Ch 14 Setting Price

MARKETING Concepts
as applied in the Ateneo MBA
Nathania Marija T. Villonco
Ateneo Graduate School of Business
May 10, 2013
www.nathaniavillonco.blogspot.com

Outline
Master 6 Steps in Setting Price
1. Select the price objective
2. Determine demand
3. Estimate costs
4. Analyze competitor price mix
5. Select pricing method
6. Select final price

Step 1: Selecting the Pricing Objective
Survival
Concept 1
Maximum current
profit, market share,
market skimming
Product-quality
leadership

Survival among competitors
1st Example of Concept 1
• Jollibee prices objective to remain
competitive

Maximum Current Profit
2nd Example of Concept 1
• companies with weak
competition set a high price that
produces the most cash flow
Php 169.00 Php 180.00 Php 245.00

Maximum Market Share
3rd Example of Concept 1
• Increase in market share so as
to reap the benefit of large-
scale production.

Maximum Market Skimming
4th Example of Concept 1
• company sets a higher price to
capture those customers who are
willing to pay more for a product.
Php 75.00 Php 25.00

Product Quality Leadership
• company aims to provide the best
quality product in the market, and
therefore charges more than its
competitors.
Php 140.00 Php 98.00 Php 62.00

Step 2: Determining Demand
Price
Concept 2
Price Elasticity of
Demand
Estimating
Demand Curves

Price
• Price reduced compared to
competitors to enter into
markets or increase sales.

Estimating Demand Curves
• relationship between the price
of a certain commodity and
the amount of it that
consumers are willing and able
to purchase at that given price.

Price Elasticity of Demand
• fast food is
extremely
price elastic,
the slightest
change can
affect sales
significantly

Step 3: Estimating Costs
Type of Costs
Concept 3
Activity-Based Cost
Accounting
Accumulated
Production
Target Costing

Type of Costs
• Fixed – rent, utilities
• Variable – inventory

Accumulated Production
• refers to the gain a
company experiences in
producing a product over
a period of time. Workers
learn shortcuts, materials
flow more smoothly, and
procurement costs fall

Activity Based Accounting
• Identifies the costs of producing items or
services.
o Maintenance of the restaurant building.
o Refrigeration of new materials.
o Cardboard boxes for food order.
o Store manager's salary.
o Wages of the employees who clear and clean tables.
o Depreciation on equipment.
o Oil for the deep fat fryer (change every 4 hrs. )

Target Costing
• Final cost is determined
after market analysis,
and the product is
designed or redesigned
to meet it

Step 4: Analyze competitor price mix
Concept 4

Analyze competitor price mix
Example of Concept 4

Step 5: Selecting a Pricing Method
Concept 5
• Markup
• Target-return
• Perceived-value
• Value
• Going-rate
• Auction-type

Selecting a Pricing Method
• Markup
• Target Return
• Perceived Value
Cost: US$ 0.08
Price: US$ 1.08
Markup: 1,250%
Investment
$10,000
Expected
sales volume
1,000 units
Profit
$10,000
sales volume
1,000 units

Selecting a Pricing Method
• Value
• Going rate
• Auction type
Php 28.00 Php 25.00

Step 6: Selecting the Final Price
Concept 6
Impact of other
marketing activities
Company Pricing
policies
Gain-and-risk
sharing pricing
Impact of price on
other parties

Selecting the Final Price
• Impact of other marketing activities
• Company pricing policies
“Think global, act local”

Selecting the Final Price
• Gain and risk sharing price
• Impact of price on other parties

1. Select the price objective
2. Determine demand
3. Estimate costs
4. Analyze competitor price mix
5. Select pricing method
6. Select final price
Summary
Master 6 Steps in Setting Price

REMEMBER
This!
Mastering Marketing Concepts
through Stories, Images and Diagrams
Nathania Marija T. Villonco
Ateneo Graduata School of Business
May 10, 2013

1.) Geographical
2.) Discounts/Allowances
3.) Promotional
4.) Differentiated
Price-adaptation Strategies

Imagine you need to buy grocery for
the nearby supermarket
You have to buy the following…..

• Since Campbelle’s is imported from the U.S.
price is affected geographically to cover
shipping and other expenses

• Special offer for apples, provide larger
packs with a discounted price
Php 25.00/each
Php 80.00/pack
Pack of 4 pieces
Vs.

• Seasonal promotions during holidays such
as Halloween give additional discounts

• Different customer groups are charged
different prices for the same product,
students are often charged lower.

You have to buy the following…..
Price-adaptation Strategies

Ch 14 Setting Price

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