Synopsis

The Strategic Pricing Pyramid

Value Creation: This component focuses on how a company can create value for its customers
through its products or services. It includes three key elements:

 Economic Value: Ito ay tumutukoy sa mga benefits na natatanggap ng mga customer sa

product o services in relation to the price they pay. To create economic value,
kailangan ng mga company na maunawaan ang mga pangangailangan at kagustuhan ng
kanilang mga customer at design ng mga product o service that meet those needs
better than competitors.
 Offering Design: Ito ay tumutukoy sa paglikha ng mga product o services that meet
customers' while also considering the company's cost structure. Ang mga kumpanya ay
maaaring mag create value sa pamamagitan ng pagbibigay ng mga products or services
that are unique, mahirap gayahin, o nag-ooffer ng mas mahusay na kalidad.
 Segmentation: This involves dividing the market into different groups of customers
with similar needs and preferences. Sa pamamagitan ng segmantation, companies can
create targeted marketing and pricing strategies that appeal to specific customer
groups.

Price Structure: This section focuses on how a company develops a pricing structure that
covers the value created for customers. It consists of three important elements:

 Metrics: This involves sa pagpili ng pricing metrics,, tulad ng cost-plus pricing, value-
based pricing, o competition-based pricing. Kinakailangan ng mga kumpanya na
iconsider their cost structure, competitors, and customer preferences when selecting
pricing metrics.
 Fences: Ito ay tungkol sa paglalagay ng “limit o bakod" sa presyo upang maiwasan na
ang mga customer ay maka-avail ng mas mababang presyo na para sa ibang grupo ng
customer. Fences may include quantity discounts, time-based pricing, or loyalty
programs.
 Controls: This involves implementing controls to monitor and adjust prices over time.
Companies need to regularly review their pricing strategy to ensure that it remains
effective and relevant to changing market conditions.

The Strategic Pricing Pyramid is a framework that outlines the key components of a successful
pricing strategy. The first component, Value Creation, focuses on creating value for customers
through economic value, offering design, and segmentation. The second component, Price
Structure, involves choosing pricing metrics, implementing fences to prevent customers from
accessing lower prices meant for different customer groups, and implementing controls to
monitor and adjust prices over time. By effectively implementing these components,
companies can develop a pricing strategy that covers the value created for customers, appeals
to specific customer groups, and remains effective and relevant to changing market conditions.

Lesson #3 - Marginal Revenue (MR) and marginal cost (MC)

Marginal revenue (MR) is the additional revenue generated by selling one additional unit of a
product. It is calculated by dividing the change in total revenue by the change in quantity sold.

Marginal cost (MC) is the additional cost incurred in producing one additional unit of a
product. It is calculated by dividing the change in total cost by the change in quantity produced.

In order to maximize profits, a firm should produce where marginal revenue equals marginal
cost (MR=MC). At this point, the firm is producing the optimal level of output where the cost of
producing one additional unit is exactly equal to the revenue generated from selling that unit.
If MR is greater than MC, the firm should increase production to maximize profits. If MC is
greater than MR, the firm should decrease production to maximize profits.

The Firm and Market Structure

Perfect Competition- a large number of small firms that sell identical products, and there are
no

barriers to entry or exit in the market.

A vegetable marketkung saan maraming small farmers ang nagbebenta ng parehong mga
produkto tulad ng mga kamatis o karot. Walang sinumang magsasaka ang may kontrol sa
presyo, at madaling lumipat ang mga mamimili sa ibang magsasaka kung sila ay nag-aalok ng
mas magandang deal.

Monopolistic Competition- a large number of small firms that sell differentiated products.

The fast food industry, tulad ng McDonald's, Burger King, at Wendy's. Bawat restawran ay nag-
aalok ng katulad ngunit magkakaibang produkto tulad ng mga hamburger at fries na may mga
kaunting pagkakaiba sa lasa, kalidad, at serbisyo.

Oligopoly- a small number of large firms that dominate the market for a particular product or
service.

The automobile industry, kung saan may ilang malalaking kumpanya tulad ng Ford, General
Motors, at Toyota, na nagdodominate sa market ng mga sasakyan. Ang mga kumpanyang ito ay
may malaking kontrol sa presyo at produksyon ng mga sasakyan, at kadalasan silang nakikipag-
unahan sa pagset ng presyo at advertising upang mapanatili ang kanilang market power.

Monopoly- single firm that has significant control over the production and pricing of a
particular good or service in the market.

The electricity industry in some countries, kung saan maaaring magkaroon ng exclusive rights
ng isang kumpanya sa paglikha, pagpapadala, at pagdistribute ng kuryente. Walang pagpipilian
ang mga mamimili kundi bumili ng kuryente mula sa kumpanyang ito, at maaari itong mag-set
ng presyo sa isang antas na nagmamaximize ng kanyang kita.

The concepts of marginal revenue and marginal cost are important in understanding the
behavior of firms and the market structures they operate in.

In a perfectly competitive market, where many firms sell an identical product, each firm is a
price taker, meaning it cannot influence the market price. In this type of market, the demand
curve facing the firm is perfectly elastic, meaning that it can sell any quantity of output at the
prevailing market price. Therefore, the marginal revenue of the firm is equal to the market
price.

In a monopolistic market, where there is only one firm that sells a unique product, the demand
curve facing the firm is downward sloping, meaning that the firm has some control over the
price it charges. In this type of market, the firm can increase its profits by reducing the price to
sell more units (thereby increasing marginal revenue), as long as the price reduction does not
cause marginal cost to exceed marginal revenue.

In an oligopolistic market, where a small number of large firms dominate the market, each firm
has some degree of market power, but not as much as in a monopolistic market. In this type of
market, firms may engage in strategic behavior such as price collusion or price wars, which can
affect their marginal revenue and cost curves.

In summary, the concepts of marginal revenue and marginal cost are important for firms to
determine their optimal level of production and pricing strategy, and for understanding the
behavior of firms in different market structures.

Marginal revenue (MR) and marginal cost (MC) are important concepts for firms to determine
their optimal level of production and pricing strategy. In a perfectly competitive market, each
firm is a price taker and the demand curve is perfectly elastic. In a monopolistic market, the
firm has some control over the price it charges. In an oligopolistic market, each firm has some
degree of market power, and in a monopoly, there is only one firm with significant control over
the production and pricing of a particular good or service. The behavior of firms in different
market structures can be affected by strategic behavior such as price collusion or price wars.

This lesson introduces the concepts of marginal revenue and marginal cost, which are
important in understanding the behavior of firms and the market structures they operate in. In
a perfectly competitive market, each firm is a price taker and the demand curve facing the firm
is perfectly elastic. In a monopolistic market, the demand curve is downward sloping and the
firm has some control over the price it charges. In an oligopolistic market, each firm has some
degree of market power and may engage in strategic behavior. The lesson provides examples
of each market structure and explains how firms can maximize profits by producing at the point
where marginal revenue equals marginal cost.