1. DEVELOPING PRICING STRATEGIES
AND PROGRAMS
VENUS D. PASCUAL
February 04, 2014

2. OUTLINE
1. What is a Price?
2. Six Steps in Setting a Pricing Policy

3. What is a PRICE?
•
•
•
•
Produce revenue; others produce costs
Easy to adjust
Not just a number in a tag
Refers to payment for goods and services

4. 6 Steps in Setting Pricing Policy
1. Select the pricing objective
2. Determine demand
3. Estimate costs
4. Analyze competitor’s costs, prices and
offers
5. Select a pricing model
6. Select the final price

5. Price-Adaptation Strategies
1.
2.
3.
4.
Geographical pricing
Price discounts and allowances
Promotional pricing
Discriminatory pricing

6. Step 1 - Select the Pricing Objective
1.
2.
3.
4.
5.
Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership

7. Step 1 - Select the Pricing Objective:
Survival
Company conditions –
• Overcapacity
• Intense competition
• Changing consumer wants

8. Step 1- Select the Pricing Objective:
Maximum Current Profit
• Compare Demand and Costs vs. Alternative
Price
• Then, choose price with maximum profit,
cash flow, or ROI

9. Step 1 - Select the Pricing Objective:
Maximum Market Share
Market-Penetration Pricing Principle:
- Higher sales volume means lower unit costs
and higher long-run profit
When to adopt?
•
market is highly priced sensitive

10. Step 1 - Select the Pricing Objective:
Maximum Market Share
When to adopt “Market-Penetration Pricing
Principle”?
• market is highly priced sensitive
• production and distribution costs fall
• low price discourages actual and potential
competition

11. Step 1 - Select the Pricing Objective:
Maximum Market Skimming
Prices start high and slowly drop over time.
When to use? 2. Buyers have high current demand
3. Unit costs for small volume are high
4. High price – image of superior product

12. Step 2 – Determine Demand
Price Sensitivity - reactions of individuals with
different price sensitivities

13. Step 2 – Determine Demand
Factors Leading to Less Price Sensitivity:
1. Product is more distinctive
2. Buyers are less aware of substitute
3. Buyers cannot easily compare the quality
of substitutes
4. Expenditure is a smaller part of the
buyer’s total income

14. Step 2 – Determine Demand
Factors Leading to Less Price Sensitivity:
5. Expenditure is so small compared to the
total cost of the end product
6. Part of the cost is borne by another party
7. Product is used in conjunction with assets
previously bought
8. Product is assumed to have more quality,
prestige, or exclusiveness

15. Step 2 – Determine Demand
Factors Leading to Less Price Sensitivity:
9. Buyers cannot store the product
10. Buyers buy infrequently

16. Step 3 – Estimate Costs
Fixed Costs
- also known as “overhead”
- do not vary with production
Variable costs
- total costs vary directly with production
Total Costs
- sum of fixed and variable costs for any
given level of production

17. Step 4 – Analyze Competitor’s
Costs, Prices & Gifts
1. If the firm’s offer contains features not
offered by the nearest competitor, evaluate
their worth to the customer and add that
value to the competitor’s price.
2. If the competitor’s offer contains features
not offered by the firm, the firm should
subtract their value from its own price.

18. Step 5 – Select a Pricing Model
1.
2.
3.
4.
5.
6.
Mark-up Pricing
Target-Return Pricing
Perceived-Value Pricing
Value Pricing
Going-Rate Pricing
Auction-Type Pricing

19. Step 6 – Select the Final Price
Factors to Consider 1. Impact of other marketing activities
2. Company Sharing Policies
3. Gain-and-Risk Sharing Pricing
4. Impact o Price on Other Parties