Price & Pricing
the amount of money that is
charged for ‘something’ of value
Pricing: method of setting the price for
products or service
is a complicated issue.
Pricing relates to:
Supply and demand
Customer perception of product benefits
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
Setting the right price is one of the
marketing manager’s most important
price – customers do not buy
Low price - producers can not cover
High price brings high profits, but not
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
remain an image
1. Markup Pricing:
Selling price=Cost of buying product+
Amount for profit
Selling price= Unit cost+ (Unit cost x Rate
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.
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
Ex: 1. Selling price
= unit cost+ (unit cost x rate of return)
= $4.00+($4.00 x15%)
= $4.00 + $0.60
= (unit price- unit cost : unit cost x 100 )
= ($4.60 - $4.00 : $4.00 x100)
= $0.60 : $4.00 x 100
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
equals TOTAL COSTS
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
Fixed costs = $3.000
Variable costs= $2.5
= $10 per haircut
Break-Even Point== 400 units
Advantages & Disadvantages
of Break-Even Pricing
- A quick estimate of how much firm must
sell & how much profit can be earned if a
higher sales volume is obtained.
- Risky due to ignoring elastic demand of
3.Market –Based Pricing: price is
charged according to the competition
of the similar products
over the market
Low volume luxury goods
High income groups want prestige
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
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
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: 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
Special Pricing Tactics
–price tactics: policy of
offering all goods & services at the
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
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.