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Price & Pricing

the amount of money that is
charged for ‘something’ of value

Pricing: method of setting the price for
products or service
 Pricing

is a complicated issue.
 Pricing relates to:
 Supply and demand
 Customer perception of product benefits
 Competitive environment
 Expected margin

If a price is set too high, sales opportunity
is lost. Lost sales mean revenue lost.

 If a price is set to low, the firm loses
 Price is the decisive factor to expand
market share & to generate profits of a
 Price brings revenue while other 3 factors
means costs.
 Setting the right price is one of the
marketing manager’s most important

 High

price – customers do not buy
 Low price - producers can not cover
 High price brings high profits, but not
creating demand.
 Low price attracts customers, but not
making high profits.

Factors that affect price

Company’s financial strength
The financial status of target
The level of competition
Price of competitors’ products

The level of demand from market
Seasonal factor

Pricing Objectives


maximize profits
increase sales
meet competition
remain an image

1. Markup Pricing:
 Selling price=Cost of buying product+
Amount for profit
 Selling price= Unit cost+ (Unit cost x Rate
of Return)
 Cost – plus pricing: the most common pricing
 The popular method used to establish a selling
 Markup pricing is simple.
 Markups are often based on experience.

 Advantage:

easy to calculate, suitable in
stable economy, as price is higher than
cost, best selling  profit.
 Disadvantage: it ignores demand(not
responsive to market fluctuations),
competition, customer’s perception of
product result in overpricing or

Markup pricing
Ex: 1. Selling price
= unit cost+ (unit cost x rate of return)
= $4.00+($4.00 x15%)
= $4.00 + $0.60
= $4.60
2. Markup
= (unit price- unit cost : unit cost x 100 )
= ($4.60 - $4.00 : $4.00 x100)
= $0.60 : $4.00 x 100
= 15%

2.Break-Even Pricing
 Break-Even

analysis : method of
evaluating what sales volume must
be reached before Total Revenue
equals Total Costs
 Break-even Point: sales volume at
a given price that TOTAL REVENUE
 Sales above that point : Profit
 Sales below that point : Making a

- Variable costs: costs that vary with
changes in the level of output.
- Fixed costs: costs that do not change as
output is increased or decreased.
-Total costs: Fixed costs+ variable

Break-even point


Fixed costs = $3.000
Variable costs= $2.5
= $10 per haircut


Break-Even Point== 400 units

Advantages & Disadvantages
of Break-Even Pricing
 Advantages:

- A quick estimate of how much firm must
sell & how much profit can be earned if a
higher sales volume is obtained.
 Disadvantages:

- Risky due to ignoring elastic demand of

3.Market –Based Pricing: price is
charged according to the competition
of the similar products
 Pricing

over the market
 Low volume luxury goods
 High income groups want prestige
 Price-Quality relationship
 Pricing below the market
 To attract market, to expand market share
 Pricing with the market
 To follow the pricing policies of major
companies in industry in industry (price leader)
 To avoid competition/ Pricing wars

Pricing Strategies
Market Skimming Pricing:
‘skimming the cream off the top’
Pricing policy where a firm charges
high introductory price as having
unique advantages/ technological
breakthrough to maximize cash

Price skimming may be suitable if:
You have a distinct & unique product and
there is little competition.
You have limited production capacity.
You appeal to market segment that is
insensitive to price.
The high price conveys quality.
There is little economies of scale in
producing more.

 Market

Penetration Pricing:
Pricing policy whereby a firm charges a
relatively low price as a way to reach the
mass market , to attract or retain
customers. Penetration pricing is possible
 Customers are price sensitive
 Unit production costs can be reduced
 A low price discourages the competition

Pricing Tactics
-Pricing Tactics: allow the firm to adjust for

competition in certain markets.
-Fine-tuning pricing tactics include various sorts
of discounts, special pricing tactics.
Sorts of Discounts
 Quantity discount: price reduction offered to
buyers buying in multiple units
 Cash discount: a price reduction offered to buyers
in return for quick payment
 Trade discount: discount to wholesalers or
retailers for performing channel functions


discount: a price
reduction for buying merchandise
out of season.
Trade allowance : payment to a
dealer for promoting the
manufacturer’s products.

Special Pricing Tactics

–price tactics: policy of
offering all goods & services at the
same price.


pricing: price tactic in which
different customers pay different
prices for the same merchandise
bought in equal quantities.


leader pricing: price tactic in
which a product is sold near or below
cost in the hope that shoppers will
buy other items once they are in the


pricing : price tactic that tries
to get consumers into store through
misleading price advertising , then
uses high –pressure selling to
persuade consumers to buy more
expensive merchandise.


pricing: price tactic
that uses odd-numbered prices to
connote bargains and evennumbered prices to imply quantity.
Price bundling: marketing two or
more products in a single package
for a special. price.

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