Essential

Pricing
Concepts
GAA
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JAIME
QUING QUING
RAFOL
ICE BREAKER
 OBJECTIVES
1 FUNDAMENTAL
TERMS

KEY CONCEPTS

COMMON
CHALLENGES

2 LEARNING

Content OUTCOMES

SUBTOPICS
3 BASIC PRICING
TERMINOLOGY

FACTORS
INFLUENCING
PRICING
DECISIONS
Learning
Outcomes

Students are expected to Students are expected to

1 define the key concepts. 2 identify the common challenges.

Students are expected to Students are expected to understand

3 elaborate the terminologies.. 4 the essential pricing concepts.
Fundamental
Terms
 Cost: The amount incurred by a
business to produce goods or
services. (e.g., rent, salaries) and
variable costs (e.g., raw
materials, production labor).
Price: The amount charged by a
business for its goods or services.
Value: The perceived worth of a
product or service to the
customer.
Demand: The quantity of a
product or service that
customers are willing and able to
purchase.
Supply: The quantity of a
product or service that producers
are willing and able to provide.
Market: The environment in
which buyers and sellers interact
to exchange goods or services.
 Competition: Rivalry among businesses operating in the same market,
vying for customers' attention and sales.

Elasticity: A measure of how sensitive the quantity demanded or

supplied of a good is to changes in its price, income, or other factors.

Marginal Cost: The additional cost incurred by producing one more unit
of a good or service.

Marginal Revenue: The additional revenue generated by selling one

more unit of a good or service.

Profit Margin: The difference between the selling price of a product or

service and the total cost incurred to produce it, expressed as a
percentage of the selling price.
Key Concepts

Cost- plus pricing

Competitive pricing
Price skimming
Pentration pricing
Value-based pricing
Economy pricing
 Cost- plus Competitive
Pricing Pricing
Mission

Calculate your costs and add Set a price based on what the
a mark-up. competition charges.
 Price Penetration
Skimming Pricing
Mission

Set a high price and Set a low price to enter a

lower it as the market competitive market and raise
evolves. it later.
Value-based Economy
Pricing Pricing
Mission

Base your product or Economy pricing strategy

service’s price on what uses lower prices to generate
the customer believes higher sales volumes.
it’s worth. products have lower prices
due to low production costs.
Common
Challenges
1
Pricing Errors

2 Complex products and

services

3
2 Understanding Customer
Complex products and
Preferences
services

4 Competitive Pressures

5 Value Perception

5 Promotional Strategies
Common
Challenges
1
Pricing Errors

Typical culprits include software bugs that

result in incorrect estimates, errors made by
hand in computations because of intricate
price structures, inadequate review, and
approval procedures
Common
Challenges
2 Complex Products
and Services

Businesses must create flexible pricing models

that take into account various features and
usage patterns in order to appropriately
reflect the value provided in order to address
this.
Common
Challenges
3 Understanding
Customer Preferences

Consumers have diverse preferences, and

their willingness to pay can vary based on
factors such as demographics, psychographics,
and past experiences.
Common
Challenges
4 Competitive
Pressures

Price wars, competitor promotions, and new

market entrants can disrupt pricing strategies
and require businesses to adjust their pricing
to remain competitive.
Common
Challenges
5 Value Perception

Communicating the value proposition

effectively through pricing can be challenging,
especially when consumers have differing
perceptions of quality, brand reputation, and
other value drivers.
Common
Challenges
6 Promotional
Strategies

Balancing promotional pricing tactics, such as

discounts, rebates, and loyalty programs, with
maintaining brand equity and profitability
poses challenges.
 Factors
Influencing
Pricing Decisions
 MARKET CONDITION
COST OF PRODUCTION Market conditions relate to
If a product has high the attractiveness (or
demand and low otherwise) of the overall
elasticity, firms can set market in which a business
higher prices. operates.

COMPETITION
DESIRED PROFIT MARGIN
Greater competition
Pricing decisions are solely
among sellers results in
based on the cost of production
a lower product market and a predefined profit margin,
price. without considering other
market factors

TARGET MARKET UNDERSTANDING PERCEIVED VALUE

If your target market is The price of a product or service
well-heeled, you may be may have more to do with its
able to charge more. emotional appeal than with the
actual cost of production.
 Challenges in
Pricing: Market
Dynamics

DYNAMIC PRICING
Competitors might use
dynamic pricing strategies,
adjusting their prices based
on factors like demand,
seasonality, and your pricing.
VALUE PERCEPTION
Customers don't always base
their decisions solely on price.
They consider factors like
brand reputation, product
quality, and the overall value
proposition.
PRICE WARS
Engaging in constant price
wars to undercut competitors
can damage your brand
image.
ECONOMIC CONDITIONS
Economic downturns can lead
to price sensitivity and
decreased consumer
spending.
GOVERNMENT REGULATIONS
Government regulations and
taxes can impact production
costs and ultimately influence
pricing strategies.
Challenges in
Pricing:
Consumer
Behavior
 • Satisfaction plays a
Product prices
significantly correlate
mediating role in consumer
with consumer buying buying behavior.
behavior. • Fair Pricing of the
The product information product plays an essential
available on packaging role in customer
influences the satisfaction.
consumer’s buying .
behavior.
 Pricing
Terminologies

Price
Value-based
Cost
pricing
Markup
Cost-based pricing
Margin
Competitive pricing
MSRP
Penetration pricing
(Manufacturer's
Price skimming
Suggested Retail Price)
Price: The amount of money a customer pays
for a product or service.

Cost: This refers to the expenses incurred by

a business in producing or acquiring the good
or service they sell.

It can be categorized as fixed costs (e.g.,

rent) or variable costs (e.g., materials).

Markup: The difference between the cost of

a product and its selling price, expressed as a
percentage of the cost.
 Margin: Similar to markup, but expressed
as a percentage of the selling price. In
general, it represents the difference
between a revenue and a cost.

MSRP(Manufacturer's Suggested Retail

Price): The price that a manufacturer
recommends a retailer sell their product
for.

Value-based pricing: Setting a price

based on the perceived value of the
product or service to the customer.
Cost-based pricing: Setting a price based
on the cost of producing the product or
service plus a desired profit margin.

Competitive pricing: Setting a price

based on the prices of similar products or
services offered by competitors.

Penetration pricing: Setting a low price

initially to gain market share, then raising
the price later.

Price skimming: Setting a high price

initially to skim off demand from early
adopters, then lowering the price over time
to reach a wider market.
 SOURCES
https://www.bdc.ca/en/articles-tools/marketing-sales-
export/marketing/pricing-5-common-strategies