Introduction The price that a company charges is somewhere between one that is too low to produce a...

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The Pricing Approaches

Transcript of Introduction The price that a company charges is somewhere between one that is too low to produce a...

Page 1: 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.

The Pricing Approaches

Page 2: 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.

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.

Page 3: 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.

Pricing Approaches 1. New Product Pricing Strategies 2. Cost-Based Pricing Strategies 3. Value-Based Pricing Strategy4. Competition-Based Pricing Strategies 5. Others

Page 4: 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.

New Product Pricing Strategies 1. Market skimming pricing 2. Market penetration

Alternative pricing approaches: 3. Premium pricing 4. Good value pricing 5. Overcharging pricing 6. Economy pricing

Page 5: 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.

Competition-based pricing strategies1. 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

Page 6: 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.

Product Mix Pricing 1. Product line pricing 2. Optional product pricing – offers to sell

optional or accessory products along with a main product

3. Captive-product pricing – offering products that are essential to the main product itself.

4. By-product pricing 5. Product bundle pricing

Page 7: 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.

Price-adjustment strategies 1. Discount pricing

1. Cash discount 2. Quantity discount 3. Seasonal discount

2. Segmented pricing 1. Customer-segment pricing 2. Product-form pricing 3. Location pricing 4. Time pricing

Page 8: 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.

Value-based pricing strategy Considers buyer’s perception of value as the

main ingredient in pricing.

Customers->Value->Price->Cost->ProductValue-Based Pricing Strategy

Product->Cost->Price->Value->CustomersCost-Based Pricing Strategy

Page 9: 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.

Others Promotional Pricing PsychologicalGeographical pricing

Page 10: 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.

Cost-based pricing strategies1. Cost-plus pricing2. Break-even pricing 3. Target profit pricing

Page 11: 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.

Example # 1 JOMARICO enterprises would like to determine how many units of its product should it sell in order to break-even. 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.

Page 12: 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.

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?

Page 13: 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.

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?


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