Republic of the Philippines

Department of Education
Region IV – MIMAROPA
Division of Palawan
PULOT NATIONAL HIGH SCHOOL
Sofronio Española, Palawan

PRINCIPLES OF MARKETING
Quarter 4 - Week 2

Lesson 2: Identify and describe the factors to consider when setting prices and new product
pricing and its general pricing approaches.

Price is the amount of money charged for a product or service. It is the sum of all values that customers
give up to gain the benefits of having or using the products or services.

PRICE DETERMINANTS
INTERNAL FACTORS
1. Marketing Strategy- before setting prices, the company must settle on its overall marketing strategy for
the product or service.
2. Objectives- pricing may play an essential function in helping to achieve company objectives at all levels.
3. Marketing Mix- Price choices must be harmonized with product design, distribution and promotion
decisions to structure a reliable and valuable integrated marketing program.
4. Other organizational considerations- management must fix on who within the organization should set
prices.

EXTERNAL FACTORS
1. Nature of the Market- the marketer must know the relationship between price and demand for the
company’s product. The seller’s pricing freedom varies with different types of markets. There are four
types of markets, each presenting a different pricing challenge:
a. Under pure competition, the market consists of many buyers and sellers trading in a uniform
commodity. No distinct buyer or seller has much effort on the going market price. As a result, sellers
in these markets do not spend much time on marketing strategy.
b. Under monopolistic competition, a range of prices arises because sellers can set apart their offers to
buyers.
c. Under oligopolistic competition, the market consists of not so many sellers who are extremely
responsive to each other’s pricing and marketing strategies.
2. Demand- buyers are less price conscious when the product they are buying is inimitable or when it is
high in quality, prestige or exclusiveness. If demand is elastic rather inelastic, sellers will reflect on
lowering their prices.
3. Economy- economic factors like a boom or recession, inflation, and interest rates affect pricing decisions
because they affect consumers spending, consumers’ perceptions of the product’s price and value and
the company’s cost of producing and selling the product.
4. Other Environmental Factors- the company must think about some other factors in its external
environment when setting prices. It should distinguish what impact its prices will have on other
elements in its environment.
The government is another vital external pressure on pricing decisions. Lastly, social concern may
require to be taken into consideration.

NEW PRODUCT PRICING

1. Market Skimming Pricing- companies set high initial prices to “skim” revenues layer by layer from
the market.
2. Market Penetration Pricing- the companies set a low preliminary price to break in the market fast
and deeply to draw a large number of buyers quickly and gain a huge market share.

GENERAL PRICING APPROACHES

DEMAND-ORIENTED COST-ORIENTED PROFIT ORIENTED COMPETITION
APPROACHES APPROACHES APPOACHES ORIENTED
1. Skimming- a pricing 1. Cost Plus pricing- 1. Target Profit- It APPROACHES
strategy in which a adding a percentage is a pricing 1. Customary-
marketer sets a to cost in order to fix method in which standardized
relatively high price the price. For a seller sets channel of
for a product or instance, if the cost prices with the distribution or
service at first then of a product is P200, purpose to other
lower price over time. the marketer make a certain competitive
2. Penetration- pricing expects 10% profits amount of factors dictate
technique of setting on cost, then the money. the price.

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 low initial entry price. selling price will be 2. Target return on 2. Above, at or
3. Prestige- it is a P220. sales- it is below-
physiological pricing 2. Break-even pricing- setting typical subjective feel
strategy that sets the break-even price prices that will for the
prices of luxury is the price at which give companies competitor’s
products to the the sales revenue is a profit that is a price or
expectations of a equal to the cost of specified market price
niche class of goods sold. In other percentage say using
customers’ associate words, there is % 5 of the sales benchmark.
higher prices with neither profit or loss. volume. 3. Loss Leader-
superior quality. 3. Experience Curve- 3. Target return on deliberately
4. Price Lining- also the logic of this is to investment- is sells a product
referred to as product be price aggressive one way of below its
line pricing, is a and decrease the considering customary
marketing process price of the products profits in price to
wherein products or below the current relation to the attract
services within a market price. capital invested. attention to it.
specific group are set
a different price
points.
5. Odd-even- A type of
psychological pricing
where price is set
based on customer’s
perception of a
significant differences
in cost between
products at a whole
number value and
products priced
slightly below this
whole number.
Instead of P200, the
seller will place a
price tag of P199.
6. Target- involves
indentifying the price
at which a product
will be competitive in
the marketplace.
7. Bundle- companies
sell a package or set
of goods or services
for a lower price than
they would charge if
the customer bought
all of them
separately. Common
examples include
option packages on
new cars, value
meals at restaurants
and cable TV channel
plans.
8. Yield Management-
process of
understanding.
Anticipating, and
influencing behavior
to maximize yield or
profits from a fixed,
perishable resources,
such as hotel room
reservations, and
airline seats.

Activity 1: Multiple Choice. Choose the letter of the correct answer.

1. Which is true about pricing?
A. A key element relating directly to total revenue
B. The amount of money charged for a product

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 C. Major factor affecting buyer choice
D. All of these
2. It is a type of market which consists of many buyers and sellers trading in a uniform commodity.
A. Oligopolistic
B. Monopolistic
C. Pure Competition
D. Pure Monopoly
3. A pricing strategy in which a marketer sets a relatively high price for a product or service at first then
lower price over time.
A. Skimming B. Penetration C. Target D. Demand
4. How much would be the selling price if the cost of the unit is P550 and the seller wants a 15% of profit?
A. P633 B. P663 C. P632 D. 565
5. Which of the following is an example of odd-even price?
A. P850 P859 C. P850 D. P800
6. Involves indentifying the price at which a product will be competitive in the marketplace.
A. Skimming B. Penetration C. Target D. Demand
7. In penetration pricing, sellers set______ price.
A. High B. Equal C. Low D. Zero
8. Which of the following does not belong to the group?
A. Demand B. Economy C. Objectives D. Environmental factors
9. Which is true about break-even pricing?
A. There is profit
B. There is loss
C. No Profit neither loss
D. No income
10. Combo meals are example of what pricing strategy?
A. Bundle B. Odd-even C. Prestige D. Price Lining

Prepared by:

NIGGIE E. DIORDA
Teacher I