Introduction
The price that a company charges is somewhere between
one that is too low to produce a profit and another that is
too high to produce any demand. In setting prices, a
company must consider the product’s total cost, the
competitors’ offers and other internal and external
factors, and the consumers’ perception of value.
Pricing Approaches
1.
2.
3.
4.
5.
New Product Pricing Strategies
Cost-Based Pricing Strategies
Value-Based Pricing Strategy
Competition-Based Pricing Strategies
Others
New Product Pricing Strategies
Market skimming pricing
2. Market penetration
1.
Alternative pricing approaches:
1. Premium pricing
2. Good value pricing
3. Overcharging pricing
4. Economy pricing
Competition-based pricing
strategies
Going-rate pricing – a company bases its price largely
on the prices of competitors without due regard to its
own costs and to its own demand.
2. Sealed-bid pricing
Profit method
1.
Product Mix Pricing
1.
2.
3.
4.
5.
Product line pricing
Optional product pricing – offers to sell optional or
accessory products along with a main product
Captive-product pricing – offering products that are
essential to the main product itself.
By-product pricing
Product bundle pricing
Price-adjustment strategies
1.
Discount pricing
1.
2.
3.
Cash discount
Quantity discount
Seasonal discount
2. Segmented pricing
1. Customer-segment pricing
2. Product-form pricing
3. Location pricing
4. Time pricing
Value-based pricing strategy
 Considers buyer’s perception of value as the main
ingredient in pricing.
Customers->Value->Price->Cost->Product
Value-Based Pricing Strategy
Product->Cost->Price->Value->Customers
Cost-Based Pricing Strategy
Others
Promotional Pricing
Psychological
Geographical pricing
Cost-based pricing strategies
Cost-plus pricing
2. Break-even pricing
3. Target profit pricing
1.
Example # 1
JOMARICO enterprises would like to determine how
many units of its product should it sell in order to breakeven. The total fixed costs amounts to Php1,000,000 a
year. Selling price is Php300 per unit. Variable cost
covering direct materials and direct labor is Php200 per
unit.
Example 2
If Jomarico enterprises estimates that it will be able to
sell only 8,000 units the whole year due to declining
demand, at what price must the company sell its
products to break-even?
Example 3
As shown in Example 2, Jomarico Enterprises can sell
8,000 units at Php325 each with a variable cost of
Php200 per unit and total fixed costs of Php1,000,000
per year. In this case, it will have no profit. What if the
company wants to earn a target profit of Php400,000 for
the year (instead of no profit at all)? At what price must
Jomarico enterprises sell its product so that it can
achieve this target profit?