The Pricing

Approaches
Things to conceder in setting
the price:

1. Product cost (fixed cost +
variable cost).
2. Competitors offers & other
internal and external
factors.
3. Consumers perception of
value.

Low price (no
profit)
Product cost
Competitors
offers &
other internal
and external
factors
Consumers
perception of
value
High Price
(no demand)
Major consideration in setting Price
New product pricing strategies:

If a company is setting a new product
there two options:

Market
Skimming
Market
Penetration
Selling price P400 per unit P250 per unit
Demand 1,000 unit 1,600 units
Revenue P400,000 P400,000
Marketing Skimming versus
Marketing Penetration Pricing
Different between the two
options are:
1. In skimming pricing is
to make a swift return
on investment by
offering product at a
high price
2. In penetration pricing
the objective is to
capture a large market
share by attracting
buyers through low
prices.
The low pricing is more beneficial to a
firm over a long period of time.
the companies that are adopting the
skimming pricing strategy need to be
caution of their marketing program
and ensure that they justify the high
price they charge for their products to
win customers confidence, support
and eventually loyalty.
An alternative pricing strategies is
establishing a relationship between
the price and the quality of the
product to come up with 4 possible
strategies:
1. Selling a High-Quality product at a
high price (premium pricing
strategy)
2. Selling High-Quality product at low
price ( good value pricing strategy)
3. Selling Low-Quality product at high
price( overcharging pricing strategy)
4. Selling a low-Quality product at a
low price (economy pricing strategy)
HIGH LAW
HIGH Premium
Strategy
Overcharging
Strategy
LOW Good Value
Strategy
Economy
strategy
The Price- Quality Matrix
Quality
P
r
i
c
e


Cost-Based Pricing Strategy
Cost -plus Pricing
Break -even Pricing
Target profit Pricing
Cost based pricing has 3 pricing
approaches:
Value- based pricing strategy
it considers the buyers perception value as
the main ingredient in pricing.
PRODUCT COST
PRICE
VALUE CUTOMER
COST- BASED PRICING STRATEGY
VALUE- BASED PRICING STRATEGY
CUTOMER VALUE PRICE
COST PRODUCT
Competition- Based Pricing strategy
Two kinds of
Competition- Based
Pricing strategy

Going Rate Pricing
Sealed- bid Pricing
1. The company determines a number of possible bids.
2. The company computes for the profit that it will earn under
each scenario.
3. The company estimates the probability of winning the
contact under the different bids.
4. The company computes for the expected profit under each
bid, and
5. The company chooses the bid they yields the highest
expected profit.
Profit Method
Five steps
Product- Mix
Pricing Strategy
Applicable to firms that develop product
lines rather than single product.
The firm set different prices for its product
line depending on its future assortment
(e.g., Nokia)
Product- line
pricing
This approach offers to sell optional or
accessory product along with main
product.
Example: the price of a car being sold
without accessory and with.
Optional-
Product Pricing
It offers a product that is essential to the
main product it self.
Example: Cellular phones and the captive
product are battery and charger.
Captive-
Product Pricing
A by- product is surplus product or it comes
from the main product it self
Example: selling sawdust.
By-Product
Pricing
The company combines several of
its product to one bundle and offer
it for sale at a reduced price.
Product-
Bundle Pricing
There are two pricing approach
under price- adjustment strategies:









Price- Adjustment strategy
Segmented Pricing
Discount Pricing
Conditions to make segmented pricing
effective
1. The market must be segmentable and
the different segments must show
different degrees of demand.
2. Competitors must not undersell the
company in the segment being charged
the high price.
3. The cost of segmenting and watching
the market must never exceed the extra
income obtained from the price
different.
4. The practice should not lead to
customer resentment and will.
5. The segmented pricing must be legal
This approach relates the effect of
pricing on the peoples minds.
Psychological
pricing
When the company decides to
price some of its items blow their
regular list price or at times even
lower.
Promotional
pricing
The company sets different prices
depending upon the region, state
or country where the company
sells the product.
Geographical
pricing