Adaptive Community for the Continuity of Education and Student Services
National Teachers College
PRICING STRATEGY
Student Name: Degree Program:
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YOUR GOALS
An important element of the 4 Ps is Pricing. While all the other Ps focus on
creating value, pricing helps companies to extract the value created. In this
module, you will learn about pricing in marketing and the different considerations
and steps involved in the pricing process. Learners should be able to:
1. Explain the position of Pricing in the 4Ps and the factors affecting pricing
strategies.
2. Pricing Objectives and Policies.
3. The role of Value pricing in obtaining competitive advantage.
BMP3 - PRICING STRATEGY
School of Business, First Semester, SY 2021-2022 1
Adaptive Community for the Continuity of Education and Student Services
National Teachers College
YOUR EXPERIENCE
Be guided by the following schedule that you can follow and
the list of tasks that you need to accomplish in order to manage your learning
experience well.
WEEK TASK OUTPUT
1 1 Defining Factors Affecting Pricing Strategies
3 2 What should be my Focus in Pricing?
5 3 How to Convince Buyers with our Value Pricing?
THE FINAL GRADE WILL BE DETERMINED BY THE AVERAGE OF THE THREE OUTPUTS
There are four reading resources for this module. You are allowed to look for
other related resources if you have the means to do so. Note that our school library
has online resources that you can access.
TASK 1: Defining Factors Affecting Pricing Strategies
In Word file, list at least 10 factors that could affect pricing strategies you may plan
and organize in your business. Briefly explain each factor.
Follow this format for your file name: Surname_Task1_Pricing Strategy
TASK INFORMATION. Please take note of the following directions in
formulating your answer.
INSTRUCTIONS ON HOW TO ACCOMPLISH THE TASK
1. Apply higher order thinking and creative skills to relay complex ideas.
BMP3 - PRICING STRATEGY
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2. Organize your ideas in order to build logical and coherent
arguments.
3. Support your ideas with well-developed reasons and/or arguments.
4. Your answer should be focused and reflects clear insights and ideas.
OUTPUT CONDITION. Please take note of the following guidelines in creating your
Task 1.
1. The output may be computer-generated or handwritten.
2. Electronic outputs should be encoded using Century Gothic with font size 12
with normal margin (1 inch in every corner) and 1.5 spacing. It should be
submitted at the official online class/ course.
3. Handwritten outputs should be rendered in print and not in script. The
handwritten outputs may be sent via courier or dropped-off at the specific
collection area on campus.
RUBRIC OF EVALUATION. Take time to review the rubric of evaluation to give
you an idea how you will be graded for Task 1.
BMP3 - PRICING STRATEGY
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BMP3 - PRICING STRATEGY
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READING MATERIAL NO. 1
Marketing Mix – Pricing in 4Ps of Marketing
Pricing is an important element of
marketing mix. Every company should
choose strategic choices when
pricing the products to successfully
achieve business objectives.
Marketing Mix Pricing is the only
element that generates revenue while
the other three elements represent
costs.
Marketing Mix Price Definition
Price —The amount of money
charged for a product or service, or
the sum of the values that consumers
exchange for the benefits of having
or using the product or service.
Today companies pricing environment is dynamic. The economic fluctuations put
companies in a crucial position. According to some marketers virtually they don’t have
pricing power. They don’t have any chance to raise prices instead they are slashing
the prices on and off. This way pricing affecting both the manufacturing and services
industry – hotels to automobiles and so on.
Importance of Pricing in Marketing Mix
Most of the time marketers give more importance to activities like market research,
product management, promotion and distribution. These are considered important
aspects of marketing mix. But pricing is also a very important element in the 4 P’s of
marketing mix. This is the only element that generates revenue and supports other
activities like product distribution, promotion and advertisement.
Pricing is Flexible. Pricing is the only single variable that is flexible and can be changed
within no time. On the other hand, the remaining elements of marketing mix like
distribution channels, promotional campaigns and can increase the cost.
Set the right Price. When setting the price keep in mind the strategic objective of the
organization. For example, if a marketer set too high or too low in both pricing decisions
it can affect the sale growth.
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Positioning. When setting a price, it conveys a message to your potential
customers about your product and service and creates a perceived value of
marketing mix. This perceived value can affect the consumer decision-making process.
High pricing means high-quality products and services. Low pricing products and
services indicate that you are a low-cost provider.
Marketing Mix Pricing Objectives
A company pricing decision is based on objectives to be attained in the future.
Following are some of the pricing objectives.
▪ Profit maximization
▪ Profit margin maximization
▪ Sales Growth
▪ Market Share
▪ Survival
[Link]
TASK 2: What should be my focus in Pricing?
Choose at least two well-known corporations in the Philippines, search and discuss
their respective pricing objectives. Also, discuss how those objectives benefited
each corporation as a whole. You can have a Microsoft Word file for this.
Follow this format for your file name: Surname_Task2_Pricing Strategy
TASK INFORMATION. Please take note of the following directions in
formulating your answer.
INSTRUCTIONS ON HOW TO ACCOMPLISH THE TASK
1. Apply higher order thinking and creative skills to relay complex ideas.
2. Organize your ideas in order to build logical and coherent arguments.
3. Support your ideas with well-developed reasons and/or arguments. 4.
Your answer should be focused and reflects clear insights and ideas.
BMP3 - PRICING STRATEGY
School of Business, First Semester, SY 2021-2022 6
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OUTPUT CONDITION. Please take note of the following guidelines in
creating your Task 2.
1. The output may be computer-generated or handwritten.
2. Electronic outputs should be encoded using Century Gothic with font size 12
with normal margin (1 inch in every corner) and 1.5 spacing. It should be
submitted at the official online class/ course.
3. Handwritten outputs should be rendered in print and not in script. The
handwritten outputs may be sent via courier or dropped-off at the specific
collection area on campus.
RUBRIC OF EVALUATION. Take time to review the rubric of evaluation to give
you an idea how you will be graded for Task 2.
33.3% 29.33 25 20
Complet All the details Most of the Some of the Student did
io n in the details in the details in the not turn in
assigned assigned task assigned assigned
task are are task are task.
complete. complete. missing.
Timeliness Document Document Document Document
was received was 1 day was 2 days was 3 or
on the due late. late. more days
date. late.
Accuracy All of the Most of the Some of the Little or
answers are answers are answers are none of the
appropriate/ appropriate/ appropriate answers are
c orrect. c orrect. / correct. appropriate
/
correct.
Total 100 88 75 60
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READING MATERIAL NO. 2
Top 5 Objectives of Pricing
Pricing can be defined as the process of determining an appropriate price for the
product, or it is an act of setting price for the product. Pricing involves a number of
decisions related to setting the price of a product. Pricing policies are aimed at
achieving various objectives. Company has several objectives to be achieved by
sound pricing policies and strategies. Pricing decisions are based on the objectives to
be achieved. Objectives are related to sales volume, profitability, market shares, or
competition. Objectives of pricing can be classified in five groups as shown in figure
1.
1. Profits-related Objectives:
Profit has remained a dominant objective of business activities.
Company’s pricing policies and strategies are aimed at following profits-related
objectives:
i. Maximum Current Profit:
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One of the objectives of pricing is to maximize current profits. This
objective is aimed at making as much money as possible. Company tries to set its price
in a way that more current profits can be earned. However, the company cannot set
its price beyond the limit. But it concentrates on maximum profits.
ii. Target Return on Investment:
Most companies want to earn a reasonable rate of return on
investment. Target return may be:
(1) fixed percentage of sales,
(2) return on investment, or
(3) a fixed peso amount.
2. Sales-related Objectives:
The main sales-related objectives of pricing may include:
i. Sales Growth:
Company’s objective is to increase sales volume. It sets its price in such a way that
more and more sales can be achieved. It is assumed that sales growth has direct
positive impact on the profits. So, pricing decisions are taken in way that sales volume
can be raised. Setting price, altering in price, and modifying pricing policies are
targeted to improve sales.
ii. Target Market Share:
A company aims its pricing policies at achieving or maintaining the target market
share. Pricing decisions are taken in such a manner that enables the company to
achieve targeted market share. Market share is a specific volume of sales determined
in light of total sales in an industry. For example, company may try to achieve 25%
market shares in the relevant industry.
iii. Increase in Market Share:
Sometimes, price and pricing are taken as the tool to increase its market share. When
company assumes that its market share is below than expected, it can raise it by
appropriate pricing; pricing is aimed at improving market share.
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3. Competition-related Objectives:
Competition is a powerful factor affecting marketing performance. Every company
tries to react to the competitors by appropriate business strategies.
With reference to price, following competition-related objectives may be prioritized:
i. To Face Competition:
Pricing is primarily concerned with facing competition. Today’s market is characterized
by severe competition. Company sets and modifies its pricing policies so as to respond
to the competitors strongly. Many companies use price as a powerful means to react
to the level and intensity of competition.
ii. To Keep Competitors Away:
To prevent the entry of competitors can be one of the main objectives of pricing. The
phase ‘prevention is better than cure’ is equally applicable here. If competitors are
kept away, no need to fight with them. To achieve the objective, a company keeps its
price as low as possible to minimize profit attractiveness of products. In some cases, a
company reacts offensively to prevent entry of competitors by selling products even at
a loss.
iii. To Achieve Quality Leadership by Pricing:
Pricing is also aimed at achieving quality leadership. Quality leadership is the image in
mind of buyers that high price is related to high quality product. In order to create a
positive image that company’s product is standard or superior than offered by the
close competitors; the company designs its pricing policies accordingly.
iv. To Remove Competitors from the Market:
The pricing policies and practices are directed to remove the competitors away from
the market. This can be done by forgoing the current profits – by keeping price as low
as possible – in order to maximize the future profits by charging a high price after
removing competitors from the market. Price competition can remove weak
competitors.
4. Customer-related Objectives:
Customers are in center of every marketing decision.
Company wants to achieve following objectives by the suitable pricing policies and
practices:
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i. To Win Confidence of Customers:
Customers are the target to serve. Company sets and practices its pricing policies to
win the confidence of the target market. Company, by appropriate pricing policies,
can establish, maintain or even strengthen the confidence of customers that price
charged for the product is reasonable one. Customers are made feel that they are not
being cheated.
ii. To Satisfy Customers:
To satisfy customers is the prime objective of the entire range of marketing efforts. And,
pricing is no exception. Company sets, adjusts, and readjusts its pricing to satisfy its
target customers. In short, a company should design pricing in such a way that results
into maximum consumer satisfaction.
5. Other Objectives:
Over and above the objectives discussed so far, there are certain objectives that
company wants to achieve by pricing.
They are as under:
i. Market Penetration:
This objective concerns with entering the deep into the market to attract maximum
number of customers. This objective calls for charging the lowest possible price to win
price-sensitive buyers.
ii. Promoting a New Product:
To promote a new product successfully, the company sets low price for its products in
the initial stage to encourage for trial and repeat buying. The sound pricing can help
the company introduce a new product successfully.
iii. Maintaining Image and Reputation in the Market:
Company’s effective pricing policies have positive impact on its image and reputation
in the market. Company, by charging reasonable price, stabilizing price, or keeping
fixed price can create a good image and reputation in the mind of the target
customers.
iv. To Skim the Cream from the Market:
This objective concerns with skimming maximum profit in initial stage of product life
cycle. Because a product is new, offering new and superior advantages, the company
can charge relatively high price. Some segments will buy product even at a premium
price.
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v. Price Stability:
Company with stable price is ranked high in the market. Company formulates pricing
policies and strategies to eliminate seasonal and cyclical fluctuations. Stability in price
has a good impression on the buyers. Frequent changes in pricing affect adversely the
prestige of company.
vi. Survival and Growth:
Finally, pricing is aimed at survival and growth of company’s business activities and
operations. It is a fundamental pricing objective. Pricing policies are set in a way that
company’s existence is not threatened.
[Link]
explained/48639
Task 3: How to Convince Buyers with our Value Pricing?
Marketing goes hand-in-hand with effective value-based pricing. The major
purpose of marketing is to present your value proposition. What could be some
effective overall solutions and ways to get customers to perceive the value you
believe is there to justify your price. Do the task in MS Word.
Follow this format for your file name: Surname_Task3_Pricing Strategy
TASK INFORMATION. Please take note of the following directions in formulating your
answer.
INSTRUCTIONS ON HOW TO ACCOMPLISH THE TASK
1. Apply higher order thinking and creative skills to relay complex ideas.
2. Organize your ideas in order to build logical and coherent arguments.
3. Support your ideas with well-developed reasons and/or arguments.
BMP3 - PRICING STRATEGY
School of Business, First Semester, SY 2021-2022 12
Adaptive Community for the Continuity of Education and Student Services
National Teachers College
4. Your answer should be focused and reflects clear insights and
ideas.
OUTPUT CONDITION. Please take note of the following guidelines in creating your
Task 3.
1. The output may be computer-generated or handwritten.
2. Electronic outputs should be encoded using Century Gothic with font size 12
with normal margin (1 inch in every corner) and 1.5 spacing. It should be
submitted at the official online class/ course.
3. Handwritten outputs should be rendered in print and not in script. The
handwritten outputs may be sent via courier or dropped-off at the specific
collection area on campus.
RUBRIC OF EVALUATION. Take time to review the rubric of evaluation to give
you an idea how you will be graded for Task 1.
BMP3 - PRICING STRATEGY
School of Business, First Semester, SY 2021-2022 13
Adaptive Community for the Continuity of Education and Student Services
National Teachers College
READING MATERIAL NO. 3
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What Is Value-Based Pricing & Marketing?
Value-based pricing is a simple strategy, but one that is often underutilized or poorly
implemented by companies. It is a pricing strategy where you base the price of your
product on the value customers will perceive from it. Since much of marketing is
intended to convey value to customers, value-based pricing aligns closely with
effectively marketing a value proposition.
Value Proposition
A "value proposition" is an overall mixture of benefits you offer a customer with a
product or service solution. In general, customers compare the perceived worth of your
solution to the price you ask for it. If your price is higher than the perceived worth, your
quantity demanded suffers. If you price your solution below the perceived worth, you
miss out on money customers were willing to pay.
Value-Based Pricing Advantages
A value-based pricing strategy means that if your targeted customers perceive your
product as being worth Php25, that is the price you set. When accurately implemented
following thorough research, value-based pricing creates a formula where customer
demand relative to price optimizes revenue. Value-based pricing also sets you up for
long-term success and customer loyalty if you continue to deliver the same quality of
experience for customers.
Value-Based Pricing Disadvantages
A common reason companies use mark-up formulas or competitive pricing strategies
as opposed to value-based pricing is to optimize profit margins. If, for instance,
customers perceive your product as worth Php20 and it costs you Php19 to acquire
and deliver it, your margin is very small. In this scenario, companies often mark the
product up to Php25 or Php30 to improve their margin, which negatively affects
demand. Another concern with value-based pricing is that the value customers place
on your product can fluctuate over time, causing inconsistency and unpredictability in
your price.
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Reading Material No. 4
ETHICS AND PRICING: 5 MUST KNOW PRICING ETHICS ISSUES AND HOW TO AVOID THEM
Some ethical issues are extremely easy to understand: don’t steal, treat others with
respect, and always put down the toilet seat for your lady friends. However, when it
comes to the market, the concept of what is right and wrong is a bit blurrier. Of course,
you can’t exploit children for a labor force, but Is it a business’s right to price however
they want? After all, if the number is too high or the marketing too egregious, then
consumers won’t buy right?
Well, not exactly. Over the years, governments have put laws on the books for the most
heinous of fraudulent pricing strategies, but even then, some tactics are considered
quite unethical, and you may be committing these missteps without even knowing. We
touched a bit on the ethics of natural disaster price optimization in a previous post, but
in order to fully understand the scopes of pricing ethics let’s take a look at a brief
overview before diving into five main concepts you should stay far away from in your
business.
Ethical Issues with Pricing
Pricing a product ethically is a major decision for any business. Businesses who use
ethical pricing strategies to sell their products and earn a profit are far more respected
than those that hurt and defraud competitors or even consumers. To practice ethical
pricing, you need to be able to spot the ethical issues that hinder fair pricing.
An ethical pricing strategy goes beyond simply following the law. Similarly, not all
unethical pricing strategies are fraudulent or illegal. Ethical decisions are difficult
sometimes because there isn’t a defined line for morally right and wrong decisions. As
with many ethical problems in business, we need to take a step back, and view our
decisions as a greater part of the business community, and set ethical standards for
ourselves.
Pricing: More ethics than legality
There is a general consensus that marketing strategies must not infringe on values like
honesty, transparency, and autonomy. As such, the main crux of pricing ethics
concerns the establishment of a balance of power (through information) between the
producer and the consumer. In a completely free market, producers often have the
upper hand because they are in control of their products and processes. This
potentially led to unethical practices (using cheap or harmful materials, lying about
benefits, etc.), which are deemed harmful for society as a whole.
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Interestingly enough though, even with this possibility only a handful of
pricing practices are regulated by the government, mainly because you’re not really
sure someone had broken a pricing law until you see results. For example, while
predatory pricing, aka pricing extremely low to drive competitors out the market, is
illegal, it’s difficult to prove that the price decreases had such an intention and were
not simply the result of competitor-based pricing. It’s like telling a child that he can
have a cookie only if he finishes his vegetables, but with no way to discern if the kid ate
the peas or if they were slipped to the dog. Essentially, most laws blindly attempt to
curb motivations for doing things, rather than results.
As a result, pricing ethics and legality sit in a grey area, constantly ebbing and flowing
between ethical and unethical. To better protect you and your business, here are some
of the most common pricing practices that sit on a razor’s edge of ethics and legality.
5 ethical pricing issues that hurt businesses
Having ethical pricing practices doesn't have to be difficult, but sometimes it can be
confusing. Here are the 5 ethical pricing issues that hurt business the most:
1. Price fixing: Collusion at its worse
Price fixing involves an agreement between a group of people on the same side of a
market to buy or sell a good or service at a fixed price. Typically, competition between
these participants for consumers drives down prices for goods and services. Yet,
imagine a world where every ice cream shop in America vowed that all single scoops
were now Php15. Consumers would lose out, because we’d find alternatives or shell out
an exorbitant amount of cash, as we couldn’t go to another neighborhood joint to
battle the high prices/low quality offering of another.
The bottom line: Look at your competitors to understand the market, but don’t get in a
room with them and try to take advantage of consumers.
2. Bid rigging: Favoritism
This one’s more for the proposal crows, but bid rigging involves promising a commercial
contract to one group, even though you make it look like multiple parties had the
opportunity to submit a bid. Not only is this a moral no no, but it’s also one of the few
the government follows up on, especially within their own ranks, because of the
number of bids and contracts the government deals with on a yearly basis. This
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practice hurts consumers considerably, because the best producer
doesn’t receive the work necessarily.
The bottom line: Even if “you know a guy” keep the bidding process honest on both
sides. Everyone will end up better off.
3. Price discrimination: Anti-favoritism
Price discrimination is the strategy of selling the same product at different prices to
different groups of consumers, usually based on the maximum they are willing to pay.
The practice also surfaces in hiding lower priced items from customers who have a
higher willingness to pay. This one is a little tricky, because it is socially accepted in
some cases, yet rejected in others
The bottom line: Charge different types of customers differently through product
differentiation, bundling, and the like, but be exceptionally careful about
communicating differences in price.
4. Price skimming: Discriminating through time
Once again, another shady area. Price skimming is when the price for a product is first
sold at a very high price and then gradually lowered. The goal here is pretty obvious,
producers want to capture each step on the demand curve; consumers who are
willing to pay more buy the product first, and then a new groups’ purchases are
triggered with each decrease in price.
This strategy is most commonly seen in the tech industry, as some consumers are willing
to pay a premium price for the newest gadgets. Apple is a prime example, as prices
drop within months of a release and new iterations happen within six to 12 months. Like
price discrimination, this practice isn’t illegal, but if too obvious and not tested enough,
it can trigger an unfortunate PR backlash. Apple received a lot of flak for cutting their
production cycle on the latest iPad, instantly lowering the prices of the older models.
The bottom line: Find ways to lower prices to new tranches of customers discreetly.
Coupons, promotions, and lightweight versions of a product are all exceptionally
effective while keeping the same number on the page
5. Supra competitive pricing: Monopoly gouging
Sometimes the value that consumers place on a good is much greater than the cost of
producing that good. In such cases, there is controversy about whether the
corporation is justified in charging a much higher price and matches the perceived
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value. This situation can take place during a shortage, such as the price of
food or fresh water after a hurricane, or when a certain product is the only one of its
kind available. Pharmaceuticals and the patents that surround them are a great
example.
Producers in these instances can charge an exorbitant amount of money, but should
they? I think we’d agree that setting skyrocketing prices for food or generators
following a hurricane is wrong (and some states have laws against it), but most
software costs are relatively cheap compared to the value provided to a customer.
Very different contexts, but more generally, some consider taking advantage of
consumers' needs unethical, while others feel like it's an inevitable result of a free
market and a just reward for innovation.
The bottom line: This is a common sense scenario, but a good litmus is to ask yourself if
the pricing change hinders an individuals’ necessities. Software products are
phenomenal for improving efficiency, but if the Internet blew up tomorrow, we’d still
need food and water.
[Link]
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