Notes price decisions
Here’s a set of comprehensive but concise notes for the topic Pricing Decisions, covering key
concepts, types of pricing, in uencing factors, and formulas — suitable for quick revision or exam
prep.
📘 TOPIC: PRICING DECISIONS
✅ 1. DEFINITION
Pricing decisions refer to the process of determining what a company will receive in exchange
for its products or services. The main goal is to set a price that maximizes pro ts, covers costs,
and remains competitive.
✅ 2. OBJECTIVES OF PRICING
• Pro t maximization
• Market penetration
• Market skimming
• Survival
• Achieving target return on investment (ROI)
• Deterring competition
• Building product image or perceived value
✅ 3. FACTORS INFLUENCING PRICING DECISIONS
A. Internal Factors
• Cost of production ( xed and variable)
• Marketing strategy
• Business objectives
• Product life cycle stage
• Brand image
B. External Factors
• Market demand
• Customer perception of value
• Competition pricing
• Economic conditions
• Legal and regulatory issues
✅ 4. PRICING STRATEGIES
1. Cost-Based Pricing
• Cost-Plus Pricing:
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Selling Price = Cost + Markup
(Markup may be % on cost or % on selling price)
• Target ROI Pricing:
Price set to achieve a desired return on investment.
2. Demand-Based Pricing
• Prices set based on consumer demand and perceived value.
3. Competition-Based Pricing
• Setting price based on competitors’ prices.
4. Value-Based Pricing
• Pricing based on the customer’s perceived value rather than cost.
✅ 5. COMMON PRICING METHODS
Method Description
Penetration Pricing Set low price to enter market and gain share
Price Skimming Set high price initially, then reduce over time
Psychological Pricing e.g., RM9.99 instead of RM10.00
Premium Pricing High price for premium quality/perception
Promotional Pricing Discounts for a limited time to boost sales
Geographical Pricing Di erent prices based on location
Bundle Pricing Combine several products at a reduced price
✅ 6. PRICING IN SPECIAL SITUATIONS
• Dumping: Selling below cost in foreign markets to gain market share (often
illegal).
• Predatory Pricing: Deliberately setting low prices to drive out competition.
• Transfer Pricing: Pricing between divisions or subsidiaries of the same
company.
• Peak-Load Pricing: Higher prices during peak demand times.
✅ 7. CALCULATION CONCEPTS & FORMULAS
Markup Pricing
Selling Price = Cost + (Cost × Markup%)
OR
Selling Price = Cost / (1 – Desired pro t margin on selling price)
Break-Even Point (Units)
BEP = Fixed Costs / (Selling Price – Variable Cost per unit)
Target Pro t Quantity
Target Quantity = (Fixed Costs + Desired Pro t) / Contribution per unit
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Contribution Margin
Selling Price – Variable Cost per unit
Pro t % on Cost
Pro t % = (Pro t / Cost) × 100
Pro t % on Selling Price
Pro t % = (Pro t / Selling Price) × 100
✅ 8. DEMAND & ELASTICITY
• Elastic Demand: Small change in price causes big change in demand. (Set
lower price)
• Inelastic Demand: Price has little e ect on demand. (Can charge higher
price)
✅ 9. ETHICAL & LEGAL CONSIDERATIONS
• Avoid price- xing or collusion
• Avoid misleading pricing
• Comply with consumer protection laws
• Avoid excessive markups on essential goods
✅ 10. PRICING IN PRODUCT LIFE CYCLE (PLC)
PLC Stage Pricing Strategy
Introduction Skimming or penetration
Growth Competitive pricing
Maturity Promotional pricing, bundling
Decline Discounting, clearance
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memorization!
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