What is price?
PRICE
- is the peso value that an entrepreneur assigns to a
certain product/service
- is the amount that consumers pay to have or use
the product/service
How does a firm price a
product/service?
What are the common
pricing strategies?
PRICING STRATEGIES
1. COST-BASED PRICING
- is setting the price by computing all the merchandise (materials), services
(labor) and overhead costs (advertising, rent, tax, etc.) then adding the desired
profit to those figures
EXAMPLE 1:
The entrepreneur has spent the P14.00 (P8.00 for the coconut, P2.00 for the
sugar, P1.00 for ice and water, P1.00 for the cup and P2.00 for the labor) on the
his product, coconut juice. He can set the price at P20.00 per cup to earn P6.00
profit.
PRICING STRATEGIES
2. COST PLUS PRICING
- is pricing by basing the mark-up on a certain percentage of the cost
EXAMPLE 1:
The entrepreneur has spent the P14.00 (P8.00 for the coconut, P2.00 for the
sugar, P1.00 for ice and water, P1.00 for the cup and P2.00 for the labor) on the
his product, coconut juice. He wants to set a 50% mark-up on the cost of the
coconut juice which is P14.00 x 50% = P7.00. The selling price will be P14.00 +
P7.00 = P21.00 per cup
PRICING STRATEGIES
3. BUNDLING
- offering a two or more product/service to a customer in
one total reduced price
EXAMPLE:
In a coffee shop, the price of brewed black coffee is P90.00 while the
slice of a cheesecake is P120.00 when sold separately. If a customer
would like to order something hot to drink and sweet to eat at the
same time, the staff could offer a bundled product, cheesecake with
black coffee only for P205.00.
PRICING STRATEGIES
4. PENETRATION PRICING
- using relatively low prices at the beginning to attract many
customers but will eventually increase the price once the
desired market share is achieved
EXAMPLE:
“Hatak”, a new mobile app-based transportation service will offer flag down rate
of P30.00 with P12.00 added per KM as its introductory price. Once it achieved
its desired market share, its flag down rate will be raised to P40.00 with P13.50
added per KM and P2.00 added per minute of waiting time.
PRICING STRATEGIES
5. SKIMMING
- the opposite of penetration pricing
- is used to attract the segment of the market who is more concerned
with product’s exceptional quality, features and uniqueness than the
price
EXAMPLE:
Apple company released a top-tier phone, Iphone X at P80,000. Once the
company is able to determine who really patronize the product, a lower cost
phone with almost the same quality and features will be offered to the middle
market segment
PRICING STRATEGIES
6. COMPETITIVE PRICING
- is setting the price of product/service at the same level as
those of the competitors
7. PREMIUM PRICING
- setting a very high price to reflect elitism, exclusivity and
superiority
PRICING STRATEGIES
8. PRODUCT LINE PRICING
- is pricing two or more products/services that function in
similar way but have some differences in quality and features
and are sold at different prices to the similar customer groups
EXAMPLE 1:
Starbucks sells venti-size beverages which is bigger and slightly more
expensive than grande-size and tall-size beverages.
EXAMPLE 2:
Samsung sells A80 which has better display, camera and design than A70, A50
and A30 at a higher price.
PRICING STRATEGIES
9. ODD PRICING
- is a psychological method of pricing lowering the rounded-up
price of a product/service by a peso or centavo so a customer
will perceive it as significantly lower than the rounded-up
price
EXAMPLE:
The price of bags are sold at P1,995 because consumers tend to think that odd
prices are considerably cheaper than what they are; they tend to round off
P1,995 to P1,000 instead of P2,000
PRICING STRATEGIES
10. OPTIONAL PRICING
- is adding an extra product/service on top of the original
product/service to generate more revenue
EXAMPLE 1:
A milktea shop charge P10.00 to customers who want their milktea to have extra
pearls and/or crystals
EXAMPLE 2:
An airline company charge passengers for “optional extras” such as a
guaranteed seat beside the window or a reserved row of seats next to each
other.
OTHER PRICING STRATEGIES
1. FLEXIBLE PRICING
- is pricing based on the customer’s ability to pay or buying power
2. LEADER PRICING
- is selling the product/service at relatively lower prices than those of his
competitors
3. GEOGRAPHIC PRICING
- is pricing depending on the distance of the customer
Why should the firm
carefully develop/determine
the price of its
product/service?
REASONS FOR DEVELOPING A SUITABLE PRICE
1. To gain big market share
2. To achieve sales growth
3. To earn satisfactory profits
4. To avoid undesired government actions
5. To minimize the effects of competitors’ actions
6. To establish good relations with customers
7. To stabilize the price