Pricing Strategy

1. PRICE: ITS NATURE
Chapter 1

2. Learning
Outcomes:
• Define and determine the nature of price;
• Identify the steps in developing a pricing
strategy;
• Determine the concept as a basis for
determining the right price;
• Distinguish the relevance of the strategy to
its implementation; and
• Analyze the factors that influence price
determination.
At the end of the chapter, the
student is expected to:

3. Nature of Price
• Nature of price refers to decisions surrounding "list pricing, discount
pricing, special offer pricing, credit payment or credit terms".
• Price refers to the total cost for customers to acquire the product and
may involve both monetary and psychological costs such as the time and
effort expended in the acquisition.
• Price determines the value of a good or service to the buyers even to
the sellers.

4. Five Steps in Developing a
Pricing strategy
1.The Objective
2.Broad Price Policy
3.Price strategies
4.Implementing Price Strategy
5.Price Adjustments

5. The Objective
a. Sales Based.
b. Profit-Based.
c. Status Quo Based.

6. Price Strategies
a. Cost-based Pricing
b. Demand-based Pricing
c. Competition-based Pricing

7. Implementing Price Strategy
a. Customary Pricing is when one price is maintained
over an extended period of time.
b. Variable Pricing is when the price responds to cost
fluctuations or differences in demand.
c. The one Price Policy is when the price is charged to
all customers buying the product or service under
similar conditions.

8. d. Flexible Pricing is based on the customer’s ability to
negotiate o buy the power of the customer.
e. Odd Pricing is prices set a levele below even values.
f. Price quality association is when the consumers
believed that high price represents high quality and low
prices represent low quality.
g. Prestige Pricing is when customers set price floors and
will not buy at prices below those floors. Above price
ceilings, items would seem too expensive.

9. h. Leader pricing is selling key items at low prices to gain
consumer loyalty within its product line.
i. Multiple-unit pricing is when the entrepreneur offers
discounts to consumers for buying in large quantities.
j. Price lining is when instead of setting one price for a
single model of a good or service, the firm sells two
models of different quality and features at different
prices.

10. k. Price bundling is when the firm offers a basic
product, options, and customer service for one total
price.
l. Unbundled pricing is when the firm sells by
individual components and allows the customer to
decide what to buy.

11. m. Geographic pricing is when the prices are set depending on
the distance of the Buyer to the seller. Normally this activity is
done if both parties are far from each other. The two parties
must agree to the price before the transaction can take place.
These are the sample transactions:
n. FOB factory is when the buyer pays for all freight charges
regardless of the distance. The buyer must be willing to pay all
the expenses incurred during the transfer of the product from
one place to another.

12. o. Uniform delivered pricing is when buyers pay the same
delivered price for the same quantity of goods.
p. Zone pricing is when the buyers within the geographic
zone pay a uniform delivered price.
q. Base-point pricing is when the cost of transporting the
goods is computed from the base point nearest buyer. In
setting prices, the most accessible and nearest buyer
need to determine as a base point in distributing the
product.

13. • Terms of Payments are price agreements, including
discounts, the timing of payments, and credits
agreements.
• Discounts are a reduction in the selling price given to
customers for varying reasons: paying in cash,
performing certain functions, buying in large
quantities, and off-season buying.

14. Price Adjustments.
a. Price Adjustments. Changes in cost, competitive
conditions and consumer demand require changes in
price. Prices can be adjusted in the list prices,
escalator clauses, surcharges, mark-ups, markdowns,
and rebates.
a. List prices are regularly quoted prices to
customers, as in catalogs, price tags, and purchase
orders.

15. b. Escalator clauses happen when the contract which
allows price increase after the sale is concluded
before delivery is made.
c. The surcharge is supplementary to list prices. These
are additional charges added to the total price.
d. Mark-ups happen when the company is raising
regular selling prices because demand is
unexpectedly high, or costs are rising.

16. e. Markdowns are reductions from original selling prices
to meet lower prices of competitors, overstocking, shop-
worn merchandise, and increase customer traffic. This
activity can affect profit generation.

17. Determining the Right Price
In determining the right price, the following factors
must be considered:
1. The customer's perception of the value of the kind of
business firm;
2. The costs involved such as overhead, storage,
financing, production, and distribution; and;
3. The profit objectives of the firm.

18. The price set by the firm may be established through
any of the following methods:
1. Cost-plus pricing - this method covers all costs,
variable and fixed, plus an extra increment to deliver
profit.
2. Demand pricing - this is a method of pricing where
the firm sets prices based on buyer desires. The
range acceptable to the target market is determined.

19. 3. Competitive pricing - this method of pricing calls for
price-setting on the basis of prices charged by
competitors.
4. Market pricing - this is a form of cost-oriented pricing
in which the firm sets prices by adding per-unit
merchandise costs, operating expenses, and desired
profit.