Module 8 - Price

Mgt 101
Module 8: The Price

Ms. Janna D. Arce
Instructor I
Pangasinan State University - Asingan Campus
Learning Objectives
1. Identify and define the other important external and internal

factors affecting a firm’s pricing decisions.
2. Define price and discuss the importance of pricing in today’s fast-
changing environment
3. Identify the three major pricing strategies and discuss the
importance of understanding customer-value perceptions, company
costs, and competitor strategies when setting prices
2
What is a Price?
• PRICE – The amount of money charged for a product or service, or

the sum of the values that customers exchange for the benefits of
having or using the product or service.
• The only element in the marketing mix that produces revenue; all
other elements represent costs.
• One of the most flexible marketing mix elements.
3
Major Pricing Strategies
1. Customer Value-Based Pricing – setting price based on

buyers’ perceptions of value rather than on the seller’s cost.
1. Good-Value Pricing. Offering the right combination of quality
and good service at a fair price.
2. Value-Added Pricing. Rather than cutting prices to match
competitors, they add quality, services, and value-added features
to differentiate their offers and thus support their higher prices.
4
2. Cost-Based Pricing – involves setting prices based on the costs of

producing, distributing, and selling the product plus a fair rate of return
for the company’s effort and risk.
Types of Costs
1. Fixed Costs – Costs that do not vary with production or sales level.
2. Variable Costs – Costs that vary directly with the level of
production.
3. Total Costs – The sum of the fixed and variable costs for any given
level of production. 5
Cost-Plus Pricing (Mark-up Pricing)
• adding a standard markup to the cost of the product.

• Ex: Construction companies submit job bids by estimating the total
project cost and adding a standard markup for profit.
6
Cost-Plus Pricing (Mark-up Pricing)
7
Break-Even Analysis and Target
Profit Sharing
• Break-even Pricing (target return pricing) – setting price to break even

on the costs of making and marketing a product or setting price to
make a target return.
8
Profit Sharing
9
Profit Sharing
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:
Break-even volume = fixed cost price = ₱300,000 = 30,000

variable cost ₱20 - ₱10
10
Profit Sharing
11
3. Competition-Based Pricing
It involves setting prices based on competitors’ strategies, costs,
prices, and market offerings. Consumers will base their judgments of a
product’s value on the prices that competitors charge for similar
products.
12
OTHER INTERNAL AND
EXTERNAL CONSIDERATIONS
AFFECTING PRICE
DECISIONS
13
Organizational Considerations
• Management must decide who within the organization should set

prices.
• 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 managers.
• In industrial markets, salespeople may be allowed to negotiate with
customers within certain price ranges.
14
The Market and Demand
Pricing in Different Types of Markets

1. 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.
• 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.
15

2. Monopolistic Competition –
• the market consists of many buyers and sellers trading over a range of prices
rather than a single market price.
• A range of prices occurs because sellers can differentiate their offers to buyers.
• Sellers try to develop differentiated offers for different customer segments
and, in addition to price, freely use branding, advertising, and personal selling
to set their offers apart.
16

3. Oligopolistic Competition – the market consists of only a few large
sellers.
• e.g., Globe Telecom, Smart Communications and DITO Telecommunity.
4. Pure Monopoly – the market is dominated by one seller.
• e.g., Meralco, Grab (for a short period)
17
Analyzing the Price-Demand

Relationship
• Demand Curve – A curve that
shows the number of units the
market will buy in agiven time
period, at different prices that
might be charged.
18
The Economy
• Economic conditions can have a strong impact on the firm’s pricing

strategies.
• recession, inflation, and interest rates
• The most obvious response to the new economic realities is to cut prices
and offer discounts.
• However, such price cuts can have undesirable long-term consequences.
19
The Economy
• Rather than cutting prices on their main-market brands, many companies

are holding their price positions but redefining the “value” in their value
propositions.
• Other companies have developed “price tiers,” adding both more affordable
lines and premium lines that span the varied means and preferences of
different customer segments.
20
Other External Factors
• Resellers
• Government
• Social Concerns
21

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Mgt 101

Module 8: The Price

1. Identify and define the other important external and internal

• PRICE – The amount of money charged for a product or service, or

1. Customer Value-Based Pricing – setting price based on

2. Cost-Based Pricing – involves setting prices based on the costs of

• adding a standard markup to the cost of the product.

• Break-even Pricing (target return pricing) – setting price to break even

Break-even volume = fixed cost price = ₱300,000 = 30,000

• Management must decide who within the organization should set

Pricing in Different Types of Markets

Pricing in Different Types of Markets

Pricing in Different Types of Markets

Analyzing the Price-Demand

• Economic conditions can have a strong impact on the firm’s pricing

• Rather than cutting prices on their main-market brands, many companies

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