.
Stage 3: Maturity
Stage 4: Decline
Here, the product

The product is reaching the end
competes with
of its life and faces fewer
alternatives and
competitors. The price may rise
pricing drops.
and distribution has become
Distribution becomes
selective as some distributors
intense (it’s available
have dropped the product.
everywhere) and
Promotion aims to remind
promotion focuses on the
customers of its existence. differences to
competitors’ products.
Direction: Put a tick (/) on the corresponding column.
Stages Introduction Growth Maturity Decline

1. Products end its life
2. Products competes with
alternatives
3. Products are being bought
4. New products are introduced
5. Promotion is personalized
6. Promotion focus on differences
7. Distribution is limited
8. Distribution becomes intense
9. Price is often higher
10.Faces fewer competitors
What’s More
Guessing a Brand Game. The following advertising tagline conveys the
brand’s spirit in the shortest way possible. In just a few words, you’re expected to grasp the vibe
of your brand. Guess what is the specific product based on the given tagline.
1. Think different
2. Just do it
3. It’s finger lickin’ good
4. Open happiness
5. Have a break
6. Melt in your mouth not in your hands
7. Bida ang Saya
8. We find ways
9. Make it possible
10. It’s you that counts.
What I Have Learned

Direction: Fill in the blanks to complete the conceptual information about
pricing.
The process of identifying consumer needs within a market, and innovating towards developing
a product to fulfill those needs, is referred to as
new 1.
development. When developing new products, the most important thing to keep in
mind is that the product itself must successfully fill an 2.
in the market, transforming a market opportunity into a tangible and marketable
product.
3. products referred to all those products that were meant for personal use or direct
consumption by the consumer. On the other hand, 4.
are products that are used to manufacture other products. They can be used as raw
materials, spare parts, capital supplies or consumables.
5. helps to identify a product and distinguish it from other products and services while 6.
is the silent salesman that will grab busy consumers’ attention in-store.
The 7. is a model that predicts the general trend that most successful products or services will
follow during their lifetime. This lifecycle can be reviewed across an entire category, or in the
context of an individual companies product. It is a 8. tool that helps companies plan for
new product development and refine existing product. While 9. can be avoided by
reinventing elements of the product, it also recognizes that some products never move beyond
the 10. phase while others move through the life cycle much faster than others.
What I Can Do
Having learned the stages of a product life cycle, indicate the stages concern in the
blank provided.
The price may

rise and
The price is distribution
often higher has become
as selective as
distribution some
is limited distributors
have dropped
the product.
1.
2.
Here, the product

competes with
The price
alternatives and
declines.
pricing drops.
Distribution
Distribution becomes
increases and
intense (it’s available promotion
everywhere) focuses on
product
benefits
3.
4.
Assessment
Directions: Think and Match. Look for the best match of information from the
given terms inside the word pool.
1. Products such as Mutual funds 2. Such goods are

or Life Insurance come under
consumed often and thus are
this kind the and need to be
advertised to entice purchased immediately
consumers. with minimum effort.
3. These are long-lasting 4. This category is

goodsthat assist
further divided into
developing or managing
Operating supplies
the finished product.
such as writing
papers and
and
maintenance
repair products such as
5. These are
goods painting.
for which
consumers
need to make
the Specialty goods unsought goods
considerable Convenience goods
effort before
Capital items
making
the
purchase. supplies and business services
t I have learned:
Wha
ssment:
Asse oduct
itional Activities: 1.Pr
Add sought goods t I Can Do: isting need
1.Un Wha 2. Ex
nsumer nsumer
1.Co 2.Co
nvenience goods 3.Co
ge 1 siness
siness pital items 1.Sta 4.Bu
2.Bu 3.Ca ge 4 anding
oduct pplies and business 2.Sta 5.Br
3.Pr 4.Su ge 3 ckaging
and ices 3.Sta 6.Pa
4.Br serv ge 2 oduct life cycle
ckaging ecialty 4.Sta 7.Pr
5.pa 5.Sp ategy
8.Str
cline
9.De
duction
10. intro
t I Know:
Wha
t’s In: nvenience goods
t is It: Wha 1.Co
Wha sought goods
ree 2.Un
t’s More: cline 1.Ag ecialty goods
Wha 1.De sagree 3.Sp
aturity 2.Di ecialty goods
2.M ree 4.Sp
ple owth 3.Ag opping goods
1.Ap 3.Gr ree 5.Sh
ke oduction 4.Ag nvenience goods
2.Ni 4.Intr ree 6.Co
C oduction 5.Ag nvenience goods
3.KF 5.Intr sagree 7.Co
ca cola aturity 6.Di opping goods
4.Co 6.M sagree 8.Sh
at oduction 7.Di
5.Kitk 7.Intr ree 9.Un
sought goods
&M aturity 8.Ag
6.M 8.M ree nvenience goods
libee duction 9.Ag 10.Co
7.Jo 9.Intro isagree troduction
O ine 10.d 11.in
8.BD 10. decl rowth
awei 12. g
9.Hu turity
10. PLDT 13. ma
ecline
14. d
Answer Key
KCAPNGAIG 5.
ANDBR 4.
PTRCUDO 3.
SSSEIEUB 2.
REMNOCUS 1.
given letters.
Direction: Find the meaningful word related to product by rearranging the
Additional Activities
References
2020. https://www.marketing91.com/product-class/ Morgan M. Product life Cycle.
Accessed July 13, 2020.
2020. https://pixabay.com/illustrations/insurance-life-insurance-heart-.
2020. https://morganmelnyk.wordpress.com/2016/02/25/what-is-the-product-
life-cycle-model/ Smithson E. 2015. What is Branding and Why is it Important for your
business. Accessed July 12, 2020.
https://www.brandingmag.com/2015/10/14/what-is-branding-and-why-is-it-
important-for-your-.
Alcoran Alaric Brian. 2018. Principles of Marketing. Philippines: Bookline Publishing

Corporation.
Bhasin H., 2018. Conceot of Product Class. Accessed July 12, 2020.
"Bread And Grains: Image Details - NCI Visuals Online". Visualsonline.Cancer.Gov, 2020.
https://visualsonline.cancer.gov/details.cfm?imageid=2441.
"Classifying Consumer Products - Great Ideas For Teaching Marketing". Great Ideas For
Teaching Marketing, 2020.
https://www.greatideasforteachingmarketing.com/classifying-consumer- produc.
"Clothing Assortment | Public Domain Vectors". Publicdomainvectors.Org, 2020.
https://publicdomainvectors.org/en/free-clipart/Clothing- Assortment/66775.html.
Google.Com, 2020.
https://www.google.com/search?q=new%20product%20development%20clipar
t&tbm=isch&tbs=sur%3Afc&hl=en&ved=0CAIQpwVqFwoTCLj1md37yOoCFQAA
AAAdAAAAABAI&biw=1519&bih=754.
"File:Wikivoc-Egg.Svg - Wikimedia Commons". Commons.Wikimedia.Org, 2020.

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Ilano A.B. 2017. Principles of Marketing. Philippines. Rex Book Store.
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Publicdomainpictures.Net, 2020.
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Ltd, Bobek. "TV Isolated Background Clipart Free Stock Photo - Public Domain Pictures".
Publicdomainpictures.Net, 2020.
https://www.publicdomainpictures.net/en/view-image.php?image=62615&.
"Packaging Definition - Entrepreneur Small Business Encyclopedia". Entrepreneur, 2020.
https://www.entrepreneur.com/encyclopedia/packaging.
"Product Strategy | Boundless Business". Courses.Lumenlearning.Com, 2020.

https://courses.lumenlearning.com/boundless-business/chapter/product- strate.
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12 SENIOR HIGH SCHOOL
PRINCIPLES OF MARKETING
Quarter 4 – Module 1
Defining a Product and
Differentiating Product, Services,
and Experiences
Principles of Marketing – Grade 12
Alternative Delivery Mode
Quarter 4 – Module 1: Defining a Product and Differentiating Product, Services, and
Experiences
First Edition, 2020
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12
Quarter 4 - Module 1
Defining a Product and
Differentiating Product,
Services, and Experiences
I
In a business to generate profits, there must be an offering of

products and services to both individual customers and organizations.
Other than these, marketing organizations also offer experiences,
ideas, advocacies, and even personalities.
As students, understanding products, services, and experiences
will help you value the product or services and make purchases based
on their perception of its ability to satisfy needs and wants. Here, you
will discover Product levels, classifications of products/Goods,
services, and experiences in helping you decide as consumers and to
formulate strategies as marketers. You will also learn that product
experience is important for the growth and sustainability of business
and as consumers you can build trust. It covers many different
learning situations where you can relate your personal experiences on
different practical scenarios about Principles of Marketing.
Learning Competency
Define a product and differentiate the product, services, and
experiences (ABM_PM11_11ae-16)
OBJECTIVES:
K: Define the characteristics of a product and highlight the
differences amongst products, services, and experiences; &
Discuss the usefulness of product, service, and experience
in analyzing situation as part of the decision making on the
part of the consumers and marketers;
S: Design and create product, service, and experience in the
formulation of strategies in marketing;
A: Apply the importance in valuing products, services, and
product experiences.
2
I
Task 1: Let’s check your prior knowledge…
Identify the following words/group of words and write this symbol (✓) in the space
before each word if you think this is what an organization usually market. Write your answers
in your activity notebook.
_________ Goods
_________ Services
_________ Experiences
_________ Ideas
_________ Advocacies
_________ Personalities
_________ Product
_________ Plumbing
_________ Tangible Items
_________ Events
_________ Person
_________ Rewiring
_________ Motor vehicles
_________ Places
_________ Appliances
3
’s In
TASK 2: Relate me…
Direction: Relate the following situation and description. Then, Identify as Product,
Service, or Experience. Write only the number in its proper column.
Product Service Experience
1. Tangible item that is put on the market for acquisition, attention, or consumption
2. Any activity or benefit that one party can offer to another which is essentially intangible
item, which arises from the output of one or more individuals
3. Are countable, touchable, and visible, a consumer can assess its durability by
examining it.
4. Involves experiential aspects of consumption
5. An activity, benefit or satisfaction that is offered for sale
6. Represent what buying the product or service will do for the customer
7. Customer’s overall perception of your company, based on their interactions with it.
8. One of the customers have said that company X is known for its warm and friendly
staff.
9. Anything that can be offered in a market for attention, acquisition, use, or consumption
that might satisfy a need or want.
10. A lawyer speaks for their clients in court.
4
11.
’s New
I think you’re doing great of the activities given above. Congratulations!
TASK 3: Let’s choose to buy…
As consumers, we have different levels of need for a product. Now, I want you to
identify the different products found inside the box and answer the given questions below.
Picture this scene:
You walk into a store and carefully looking around to buy a mask to protect yourself
from the virus…
A B C D
https://www.google.com/search?q=different+masks+designs&tbm=isch&ved=2ahUKEwiO7Lr4ia
HvAhUQCaYKHVEOCzQQ2cCegQIABAA&oq=different+masks+designs&gs
Let’s examine the product level as you perceive by your senses prior to purchase of the
product.
Your Questions Your Explanation/statement

From letters A to D, Choose one (1)
product you want to buy. Start your
statement by saying
I want to buy…
Or
I’m looking for…
Or
I need…
5
Describe the benefit you can get that
can satisfy you when buying the
product that you chose?
Describe only those features
necessary for it to function?
What are set of features that you as
customer expect when you buy the
product you are choosing?
What product variations, extra
features, or services that help
differentiate the product that you
chose?
is It
What do organizations market? As consumers, we are most familiar with the

marketing of goods and services. Other than these, marketing organizations also market
experiences, ideas, advocacies, and even personalities.
What is a Product?
Product is anything that can be offered in a market for attention, acquisition, use, or
consumption that might satisfy a need or want.
Includes:
 Physical object
 Services
 Events
 Person
 Places
 Organization
 Ideas
For Kotler, the definition of a product goes way beyond being a physical object or a
service. He defines a product as anything that can meet a need or a want. This means that
even a retail store or a customer service representative is considered a product.
Products or goods are physically tangible items. As such, they are generally
perceivable by the human senses and can therefore, be inspected prior to purchase.
6
Customers will choose a product based on their perceived value of it. The customer is
satisfied if the product’s actual value meets or exceeds their expectations. If the product’s
actual value falls below their expectations they will be dissatisfied.
Figure 1. Product levels.

Source: www.expertprogrammanagement.com
Let’s consider each of the levels in turn.
1. Core Benefit
➢ The core benefit is the fundamental need or want that the customer satisfies when they
buy the product.
For example, the core benefit of a hotel is to provide somewhere to rest or sleep when away
from home.
2. Generic Product
➢ The generic product is a basic version of the product made up of only those features
necessary for it to function.
In a hotel example, this could mean a bed, towels, a bathroom, a mirror, and a wardrobe.
3. Expected Product
➢ The expected product is the set of features that the customers expect when they buy the
product.
7
In a hotel example, this would include clean sheets, some clean towels, Wi-fi, and a clean
bathroom.
1. Augmented Product
➢ The augmented product refers to any product variations, extra features, or services that
help differentiate the product from its competitors.
In a hotel example, this could be the inclusion of a concierge service or a free map of the
town in every room.
2. Potential Product
➢ The potential product includes all augmentations and transformations the product might
undergo in the future. In simple language, this means that to continue to surprise and
delight customers the product must be augmented.
In a hotel, this could mean a different gift placed in the room each time a customer stays.
For example, it could be some chocolates on one occasion, and some luxury water on
another. By continuing to augment its product in this way the hotel will continue to delight
and surprise the customer.
Product Classification
A product is anything offered for sale for the purpose of satisfying a want or need on
both side of the exchange process. Products are classified on two types on the basis of
customer characteristics.
Products that are marketed can be generally classified according to use,

differentiation, type, and durability.
8
Products/
Goods
According to According to
According to Use According to Type
Differentiation Durability
-Consumables -Convenience goods

- Consumer goods -Undifferentiated -Shopping goods
-Semi-Durables -Specialty goods
-Industrial goods -Differentiated
-Durables -Unsought goods
Figure 2: Classification of Products.
1. According to use : Consumer and Industrial Goods
Consumer goods are goods that are purchased for personal consumption and/or
household use.
Examples: Instant noodles, biscuits, milk, detergent soap, shampoo, and other similar
items
Industrial goods are purchased in order to make other goods, to serve as a raw
material or input in the production of other goods.
Examples: Aluminum (used to manufacture kitchen equipment and cans); electronic
cables and wires (serve as electrical conduits for home appliances)
It would not be possible to say, however, that a product is always a consumer good or
an industrial good. A good that is ordinarily a consumer good can also be used as an
industrial good, and vice-versa. For example, when a consumer buys sugar from the
supermarket and uses this sugar to sweeten his/her coffee, the sugar in this particular case is a
consumer good. However, if the sugar is added to flour, chocolate syrup, eggs, and walnuts to
make brownies and eventually sold, the sugar in this case is an industrial good.
In other words, physical characteristics alone cannot determine whether a product is a
consumer good or an industrial good. One should also consider how the product is ultimately
used.
2. According to Differentiation: Undifferentiated and Differentiated Goods
Undifferentiated goods are products whose physical characteristics are so identical,

that it would be difficult, if not impossible, to distinguish one purchased from one vendor or
another. Most undifferentiated goods are products that are sourced from nature.
9
Example: salt bought from the two different vendors’ looks, feels, and tastes identical.
Differentiated goods are varied in their characteristics and features that make them
distinguishable from one another.
Example: Car, the appearance and the features vary because of the ability of the
manufacturers to successfully distinguish their products from competitors which is called
branding.
3. According to durability: Consumable, Semi-Durable, and Durable Goods
Durability refers to the length of time a consumer can derive benefit from the product
or good purchased.
Consumable is a product whose benefit can only be used by a consumer for a short
period of time, sometimes only a few minutes. Consumables a such as food, drinks
Semi-durables provide benefits to the consumer for a longer period of time, usually
spanning several months. Semi-durables are manufactured for long-term use by consumer.
Examples of semi-durables are clothes, shoes, belts, jackets, etc.
Durables are products that are manufactured to last a long time. They are capable of
providing consumers with years of beneficial use. Durables are usually expensive, and many,
therefore, require an augmented product to market them effectively. Examples of durable
goods are automobiles, houses, home appliances, customer electronics, furniture, sports
equipment, and toys.
4. According to Type: Convenience, Shopping, Specialty, and Unsought Goods
Convenience goods are products that are purchased frequently, usually inexpensive,
and do not require much purchase effort and evaluation. Examples are newspapers, gum, and
candy.
They key to the successful marketing of convenience goods is its availability in as
many retail outlets as possible, catering to consumer need where and when it arises.
Shopping goods are purchased less frequently than convenience goods, are relatively
more expensive, and require some amount of information search and evaluation prior to
purchase. Consumers of shopping goods consider features, evaluate attributes, and compare
prices. Examples of shopping goods are shoes, clothes, and handbags.
The successful marketing of shopping goods depends on intensive advertising, well-
trained salespersons, and positioning company products as superior alternatives to
competitors’ products.
Specialty goods are goods that require an unusually large effort on the part of
consumers to acquire. Consumers are usually willing to travel great distances to where these
10
goods can be purchased. Examples are branded luxury merchandise, works of art,
automobiles, and homes.
The successful marketing of specialty goods requires the promotion of strong brand
image and identities.
Unsought goods are goods that consumers seldom actively look for, and are usually
purchased for extraordinary reasons, such as fear or adversity, rather than desire. Examples
are investments, memorial plans, and life insurance. These goods require advertising and
aggressive selling efforts and are usually marketed using highly-trained and persuasive
salespersons.
What is Service?
Services are form of product that consist of activities, benefits, or satisfaction offered
for sale that are essentially intangible and do not result in the ownership of anything
Services are generally considered more difficult to market due to its four major attributes:
1. Intangibility
Physical products are tangible. As such, they can be inspected by consumers prior to
purchase. On the other hand, services are intangible. It would, therefore, not be possible to
“sample” a lawyer’s legal skills, or a doctor’s ability to handle a surgical operation before one
decides to retain a lawyer or a doctor. This is the first reason that makes the marketing of
services difficult.
How do marketers address the intangible attribute of services? Service marketers
commonly resort to the practice of making their services tangible. Although lawyers and
doctors cannot give their potential clients a preview of their service skills, they retail large
luxurious offices manned by smartly dressed staff. They maintain extensive and updated legal
and medical libraries that are readily visible to visitors. They also display diplomas,
certifications, and other documentary evidence of their training and expertise, and readily
give out professionally prepared business cards with Latin titles after their names. Moreover,
they are always professional in attire and conduct. These give their potential clients an
impression of their competence and capability to render the service required.
2. Variability
Because services are performed by human beings, no service provider can render the
same service in exactly the same way every single time. A college professor, when giving the
same lecture in two separate sessions, cannot use the exact words and gestures for both
sessions.
How do marketing organizations address the problem of service variability? The

problem can best be addressed by developing and implementing standard operating
procedures on how the service should be rendered. A fast-food counter clerk, for example,
11
follows a script in greeting customers, asking orders, reading and confirming the order,
receiving payment, etc. by following a procedure, incidences of variability are reduced.
3. Inseparability
Because services are rendered by people, the service provider must be present each
and every time the service is provided. Services are rendered and consumed simultaneously.
As a lawyer gives legal advice to a client, legal services are being “produced” and
simultaneously “consumed” by the client. This limits the ability to render the service to a
large number of people, as the service provider’s presence is always a necessary component
in the rendering of the service.
To maximize revenues, service companies institute a combination of standardized
systems and procedures, and service franchising.
4. Perishability
Unconsumed services cannot be stored or warehoused. When a 40-room boutique
hotel with a restaurant on its ground floor operates on a particular day, unconsumed or
unused ingredients for food production, unsold bottles of soda, or unused coffee beans can be
stored, available for use or sale the following day. However, if on the same day, only 32 of its
40 rooms are occupied by guests, the eight unsold, unoccupied rooms cannot be stored and
added to its 40-room availability the next day. The eight unsold, unoccupied rooms have
“perished.” they represent lost revenues for the day that can never be recovered. Similarly,
the unsold seats of a 250-seat commercial jet airliner flying from Manila to Los Angeles
“perishes” as soon as the plane takes off from the Ninoy Aquino International Airport.
How can marketers maximize revenues and avoid lost service Perishability? The key
is the implementation of a marketing strategy called capacity management, or achieving a
proper balance between service demand (customer needs) and service supply (service
availability). If service demand exceeds service supply, the excess demand cannot be
accommodated by supply; potential revenues are lost. On the other hand, if service supply
exceeds service demand, the excess supply “perishes” and represents unrecoverable revenues.
Capacity management can be implemented in various ways. The airline industry, for
example, uses algorithms that monitor and change ticket prices for various destinations
depending on the time and date of ticket booking, and availability of seats. This results in
frequent price movements. Depending on supply and demand, ticket prices for some
destinations change in a matter of seconds. In traditional capacity management, international
long-distance carriers have been known to offer substantial discounts when are made at odd
hours (usually late nights to early morning). this is to relieve demand during peak hours.
Concert ticket prices vary by location in order to maximize the venue’s seating capacity,
thereby reducing the entertainment service’s “Perishability”. Some restaurants also offer
discounted rates for patrons dining during low-capacity hours of the day.
12
What is Experience?
A product which involves experiential aspects of consumption rather than utilitarian

ones. This type of product allows consumers to engage in fantasies, feelings and fun and
often carries subjective meanings and characteristics (Hirschman and Holbrook, 1982).
Represent what buying the product or service will do for the customer
Product Experience
Product experience is the overall value of a product or service to customers. This is

defined in terms of customer perceptions as they use the product or service in a variety
of contexts. Product experience is a component of customer experience, a broader concept
that includes all interactions between your firm and the customer. Product experience is
mainly achieved through design and quality control.
Customer experience
Customer experience is the impression your customers have of your brand as a whole
throughout all aspects of the buyer's journey. It results in their view of your brand and
impacts factors related to your bottom-line including revenue.
The two primary touch points that create the customer experience are people and
product.
Are you blown away by the performance of the product? Are you delighted by the
attention a customer support rep gives you to help solve your problem? These are some
general examples of what factors are at play when creating a great customer experience.
Importance of Customer Experience
A remarkable customer experience is critical to the sustained growth of any business.

A positive customer experience promotes loyalty, helps you retain customers, and encourages
brand advocacy.
Today, customers have the power, not the sellers.
Who gave them this power? Us — with help from the worldwide web.
Customers have a plethora of options to choose from at their fingertips plus the
resources necessary to educate themselves and make purchases on their own.
13
This is why it's so important to provide a remarkable experience and make them want
to continue doing business with you — customers are your best resource for growing your
brand awareness.
’s More
Task 4: Let’s check your understanding…
Directions. Read the statement inside the vertical scroll. Answer what is asked in each item.
Accomplish this in your activity notebook.
In our community even in our home we can witness different events in different
sizes like local or community events, major events, hallmark events to celebrate
because of the following purposes:
 To celebrate important happenings in our lives
 To position, brand or build the image of a person, organization or country,
 To relax, to entertain
 To mark the local and domestic details of our lives
Now, answer the following questions:

A.
1. Are events a product? Why or why not?
2. Are events a service? Why or why not?
3. Are events an experience? Why or why not?
4. How important products and services in your lives?
5. How important products and services in an organization or business?
B.
1. How can you distinguish product, service and experience?
2. In what way services generally considered more difficult to market? Cite one (1) reason
or attribute and explain how marketers address the problems.
3. As a consumer, do you consider product classification to satisfy your needs and wants?
In what way?
14
4. As marketers, how important customer’s experience for the sustainability of the
business?
5. How important experiences both consumer and in market organization?
Rubrics:
4-5 points Response to the question is well organized and clearly written; there
is evidence of planning before writing.
2-3 points Does not address the question clearly.
0-1 point Does not address the problem.
I Have Learned
Task 5: Let’s reflect and realize…
Direction: In your notebook, complete the following statements.
1. I have learned that

__________________________________________________________________
2. I have realized that

__________________________________________________________________
3. I will apply what I have learned
__________________________________________________________________
15
I Can Do
Task 6: Let’s create and design…
Direction: Do what is instructed below. Write your answers in your notebook.
One of the goals of business is to cater the needs and wants of the customers and make
them satisfied of the goods & services that a business provides in order for them to
share their experiences for the growth and sustainability of the business operation.
Now, I want you to create your own product or services that best suits to the needs of
our present situation which we are in the midst of the global pandemic.
Requirement:
Create your own product using the Five (5) Product Levels by Kotler. Use the table below:
Product levels Question Answer
Product or services you Draw the product you want Drawing here:
can create and offer to to offer
your customers
Core benefit of
the State the fundamental
product benefit that you can offer to
satisfy them
Generic product State the basic version of the
product the features
necessary for it to function
Expected product State the product set of
features that the customers
expect when they buy the
product
Augmented product State product variations,
extra features or services
that help differentiate the
product from its competitors
or what made your product
unique.
16
Activity Rubrics
Description: This rubric is designed to evaluate the students ability to create their own
products which requires them to be creative, innovative, and to incorporate their knowledge
about product attributes and its features which is discussed in the lesson.
Criteria Very Good Good Fair Poor
4 3 2 1
Marketability Is visually very Looks good, Looks good but Looks sloppy,
appealing to appealing to not appealing to not appealing
customers customers customers to customers
Innovativeness/ Very original, Original ideas, Shows some Does not
Creativity shows adequate use of originality, exhibit efforts
-Originality imaginative use resources inadequate use to be original
of resources of resources
Benefits to Very useful, Useful, practical Useful and safe Useful but
one’s health practical and and safe in in using the not safe and
and the safe in using the using the product but not practical in
environment product to product to practical for the using the
- usability health and the health and the health and the product for
- practicality environment environment environment the
-safety in using environment
the product
Product Very satisfying Satisfying, Satisfying, but Not satisfying
-features , statement of statement of the statement of and
-variations product features product features product features convincing
-extra features and benefits and benefits and benefits not the statement
very convincing convincing convincing of product
-benefits features &
their benefits
https://www.slideshare.net/virgilioparagele/sample-rubrics-for-the-level-of-performance-
integrated-sc
17
Task 7: Let’s check it out…
Triple-Table Matching Type: Match the Products, services, and experiences according to
definition and characteristics & their examples. Write the proper combination in your activity
notebook.
Example : Based on the type of product, services and experience provided in the column 1,
which is “Differentiated goods”, match its characteristics and examples in column 2 and 3.
1 2 3
Products, Definition & characteristics Examples
Services,
Experiences
A1. O2 A3.
1. Differentiated Varied characteristics and features to White car (SUV) with

goods distinguish products from the other different brands
competitors
Answer:
1. A1, O2, A3
You may start now!

1 2 3
Products, Definition & characteristics Examples
Services,
Experiences
A1. A2. A3.
Differentiated Are products that are manufactured to White car (SUV) with
1. goods last a long time. They are capable of different brands
providing consumers with years of
beneficial use
B1. B2. B3.
Industrial Provide benefits to the consumer for a Cowhide to produce
2.
longer period of time, usually spanning leather shoes
several months
C1. C2. C3.
Consumer Goods that require an unusually large Rice, milk, shampoo,
good effort on the part of consumers to detergent soap
3.
acquire. Consumers willing to travel
great distances to where these goods can
be purchased
D1. D2. D3.
4.
Undifferentiat Products purchased frequently, are Rock salt
18
ed goods usually inexpensive, and do not require
much purchase effort and evaluation
E1. E2. E3.
Experience Goods that consumers seldom actively Repeat Customer/
5.
look for and are usually purchased for loyal customer
extraordinary reasons
F1. F2. F3.
Product Consumers consider features, evaluate Tangible &
6. attributes, and compare prices and Intangible products &
purchased less frequently than services
convenience goods
G1. G2. G3.
Variability A service that essentially intangible and Sausages in can don’t
7. do not result in the ownership of have the same
anything quantity of sausages
inside
H1. H2. H3.
8. Consumable Product whose benefit can only be used Non-edible items
by a consumer for a short period of time such as toiletries
I1. I2 I3.
Pure service a service performed by human beings; Catering services
9.
no service provider can render exactly
the same service every single time
J1 J2 J3
10. Shopping Anything that can meet a need or a Shoes, clothes
goods want.
K1 K2 K3
11. Unsought Represent what buying the product or Memorial plan, life
goods service will do for the customer insurance
L1 L2 L3
Convenience Physical characteristics are identical that Candies, newspapers
12.
goods is why difficult to distinguish. Products
that are sourced from nature
M1 M2 M3
13. Specialty Purchased for personal consumption Branded luxury
and/or for household use merchandise
N1 N2 N3
14. Semi-durables Raw material purchased in order to Semi-durables like
make other goods belts, jackets, etc.
O1 O2 O3
Durables Varied characteristics and features to Durable goods like
15.
distinguish products from the other automobiles, houses,
competitors home appliances
19
Task 8: Let’s go beyond…
Directions. Examine your personal experiences and analyze by answering what is given
below. Write your answers in your activity notebook.
Using either the product, service, & experience, analyze an event you recently attended
or remembered. Justify why you believe it is either a product, service, or experience by
identifying the key characteristics
Criteria for scoring:
Excellent Proficient Developing Poor

(4) (3) (2) (1)
Information and evidence are
accurate, appropriate, and
integrated effectively
Claims and ideas are supported
and elaborated
Sentence form and word choice
are varied and appropriate
Creativity/originality is evident
20
21
Assessment
1. A1, O2, A3
2. B1, N2, B3
3. C1, M2, C3
4. D1, L2, D3
5. E1, K2, E3
6. F1, J2, F3
7. G1, I2, G3
8. H1, H2, H3
9. I1, G2, I3
10. J1, F2, J3
11. K1, E2, K3
12. L1, D2, L3
13. M1, C2, M3
14. N1, B2, N3
15. O1, A2, O3
What I have learned What can I do Additional Activities
Answers my vary Answers may vary (with rubrics) Answers may vary
What’s In What’s In (Task 2) What I Know (Task 1)
(/)Goods
Answers may vary P S E (/)Services
1 2 4 (/)experiences
3 5 6 (/)Ideas
What’s more 9 10 7 (/)Advocacies
A. 8 (/)Personalities
Questions 1to3 (yes) reason: (/)Product
Answers may vary (/)Plumbing
B. (/)Tangible Items
Answers may vary (/)Events
(with rubrics) (/)Person
(/)Rewiring
(/)Motor vehicles
(/)Places
(/)Appliances
Glossary
Product - is anything that can be offered to a market that might satisfy a want or need.
Service - form of product that consist of activities, benefits, or satisfaction offered for sale
that are essentially intangible and do not result in the ownership of anything.
Experience - is a strategy that uses in-person events to promote products.
Organization - any system, body or group of people working together to achieve common
goals and objectives of the business.
Consumer- people or organizations that purchase products or services
Marketer -responsible for developing and executing strategies to promote brands, products
and services, maximizing profits for the company.
22
References
Books
So, R.C., & Torres, O.R. (2016). Principles of Marketing. Gregorio Araneta Avenue, Quezon
City: Vibal Group Inc.
Online Sources
Anonymous (n.d.) Five Products level (Kotler). Publisher EPM. Retrieved from:
https://expertprogrammanagement.com/2017/10/five-product-levels/. [Accessed on
March 11, 2021]
Ferdinand, N. (2012). Events-Product, service, experience. Retrieved from:

https://www.slideshare.net/NicoleFerdinand/events-product-service-
experience?fbclid=IwAR2BoqBjYcndARLb6SX8bmhBKE56EO6pFqslQZyDcqD7g
yi7YnaI. [Accessed March 02, 2021]Is Customer Experience? (An
Bordeaux, J. (2020). What is customer experience (why its so important). Retrieved from:
https://blog.hubspot.com/service/what-is-customer-experience. [Accessed on March
11, 2021]
Spacey, J. (2017). 30 types of product experience. Retrieved from:

https://simplicable.com/new/product-experience. [Accessed on March 11, 2011]
Calderon, C. (2014). Product, Services, and Branding. Retrieved from:

https://www.slideshare.net/ghyj/principles-of-marketing-chapter-7-title-title-
productservices-and-branding-
strategy?fbclid=IwAROWoNYjWWiKzVndee5FDwKHUpxqRq6Arxanxx!nS.
[Accessed on March 10, 2021]
23
1
12 SENIOR HIGH SCHOOL
PRINCIPLES OF MARKETING
Quarter 4 – Module 2
Factors to Consider When Setting
Prices and its General Pricing
Approaches
Principles of Marketing – Grade 12
Alternative Delivery Mode
Quarter 4 – Module 2: Factors to Consider When Setting Prices and its General
Pricing Approaches
First Edition, 2020
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12
Quarter 4 - Module 2
Factors to Consider When Setting
Prices and its General Pricing
Approaches
I
LEARNING COMPETENCY:
• Identify and Describe the Factors to Consider when Setting Prices

and New Product Pricing and its General Pricing Approaches
(ABM_PM11-IIae-17)
OBJECTIVES:
K: Identify the internal and external factors affecting pricing
decisions;
S: Describe pricing strategies for a new product and when to
use them;
A: Apply the importance of general pricing approaches.
2
I
Pre-assessment:
Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
1. Which pricing strategy is where you add a percentage onto what you originally pay for
the product?
A) Loss Leader Pricing C) Price Skimming
B) Cost Plus Pricing D) Penetration Pricing
2. Which of the following is the new product pricing strategies?
A) Market Skimming Pricing C) Profit Pricing
B) Market-selection pricing D) Sales Pricing
3. What are the ways of working out cost-based pricing?
A) Cost-plus pricing & Break-even analysis
B) Price Skimming & Penetration Pricing
C) Penetration Pricing
D) Cost Plus Pricing
4. Which pricing strategies would be appropriate for an established business trying to win
customers from competitors?
A) Price Skimming C) Cost Plus Pricing
B) Loss Leader Pricing D) Market Penetration Pricing
5. Which pricing method is used in the introduction stage of the product life cycle
A) Market Penetration Pricing C) Cost Benefit Analysis
B) Unit Pricing D) Cost Plus Pricing
6. When demand for your product is high and supply is low, you can command a high price.
Do you agree or not? Choose among the choices below:
A) No, I do not agree since this would result to a loss.
B) No, since it does not give any advantage to the sellers.
C) Yes, I totally agree since this would create massive profits
D) Yes, because since it is an advantage particularly to the buyers.
7. When setting the price for a good, a service, or an idea, which of the following is not a
factor to consider?
A) Costs C) Competition
B) Market Demand D) Location
8. Involves charging a high price to recover costs and maximize profit as quickly as
possible.
A) Penetration pricing C) Price skimming
B) Unit pricing D) Cost Plus Pricing
9. Which cost changes depending on the number of units sold?
A) Variable Costs C) Unit Pricing
B) Fixed Costs D) ROI
3
10. Calculate the return on investment (ROI) if you invest ₱100,000 in new productive
equipment, and you want a 30 percent return.
A) ₱ 3,000 C) ₱ 20,000
B) ₱ 10,000 D) ₱ 30,000
4
’s In
Task 1
Recall what you have learned from the previous session about product, services, and
experiences. In your activity notebook, answer the questions that are found below.
1. What is product, services, and experiences?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________________________
2. Differentiate product from services and experiences.

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________________________
5
’s New
Task 2. Identification
Direction: Identify the correct word from the underlined jumbled letters based on the given
definition and write your answers in your activity notebook.
1. IRCEP is the amount of money charged for a product or service, or the sum of the values
that consumers exchange for the benefits of having or using the product or service.
2. CIMYNAD CIRIPGN is charging different prices depending on individual customers and

situations.
3. ABELIRVA STSOC are costs that vary directly with the level of production.
4. LATOT TSSCO is the sum of the fixed and variable costs for any given level of
production.
5. POLISCITONOM TITINOPECOM a market in which many buyers and sellers trade

over a range of prices rather than a single market price.
6. CITSILGOOPILO TIONPETIMOC a market in which there are a few sellers that are
highly sensitive to each other’s pricing and marketing strategies.
7. ERUP POLYONOM a market in which there is a single seller – it may be a government

monopoly, a private regulated monopoly, or a private non-regulated monopoly.
6
is It
Companies today face a fierce and fast-changing pricing environment. The recent
economic downturn has put many companies in a ‘pricing vice’. One analyst sums it up this
way: ‘They have virtually no pricing power. It is impossible to raise prices, and often, the
pressure to slash them continues unabated. The pricing pinch is affecting business across the
spectrum of manufacturing and services – everything from chemicals and autos to hoteliers
and phone services.’ It seems that almost every company is slashing prices, and that is hurting
their profits.
Yet, cutting prices is often not the best answer. Reducing prices unnecessarily can lead
to lost profits and damaging price wars. It can signal to customers that price is more important
than the brand. Instead, companies should ‘sell value, not price’. They should persuade
customers that paying a higher price for the company’s brand is justified by the greater value
it delivers. Most customers will gladly pay a fair price in exchange for real value. The
challenge is to find the price that will let the company make a fair profit by harvesting the
customer value it creates. According to one pricing expert, pricing involves ‘harvesting your
profit potential’. If effective product development, promotion, and distribution sow the seeds
of business success, effective pricing is the harvest. Firms successful at creating customer
value with the other marketing mix activities must still capture some of this value in the prices
they earn. Yet, despite its importance, many firms do not handle pricing well.
Now, in this lesson we will completely focus on Identifying and Describing the Factors to
Consider When Setting Prices and New Product Pricing and its General Pricing Approaches.
What is Price?
In the narrowest sense, price is the amount of money charged for a product or service.
More broadly, price is the sum of all the values that consumers exchange for the benefits of
having or using the product or service. In the past, price has been the major factor affecting
buyer choice. This is still the case in poorer countries, among less affluent groups and with
commodity products. However, non-price factors have become more important in buyer
choice behavior in recent decades.
Historically, prices were set by negotiation between buyers and sellers. Through
bargaining, they would arrive at an acceptable price. Individual buyers paid different prices
for the same products, depending on their needs and bargaining skills. By contrast, fixed-
price policies – setting one price for all buyers – is a relatively modern idea that evolved with
the development of large-scale retailing at the end of the nineteenth century.
7
Price is the only element in the marketing mix that produces revenue; all other
elements represent costs. Price is also one of the most flexible elements of the marketing mix.
Unlike product features and channel commitments, price can be changed quickly. At the
same time, pricing and price competition is the number one problem facing many marketers.
Yet, many companies do not handle pricing well. One frequent problem is that companies are
too quick to cut prices to gain a sale rather than convincing buyers that their products or
services are worth a higher price. Other common mistakes are pricing that is too cost oriented
rather than customer-value oriented; prices that are not revised often enough to reflect market
changes; pricing that does not take the rest of the marketing mix into account; and prices that
are not varied enough for different products, market segments and buying occasions.
Factors to Consider When Setting Prices
A company’s pricing decisions are affected both by internal company factors and by
external environmental factors (see Figure 1).
Figure 1. Factors affecting price decisions
Internal factors External factors
• Marketing • Nature of the market

Objectives and demand
Pricing
• Marketing-mix • Competition
Decisions
strategy • Other environmental
• Costs factors (economy,
• Organization for resellers, government)
pricing
Internal Factors Affecting Pricing Decisions
Internal factors affecting pricing include the company’s marketing objectives,

marketing-mix strategy, costs, and organization.
8
Marketing Objectives
Before setting price, the company must decide on its strategy for the product. If the
company has selected its target market and positioning carefully, then its marketing-mix
strategy, including price, will be straightforward. For example, if Company A decided to
produce its luxury cars to compete with European luxury cars in the higher-income segment,
this required charging a high price. Lodging House-A and Lodging House-B position
themselves as motels that provide economical rooms for budget-minded travelers, a position
that requires charging a low price. Thus, pricing strategy is largely determined by past
decisions on market positioning.
At the same time, the company may seek additional objectives. A firm that has clearly
defined its objectives will find it easier to set price. Examples of common objectives are
survival, current profit maximization, market-share maximization and product-quality
leadership. Companies set survival as their fundamental objective if they are troubled by too
much capacity, heavy competition or changing consumer wants. To keep a factory going, a
company may set a low price through periods of low demand, hoping to increase prices when
demand recovers.
Marketing-mix Strategy
Price is only one of the marketing-mix tools that a company uses to achieve its
marketing objectives. Price decisions must be coordinated with product design, distribution,
and promotion decisions to form a consistent and effective marketing program. Decisions
made for other marketing-mix variables may affect pricing decisions. For example, producers
using many resellers that are expected to support and promote their products may have to
build larger reseller margins into their prices. The decision to position the product on high
performance quality will mean that the seller must charge a higher price to cover higher costs.
Companies often make their pricing decisions first and then base other marketing-mix
decisions on the prices that they want to charge. Here, price is a crucial product-positioning
factor that defines the product’s market, competition, and design. The intended price
determines what product features can be offered and what production costs can be incurred.
Many firms support such price-positioning strategies with a technique called target costing, a
potent strategic weapon. Target costing reverses the usual process of first designing a new
product, determining its cost, and then asking, ‘Can we sell it for that?’. Instead, it starts with
a target cost and works back.
Costs
Costs set the floor for the price that the company can charge for its product. The
company wants to charge a price that both covers all its costs for producing, distributing, and
selling the product, and delivers a fair rate of return for its effort and risk. A company’s costs
may be an important element in its pricing strategy. Many companies work to become the
9
‘low-cost producers’ in their industries. Companies with lower costs can set lower prices that
result in greater sales and profits.
Types of Cost
A company’s costs take two forms, fixed and variable. Fixed costs (also known as
overheads) are costs that do not vary with production or sales level. For example, a company
must pay each month’s bills for rent, heat, interest, and executive salaries, whatever the
company’s output. In many industries, such as airlines, fixed costs dominate. If an airline
must fly a sector with few passengers on board it can only save on the 15 per cent of its costs
accounted for by cabin crew and passenger service. All other costs, including flight crew (7
per cent), fuel (15 per cent) and maintenance (10 per cent), are fixed.
Variable costs vary directly with the level of production. Each personal computer
produced involves a cost of computer chips, wires, plastic, packaging, and other inputs. These
costs tend to be the same for each unit produced, their total varying with the number of units
produced.
Total costs are the sum of the fixed and variable costs for any given level of
production. Management wants to charge a price that will at least cover the total production
costs at a given level of production. The company must watch its costs carefully. If it costs
the company more than competitors to produce and sell its product, the company will have to
charge a higher price or make less profit, putting it at a competitive disadvantage.
Organizational Considerations
Management must decide who within the organization should set prices. Companies
handle pricing in a variety of ways. In small companies, prices are often set by top
management rather than by the marketing or sales departments. In large companies, pricing is
typically handled by divisional or product line managers. In industrial markets, salespeople
may be allowed to negotiate with customers within certain price ranges. Even so, top
management sets the pricing objectives and policies, and it often approves the prices
proposed by lower-level management or salespeople. In industries in which pricing is a key
factor (such as in aerospace, steel, and oil), companies will often have a pricing department to
set the best prices or help others in setting them. This department reports to the marketing
department or top management. Others who have an influence on pricing include sales
managers, production managers, finance managers and accountants.
External factors affecting pricing decisions
Pricing decisions are affected by external factors such as the nature of the market and
demand, competition, and other environmental elements.
10
The Market and Demand
Whereas costs set the lower limit of prices, the market and demand set the upper limit.
Both consumer and industrial buyers balance the price of a product or service against the
benefits of owning it. Thus, before setting prices, the marketer must understand the
relationship between price and demand for its product.
Pricing in different types of market the seller’s pricing freedom varies with different
types of market. Economists recognize four types of market, each presenting a different
pricing challenge.
Under pure competition, the market consists of many buyers and sellers trading in a
uniform commodity such as wheat, copper, or financial securities. No single buyer or seller
has much effect on the going market price. A seller cannot charge more than the going price
because buyers can obtain as much as they need at the going price. Nor would sellers charge
less than the market price because they can sell all they want at this price. If price and profits
rise, new sellers can easily enter the market. In a purely competitive market, marketing
research, product development, pricing, advertising, and sales promotion play little or no role.
Thus, sellers in these markets do not spend much time on marketing strategy.
Under monopolistic competition, the market consists of many buyers and sellers that
trade over a range of prices rather than a single market price. A range of prices occurs
because sellers can differentiate their offers to buyers. Either the physical product can be
varied in quality, features or style or the accompanying services can be varied. Each company
can create a quasi-monopoly for its products because buyers see differences in sellers’
products and will pay different prices for them. Sellers try to develop differentiated offers for
different customer segments and, in addition to price, freely use branding, availability,
advertising and personal selling to set their offers apart. For example, Ty’s Beanie Babies
have cultivated a distinctive appeal that has both stimulated demand and seen the price of
some Beanies rocket.
Under oligopolistic competition, the market consists of a few sellers that are highly
sensitive to each other’s pricing and marketing strategies. The product can be uniform (steel,
aluminum) or non-uniform (cars, computers). There are few sellers because it is difficult for
new sellers to enter the market. Each seller is alert to competitors’ strategies and moves. If a
steel company slashes its price by 10 per cent, buyers will quickly switch to this supplier. The
other steel makers must respond by lowering their prices or increasing their services. An
oligopolist is never sure that it will gain anything permanent through a price cut. In contrast,
if an oligopolist raises its price, its competitors might not follow this lead. The oligopolist
would then have to retract its price increase or risk losing customers to competitors.
11
In a pure monopoly, the market consists of one seller. The seller may be a
government monopoly (a postal service), a private regulated monopoly (a power company) or
a private non-regulated monopoly. Pricing is handled differently in each case. A government
monopoly can pursue a variety of pricing objectives: set price below cost because the product
is important to buyers who cannot afford to pay full cost; set price either to cover costs or to
produce good revenue; or set price quite high to slow down consumption or to protect an
inefficient supplier. In a regulated monopoly, the government permits the company to set
rates that will yield a ‘fair return’, one that will let the company maintain and expand its
operations as needed. Non-regulated monopolies are free to price at what the market will
bear. However, they do not always charge the full price for several reasons: a desire not to
attract competition, a desire to penetrate the market faster with a low price, or a fear of
government regulation.
Competitors’ Costs, Prices, and Offers
Another external factor affecting the company’s pricing decisions is competitors’

costs and prices, and possible competitor reactions to the company’s own pricing moves. A
consumer who is considering the purchase of a Brand A camera will evaluate Brand A’s price
and value against the prices and values of comparable products made by Brand B, C, D, and
others. In addition, the company’s pricing strategy may affect the nature of the competition it
faces. If Brand A follows a high-price, high-margin strategy, it may attract competition. A
low price, low-margin strategy, however, may stop competitors or drive them out of the
market.
Brand A needs to benchmark its costs against its competitors’ costs to learn whether it
is operating at a cost advantage or disadvantage. It also needs to learn the price and quality of
each competitor’s offer. Once Brand is aware of competitors’ prices and offers, it can use
them as a starting point for its own pricing. If Brand A’s cameras are like B’s camera which
is high end, it will have to price close to Brand B or lose sales. If Brand A’s cameras are not
as good as Brand B’s, the firm will not be able to charge as much. If Brand A’s products are
better than Brand B’s, it can charge more. Basically, Brand A will use price to position its
offer relative to the competition.
Other External Factors
When setting prices, the company must also consider other factors in its external
environment. Economic conditions can have a strong impact on the firm’s pricing strategies.
Economic factors such as boom or recession, inflation and interest rates affect pricing
decisions because they affect both the costs of producing a product and consumer perception
of the product’s price and value. The company must also consider what impact its prices will
have on other parties in its environment. How will resellers react to various prices? The
company should set prices that give resellers a fair profit, encourage their support and help
them to sell the product effectively. The government is another important external influence
on pricing decisions. Finally, social concerns may have to be considered. In setting prices, a
12
company’s short-term sales, market share and profit goals may have to be tempered by
broader societal considerations.
New Product Pricing Strategies
Pricing strategies usually change as the product passes through its life cycle. The
introductory stage is especially challenging. We can distinguish between pricing a product
that imitates existing products and pricing an innovative product that is patent protected. A
company that plans to develop an imitative new product faces a product-positioning problem.
It must decide where to position the product versus competing products in terms of quality
and price.
Figure 2 shows four possible positioning strategies. First, the company might decide
to use a premium pricing strategy – producing a high-quality product and charging the
highest price. At the other extreme, it might decide on an economy pricing strategy –
producing a lower-quality product but charging a low price. These strategies can coexist in
the same market if the market consists of at least two groups of buyers, those who seek
quality and those who seek price. Thus, luxury chronograph watch makers offers very high-
quality sports watches at high prices, whereas chronograph watch Brand A offers digital
watches at almost throwaway prices.
Figure 2. Four price positioning strategies.
Price
High Low
Premium Good-Value
strategy strategy
Overcharging
strategy Economy strategy
The good-value strategy represents a way to attack the premium pricer. A leading
grocery chain always uses the strapline: ‘Good food costs less at Company A’s Department
Store’. If this is true and quality-sensitive buyers believe the good-value pricer, they will
sensibly shop at Company A’s Department Store and save money – unless the premium
product offers more status or snob appeal. Using an overcharging strategy, the company
overprices the product in relation to its quality. In the long run, however, customers are likely
13
to feel ‘taken’. They will stop buying the product and will complain to others about it. Thus,
this strategy should be avoided. Companies bringing out an innovative, patent-protected
product face the challenge of setting prices for the first time. They can choose between two
strategies: market-skimming pricing and market-penetration pricing.
Market-skimming pricing
Many companies that invent new products initially set high prices to ‘skim’ revenues
layer by layer from the market, a strategy called market-skimming pricing.
Market-penetration pricing
Rather than setting a high initial price to skim off small but profitable market
segments, some companies use market-penetration pricing. They set a low initial price to
penetrate the market quickly and deeply – to attract many buyers quickly and win a large
market share.
General Pricing Approaches
The price that the company charges will be somewhere between one that is too low to
produce a profit and one that is too high to produce any demand. Figure 3 summarizes the
primary considerations in setting price. Product costs set a floor to the price; consumer
perceptions of the product’s value set the ceiling. The company must consider competitors’
prices and other external and internal factors to find the best price between these two
extremes. Companies set prices by selecting a general pricing approach that includes one or
more of these three sets of factors – costs, consumer perception and competitors’ prices. We
will examine the following approaches: the cost-based approach (cost-plus pricing, break-
even analysis); the buyer-based approach (perceived-value pricing); the competition-based
approach (going-rate and sealed-bid pricing); and the profit-orientation/based approach.
Figure 3. Primary considerations in price settings.
Low Price High Price
No possible No possible
profit at demand at
this price this price
14
Cost-Based Pricing
Is the practice of setting prices based on the cost of the goods or services being sold.
A profit percentage or fixed profit figure is added to the cost of an item, which results in
the price at which it will be sold.
Cost-Plus Pricing
The simplest pricing method is cost-plus pricing – adding a standard mark-up to the
cost of the product. Construction companies, for example, submit job bids by estimating the
total project cost and adding a standard mark-up for profit. Lawyers, accountants, and other
professionals typically price by adding a standard mark-up to their costs. Some sellers tell
their customers they will charge cost plus a specified mark-up: for example, aerospace
companies price this way to the government.
To illustrate mark-up pricing, suppose a toaster manufacturer had the following costs
and expected sales:
Given:
Variable cost ₱ 10
Fixed cost 300,000
Expected unit sales 50,000
Then the manufacturer’s cost per toaster is given by:
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 +
𝑈𝑛𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
300,000
𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 = 10 +
50,000
𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 = 16
Now suppose the manufacturer wants to earn a 20 percent (20% or 0.2) mark-up on
sales. The manufacturer’s mark-up price is given by:
𝑈𝐶 (𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡)
𝑀𝑎𝑟𝑘𝑢𝑝 − 𝑢𝑝 𝑃𝑟𝑖𝑐𝑒(𝑀𝑈𝑃) =
1 − 𝐷𝑀𝑈 (𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑀𝑎𝑟𝑘𝑝 − 𝑢𝑝)
16
1 − 0.2
15
16
1 − 0.2
𝑀𝑎𝑟𝑘𝑢𝑝 − 𝑢𝑝 𝑃𝑟𝑖𝑐𝑒(𝑀𝑈𝑃) = 20
The manufacturer would charge dealers 20 a toaster and make a profit of 4 per unit.
The dealers, in turn, will mark up the toaster. If dealers want to earn 50 per cent on sales
price, they will mark up the toaster to 40 (20 + 50 per cent of 40). This number is equivalent
to a mark-up on cost of 100 per cent (20/20).
Break-Even Analysis and Target Profit Pricing
Another cost-oriented pricing approach is break-even pricing, or a variation called

target profit pricing. The firm tries to determine the price at which it will break even or make
the target profit it is seeking. Target pricing is used by Company A Motors, which prices its
cars to achieve a 15–20 per cent profit on its investment. This pricing method is also used by
public utilities, which are constrained to make a fair return on their investment. Target pricing
uses the concept of a break-even chart, which shows the total cost and total revenue expected
at different sales volume levels. Figure 4 shows a break-even chart for the toaster
manufacturer discussed here. Fixed costs are 300,000 regardless of sales volume. Variable
costs are added to fixed costs to form total costs, which rise with volume. The total revenue
curve starts at zero and rises with each unit sold. The slope of the total revenue curve reflects
the price of 20 per unit. The total revenue and total cost curves cross at 30,000 units. This is
the break-even volume. At 20, the company must sell at least 30,000 units to break even: that
is, for total revenue to cover total cost.
Break-even volume can be calculated using the following formula:
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 =
𝑃𝑟𝑖𝑐𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
16
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
𝑃𝑟𝑖𝑐𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
300,000
20 − 10
300,000
20 − 10
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 = 30,000
If the company wants to make a target profit, it must sell more than 30,000 units at 20
each. Suppose the toaster manufacturer has invested 1,000,000 in the business and wants to
set a price to earn a 20 per cent return or 200,000. In that case, it must sell at least 50,000
units at 20 each. If the company charges a higher price, it will not need to sell as many
toasters to achieve its target return. But the market may not buy even this lower volume at the
higher price. Much depends on the price elasticity and competitors’ prices.
Figure 4. Break-even chart for determining target price.
Total revenue Break-even Chart

1400 Total revenue
Target profit
1200
(200,000)
1000
800
600
Total cost
400
200 Fixed cost
0
10 20 30 40 50
Value-Based Pricing
An increasing number of companies are basing their prices on the product’s perceived
value. Value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key
to pricing. Value-based pricing means that the marketer cannot design a product and
marketing program and then set the price. Price is considered along with the other marketing-
mix variables before the marketing program is set.
17
Figure 5 compares cost-based pricing with value-based pricing. Cost-based pricing is
product driven. The company designs what it considers to be a good product, totals the costs
of making the product and sets a price that covers costs plus a target profit. Marketing must
then convince buyers that the product’s value at that price justifies its purchase. If the price
turns out to be too high, the company must settle for lower mark-ups or lower sales, both
resulting in disappointing profits.
Value-based pricing reverses this process. The company sets its target price based on
customer perceptions of the product value. The targeted value and price then drive decisions
about product design and what costs can be incurred. As a result, pricing begins with
analyzing consumer needs and value perceptions and a price is set to match consumers’
perceived value.
Figure 5. Cost-based versus value-based pricing
Cost-based pricing
Product Cost Price Value Costumers
Value-based pricing
Customers Value Price Cost Product
Competition-Based Pricing
Consumers will base their judgements of a product’s value on the prices that
competitors charge for similar products. Here, we discuss two forms of competition-based
pricing: going-rate pricing and sealed-bid pricing.
Going-Rate Pricing
In going-rate pricing, the firm bases its price largely on competitors’ prices, with less
attention paid to its own costs or to demand. The firm might charge the same as, more, or less
than its chief competitors. In oligopolistic industries that sell a commodity such as steel,
paper or fertilizer, firms normally charge the same price. The smaller firms follow the leader:
they change their prices when the market leader’s prices change, rather than when their own
demand or costs change. Some firms may charge a bit, but they hold the amount of difference
constant. Thus, minor petrol retailers usually charge slightly less than the big oil companies,
without letting the difference increase or decrease.
18
Sealed-bid pricing
In sealed-bid pricing, a firm bases its price on how it thinks competitors will price
rather than on its own costs or on demand. Would-be suppliers can submit only one bid and
cannot know the other bids. Sealed-bid auctions, where buyers submit secret bids, have
always been common in business-to-business (B2B) marketing and some consumer markets,
such as Scottish house buying. Governments also often use this method to procure supplies.
Until the advent of the Internet, haggling (one-to-one negotiations) and a non-negotiable
price had grown to dominate pricing.
Profit-Oriented/Based Pricing
Profit-oriented pricing places an emphasis on the finances of the product and

business. A business’s profit is the money left after all costs are covered. In other words,
profit = revenue – costs. In profit-oriented pricing, the price per product is set higher than the
total cost of producing and selling each product to ensure that the company makes a profit on
each sale.
The benefit of profit-oriented pricing is obvious: the company is guaranteed a profit

on every sale. There are real risks to this strategy, though. If a competitor has lower costs,
then it can easily undercut the pricing and steal market share. Even if a competitor does not
have lower costs, it might choose a more aggressive pricing strategy to gain momentum in the
market.
Also, customers do not really care about the company’s costs. Price is a component of the
value equation, but if the product fails to deliver value, it will be difficult to generate sales.
Finally, profit-oriented pricing is often a difficult strategy for marketers to succeed

with because it limits flexibility. If the price is too high, then the marketer must adjust other
aspects of the marketing mix to create more value. If the marketer invests in the other three
Ps—by, say, making improvements to the product, increasing promotion, or adding
distribution channels—that investment will probably require additional budget, which will
further raise the price.
It is standard for retailers to use some profit-oriented pricing—applying a standard

mark-up over wholesale prices for products, for instance—but that is rarely their only
strategy. Successful retailers will also adjust pricing for some or all products to increase the
value they provide to customers.
19
’s More
Task 3
Matching type.
Direction: Match Column A with Column B. Write your answers in your activity notebook.
Column A Column B
1. Setting a low price for a new product A. Break-even pricing

to attract large numbers of buyers
and a large market share.
2. Setting price based on buyers’ perceptions B. Cost-plus pricing

of product values rather than on cost.
3. Setting price based largely on following C. Pure competition

competitors’ prices rather than on company
costs or demand.
4. Setting price to break even on the costs of D. Mark-up/mark-down

making and marketing a product; or setting
price to make a target profit.
5. Adding a standard mark-up to the cost of E. Going-rate pricing

the product.
6. The difference between selling price and F. Value-based pricing

cost as a percentage of selling price or cost.
7. A market in which many buyers and sellers G. Market-penetration pricing

trade in a uniform commodity – no single
buyer or seller has much effect on the going
market price.
20
I Have Learned
Complete the following statements. Write your statements in your activity notebook.
1. As an ABM student, I have learned that _______________________.
2. As an ABM student, I have realized that the importance

___________________________________.
3. Using the knowledge I have learned in this lesson, I will apply

_______________________.
21
I Can Do
Task 4
Direction: Answer briefly what is being asked. Write your answers in your activity
notebook.
1. What are the 4 approaches of general pricing and differentiate each one of them.
2. Which pricing method (cost, demand/supply, competition, profit-based) would you
recommend for the following items being sold in other countries? Select only one product
and describe your pricing strategies in a form of a list.
- Tennis balls by a manufacturer in the Philippines
- Retail store to open with 20,000 sku (stock-keeping units) in Luxembourg
- Cell phone services in Chile
- Solar panels in Canada
Rubrics
Description: This rubric is designed to evaluate the students knowledge about pricing
strategies.
Level of General Approach Comprehension
Achievement
Exemplary •Addresses the question. •Demonstrates an accurate and
(20 pts quizzes) •States a relevant, justifiable complete understanding of the
answer. question.
•Presents arguments in a •Backs conclusions with data
logical order. and warrants.
•Uses 2 or more ideas, examples
and/or arguments that support
the answer.
Adequate (12 pts •Does not address the •Demonstrates accurate but only
quizzes) question explicitly, although adequate understanding of
does so tangentially. question because does not back
•States a relevant and conclusions with warrants and
justifiable answer. data.
•Presents arguments in a •Uses only one idea to support
logical order. the answer.
•Less thorough than above.
Needs •Does not address the •Does not demonstrate accurate
Improvement (6 pts question. understanding of the question.
quizzes) •States no relevant answers. •Does not provide evidence to
•Indicates misconceptions. support their answer to the
•Is not clearly or logically question.
organized.
No answer (0 pts)
22
Directions:
I. TRUE or FALSE: Write True if the statement is correct and write False if it is incorrect.
Do this in your activity notebook.
1. Before setting price, the company must decide on its strategy for the product.
2. Price is the only element in the marketing mix that produces revenue; all other
elements represent costs.
3. Internal factors affecting pricing include the company’s marketing objectives,
marketing-mix strategy, costs, and organization.
4. Price the only marketing-mix tools that a company uses to achieve its marketing
objectives.
5. Pricing decisions are affected by external factors such as the nature of the
organization and its costs.
II. Multiple Choice: Choose the letter of the best answer.
1. It sets a low initial price to penetrate the market quickly and deeply to attract many buyers
quickly and win a large market share.
A. Market and demand C. Market-skimming pricing
B. Market-penetration pricing D. Competition-based pricing
2. The _____________ strategy represents a way to attack the premium pricer.
A. Good-value strategy C. Overcharging strategy
B. Premium pricing strategy D. Economy strategy
3. Has a strong impact on the firm’s pricing strategies.
A. Market and demand C. Economic conditions
B. Competition D. Costs
4. Places an emphasis on the finances of the product and business.
A. Cost-based pricing C. Competition-oriented pricing
B. Demand/supply-based pricing D. Profit-based pricing
5. The firm bases its price largely on competitors’ prices, with less attention paid to its own
costs or to demand.
A. Going-rate pricing C. Competition-based pricing
B. Sealed-bid pricing D. Value-based pricing
23
III. Problem.
Direction: Answer what is being asked. Write your answer in your activity notebook.
Tionx manufacturer had the following costs and expected sales:
Variable cost ₱ 500

Fixed cost 1,500,000
Expected unit sales 125,000
Requirements:
1. Compute for the unit cost base on the given data above (2 points).
2. Suppose Tionx manufacturer wants to earn a 20 per cent mark-up on sales. What will be
the manufacturer’s mark-up price? (3 points)
24
25
What I know
Pre-Assessment
1. B 7. D
2. A 8. C
3. A 9. A
4. D 10. D
5. A
6. C
Task 1
1. Answer may vary
2. Answer may vary
Task 2
1. Price
2. Dynamic Pricing
3. Variable Costs
4. Total Cost
5. Monopolistic Competition
6. Oligopolistic Competition
7. Pure Monopoly
Task 3
Matching Type
1. G
2. F
3. E
4. A
5. B
6. D
7. C
26
Assessment / Post-Test
I. True / False
1. True
2. True
3. True
III. Problem 4. False
1. Answer: 5. False
1,500,000
𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 = 500 +
125,000
II. Multiples Choice
𝑈𝑛𝑖𝑡 𝑐𝑜𝑠𝑡 = 512
1. B
2. Answer: 2. A
512
𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 𝑀𝑎𝑟𝑘 − 𝑢𝑝 𝑃𝑟𝑖𝑐𝑒 = 3. C
100% − 20%
4. D
𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 𝑀𝑎𝑟𝑘 − 𝑢𝑝 𝑝𝑟𝑖𝑐𝑒 = 640
5. A
Task 4
GLOSARRY
Price - is the amount of money charged for a product or service, or the sum of the values that
consumers exchange for the benefits of having or using the product or service.
Dynamic Pricing - is charging different prices depending on individual customers and

situations.
Target costing – A technique to support pricing decisions, which starts with deciding a target
cost for a new product and works back to designing the product.
Fixed costs – Costs that do not vary with production or sales level
Variable costs - Costs that vary directly with the level of production.
Total costs - The sum of the fixed and variable costs for any given level of production.
Pure competition – A market in which many buyers and sellers trade in a uniform
commodity – no single buyer or seller has much effect on the going market price.
Monopolistic competition – A market in which many buyers and sellers trade over a range
of prices rather than a single market price.
Oligopolistic competition – A market in which there are a few sellers that are highly
sensitive to each other’s pricing and marketing strategies.
Pure monopoly – A market in which there is a single seller – it may be a government

monopoly, a private regulated monopoly, or a private non-regulated monopoly.
Net profit – The difference between the income from goods sold and all expenses incurred.
Cost-plus pricing - Adding a standard mark-up to the cost of the product.
Mark-up/mark-down - The difference between selling price and cost as a percentage of

selling price or cost.
Break-even pricing (target profit pricing) – Setting price to break even on the costs of
making and marketing a product; or setting price to make a target profit.
Value-based pricing – Setting price based on buyers’ perceptions of product values rather
than on cost.
Value pricing – Offering just the right combination of quality and good service at a fair
price.
27
Going-rate pricing – Setting price based largely on following competitors’ prices rather than
on company costs or demand.
First-price sealed-bid pricing – Potential buyers submit sealed bids, and the item is awarded
to the buyer who offers the best price.
Second-price sealed bid – Sealed bids are submitted but the contender placing the best bid
pays only the price equal to the second-best bid.
Profit-Oriented/Based Pricing- Profit-oriented pricing places an emphasis on the finances

of the product and business. A business’s profit is the money left after all costs are covered.
In other words, profit = revenue – costs.
28
References
Book
Kotler, P., Wong, V., Saunders, J., Armstrong, G. (n.d.) Principles of Marketing. Fourth
European Edition, Pearson Prentice Hall.
Online Sources:
Anonymous (2021). What is Cost-based Pricing. Retrieved from:

https://www.accountingtools.com/articles/2018/2/25/cost-based-
pricing#:~:text=Cost%2Dbased%20pricing%20is%20the,which%20it%20will%20be%20sol
d. [Accessed on March 23, 2021]
Anonymous (n.d.). What is Profit-oriented Pricing. Retrieved from:

https://courses.lumenlearning.com/marketing-spring2016/chapter/reading-pricing-
objectives/#:~:text=In%20profit%2Doriented%20pricing%2C%20the,a%20profit%20on%20
every%20sale. [Accessed on March 23, 2021]
Additional student support at www.pearsoned.co.uk/kotler

(Pages. 661-712) Accessed on March 15, 2021.
https://www.google.com/url?sa=t&source=web&rct=j&url=http://library.wbi.ac.id/repository
/212.pdf&ved=2ahUKEwiz_5O37sLvAhVKE6YKHRs0CDYQFjAIegQIGBAC&usg=AOv
Vaw1cSrGxiKCWcWE4JiXfLE3W
Pre-Assessment. Accessed on March 16, 2021.

https://www.proprofs.com/quiz-school/quizshow.php?title=marketing-price-quiz&q=1
https://www.proprofs.com/quiz-school/quizshow.php?title=price-strategy&q
Task4. Accessed on March 22, 2021.
https://study.sagepub.com/baack2e/student-resources/chapter-11/review-and-discussion-
questions
29
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PRODUCT/services/

◦Draw your own product packaging. Choose any

If a shoe company sets a target return of 15 percent

Suppose an entrepreneurship group has invested ₱15,000

◼ Cutting department ◼ Material A purchases

1. A 3-in-1 coffee is produced at ₱ 20.00 apiece. How much

Published by the Department of Education

SENIOR HS MODULE DEVELOPMENT TEAM

Author : Charina C. Dizon

DIVISION MANAGEMENT TEAM:

Printed in the Philippines by Department of Education – Schools Division of Bataan

Notes to the Teacher

This module has the following parts and corresponding icons:

This will give you an idea of the skills or

What I Know This part includes an activity that aims to check

What’s In This is a brief drill or review to help you link the

What’s New In this portion, the new lesson will be

What is It This section provides a brief discussion of the

What’s More This comprises activities for independent

What I Have Learned This includes questions or blank

Additional Activities In this portion, another activity will be given to you

Answer Key This contains answers to all activities in the

At the end of this module you will also find:

References This is a list of all sources used in developing

The following are some reminders in using this module:

At the end of the lesson, the learners will be able to:

✔ Products that are used

✔ Products purchased for

a. Materials and parts

c. Supplies and business services

3. A product is basically a need-satisfying offering.

5. Since products can be of various kinds, it becomes pragmatic to divide

6. Dining table is an example of a convenience goods.

9. A product can be easily copied by other players in the market.

10. Convenience goods involve considerable expenditure.

COLGATE AND ITS VALIANT ATTEMPTS TO

Colgate has been (and probably always will be) known as a

So, in 1982, the company launched

The lesson here was that if your brand is

“A brand is a name, term, design, symbol,

Branding is important because not only is it what makes a memorable impression on

Brand definition: purpose,

Brand positioning statement

Workspace experience and

Stage 1: Introduction Stage 2: Growth

Introducing a new Here, the product is being

Here, the product

Direction: Put a tick (/) on the corresponding column.

Stages Introduction Growth Maturity Decline

What I Have Learned

The price may

Here, the product

1. Products such as Mutual funds 2. Such goods are

3. These are long-lasting 4. This category is

Alcoran Alaric Brian. 2018. Principles of Marketing. Philippines: Bookline Publishing

"File:Wikivoc-Egg.Svg - Wikimedia Commons". Commons.Wikimedia.Org, 2020.

"Food Pyramid Clip Art - PNG - Download Free". FAVPNG.Com, 2020.

"Happy Family With Kids | Free SVG". Freesvg.Org, 2020.

Ilano A.B. 2017. Principles of Marketing. Philippines. Rex Book Store.

"Product Strategy | Boundless Business". Courses.Lumenlearning.Com, 2020.

Drawing Of Hair Comb | Public Domain Vectors". Publicdomainvectors.Org,

"What Is Branding? | The Branding Journal". The Branding Journal, 2020.

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Department of Education – Region III,