LESSON 2: PRICE

• Is price really that important?

  • The price that a marketer chargers for a product or service is a vital decision that has far-reaching consequences.
• Why do we set PRICE for a product?

  • From the point of view of the  business, products and services are offered, with the intention of making a profit.  However, the customer has a specific price in mind that he considered as fair and profitable
  • This is related to the value or benefit he expects to drive from the product or service. This makes pricing tricky and challenging for marketers. 
• which refers to all expenses incurred in manufacturing one unit of a product.

  unit variable cost
• the unit share of operating and other expenses.

  fixed cost
• What are the two type of cost in physical product that are calcualated?

  Unit variable cost

  fixed cost
• For example, it is used in the manufacturer of a shirt that may include the fabric, thread and buttons. if two meters of fabric, five meters of thread, six buttons and one cardboard box for production packaging are used, this is where material cost is computed

  direct material
• Would include the wages of all workers directly responsible for making the shirt.

  Direct labor
•  is the amount that was spent in the manufacturing overhead (energy, water and other utility costs) for every shirt produced. This can be computed by dividing the total factory manufacturing overhead in a month by the number of units of shirts produced within the same month.

  direct overhead
• are expenses incurred by the organization that are not related to the manufacture of the product. These include executive and staff salaries, official rental, advertising, and promotions, professional; fees and other similar expenses.

  fixed cost
• incurred in a specific period must be shared by all units of the product produced in the same period.

  
  

  Total fixed cost
•  This is the lowest possible price the company can set for its shirts (under normal circumstances)

  break-even point
•  is a pricing strategy that allows the seller a fixed mark-up everytime the product is sold.

  • The biggest weakness of this pricing strategy is the inclusion of unit sales in determining the product’s mark-up price. In reality, total unit sales is affected by the product’s final mark-up price.


  mark-up pricing
• FORMULA FOR MARK-UP PRICING:

  UC = VC/U + FC/US
• TARGET RETURN PRICING FORMULA:

  TRP = UC + DR X IC/US
• s a pricing method that allows a product manufacturer to recover a certain potion of hi/her investment every year. Because unit sales is also included in its target price determination, it has the same weakness as the mark-up pricing.

  target return pricing
•   it is a pricing method premised to the theory that consumers will perceive products with odd pricing endings as lower in price than they actually are. As such, consumers may find products priced at P99.95 closer to P99.00 than P100.00

  Odd pricing or phsycological pricing
• a pricing strategy frequently utilized by supermarkets. It is based on the practice of housewives to use only a few selected essential products (e.g. sugar, coffee, eggs, laundry detergents, and some canned good products) as their sole basis for price comparison.

  • Supermarket retailers will deliberately price these “loss leader” or comparison items low to make their products appear more affordable than others. The mark-up lost on these loss leader items are recovered from other items where mark-up are higher. 

  loss leader pricing
• a pricing strategy designed to simplify a consumer’s buying decision. This method involves reducing the number of price points on the merchandise to as little as possible, in extreme cases to only one price at point. For example, some stores price all the merchandise in their store at P66.00 or P88.00

  price lining
• A pricing strategy that disregards the unit cost of a product or service. Instead, it capitalizes on the high value perception or positive brand reputation of a product or service. It charges a price much higher than its unit cost.

  Prestige pricing
•  A pricing strategy where the firm prices its product lower than unit variable cost, initially resulting in short-term losses.

  Predatory pricing
• Predatory pricing is illegal in most countries including the philippines under what republic?

  republic act of 8479
• a pricing strategy where a company prices its product at the same level as or very close to its competitors’ prices. This effectively maintains the product’s price competitiveness in the market. The danger of going rate pricing is that it may result in price wars, with each company trying to outprice another, to the detriment of all industry participants.

  Going rate pricing
• a pricing strategy involving a temporary reduction in the selling price of a product/service in order to induce trial or to encourage repeat purchase. Almost all companies, especially those involved in the fast-moving consumer goods (FMGGs), implement promotional pricing at one time or another.


  promotional pricing
• two pricing strategies that are used to new products?

  1. price skimming
  2. penetration pricing
• where the product’s selling price is way above its unit cost. This allows the company to recover its research and development costs and expenses

  price skimming
• pricing strategy where the new product is priced only marginally above its unit cost. The objective of this strategy is to capture a large part of the market at an early stage by making the product affordable to the greatest  number of people.

  penetration pricing
• The choice of pricing strategy depends almost exclusively on a company’s objectives

  Pricing strategy selection
• Pricing objective:

  maximum revenue

  Pricing strategy:

  1. penetration pricing
  2. marginal pricing
  3. going rate pricing
  4. promotional pricing
• Pricing objective:

  maximum market share

  Pricing strategy:

  1. penetration pricing
  2. going rate pricing
  3. promotional pricing
• Pricing objective:

  Maximum profit

  Pricing strategy:

  1. price skimming
  2. prestige pricing
• Pricing objective:

  survival

  Pricing strategy:

  marginal pricing