MARKETING 1 (8:30-9:30) ROW 1: THE PRICE

PRICE- one of the components of the marketing mix which contribute to a large extent in the attainment of the firms sales and profit goals. Definition of Price: According to Greener, it is the total amount of money that must be handed over in exchange for an article or service that is being purchased. Improved definition of price: The total amount of money that the seller, considering his objectives, requires in exchange for an article or service he is selling. PRICING DEFINED Activities involved in the determination of the price at which products will be offered for sale considering the various objectives of the firm. PRICING PROCEDURE -refers to the series of steps adapted in the determination of price. The series of steps are the following: 1. The determination of the realistic range of choice, 2. The selection of pricing strategy 2.a Pricing Strategy: 2.a.1 Market Skimming Strategy -requires the setting of price at the upper limit of the realistic range of choice. Purpose of skimming is to maximize profits as the products is first introduced. 2.a.2 Penetration Strategy -setting the price at the bottom of the realistic price range. Purpose is to penetrate the market as rapidly as possible. 3. The evaluation of economic feasibility, and 4. The setting of the price.

PRICING OBJECTIVES 1. Profit-oriented Objectives Call for profit generation. This may either be:

a. To achieve the target return on investment or on net sales, or b. To maximize profit. 1.a Target Return Objective- refers to the pricing objective requiring a certain level of profit. It is stated in terms of percentage of sales or on capital investment. 1.b Profit Maximization Objective-refers to the pricing objective of seeking as much profit as possible. This may be attained by increasing the quantity sold or increasing the profit margin. 2. Sales-oriented Objectives- refer to those that will provide higher sales volume. This may be attained by any of the following: 1. Increasing sales volume- requires an increase in sales volume for a given period. 2. Maintaining or increasing market share- requires either maintaining or increasing the companys market share. 3. Status quo-oriented Objectives- requires maintaining the same prices for the companys products. This happen when the firm is satisfied with its current market share and profits. The reason for the status quo pricing may fall under any of the following: 1. To stabilize prices 2. To meet competition, or 3. To avoid competition PRICING APPROACHES 1. Cost based Approach-refers to the setting of prices on the basis of costs. 1.a Cost Plus Pricing- calls for adding a percentage of cost on top of the total cost. The added percentage constitutes the profit margin, while total costs represent the direct costs and the overhead costs. Formula: PRICE= DIRECT COST + OVERHEAD COST+ PROFIT MARGIN Where Direct cost=materials + labor; Overhead cost = a share of fixed indirect costs; Profit margin= a fair amount of return. 1.b Target Rate of Return Pricing-enables a company to establish the level of profits that it feels will yield a satisfactory return. The procedure will be: 1. to identify what percent is a satisfactory return, and 2. to use the standard return in determining whether a particular price and marketing mix combination is feasible.

FORMULA: P=DVC+F/X+RK/X Where P= selling price using the target rate of return method; DVC= direct unit variable costs; F= fixed costs; X=standard unit volume; R=rate of return desired; and K= capital (total operating assets) employed

2. Buyer based Approach- deals with consumer perceptions or behavior as bases for determining the selling price of a product or service. This approach is composed of the following methods: 2.a Perceive Value Pricing- establishes the price for a product based on the buyers perception of the value of the product or service. 2.b Price-Quality Relationship Pricing-hinges on the observation that consumers associate high price with high quality and low quality with low price. 2.c Loss-Leader Pricing-practice of setting low prices on selected products which will result in the generation of less profits, but with the objective of increasing the sales volume of other products sold by the company. 2.d Odd-Numbered Pricing- refers to the practice of setting price even below peso amounts. 2.e Price Lining Pricing- refers to the practice of selling merchandise at a limited number of predetermined price levels. 3. Competition based Approach- refers to the setting of prices based on what prices are being charged by competitors. 3.a Going-Rate Pricing- the firm adapts a price based on the competitors prices. 3.b Sealed Bid Pricing- the firm sets its price which is thought to be a little lower than the competitors.

PRICING UNDER VARIOUS MARKET CONDITIONS MARKET STRUCTURE PURE MONOPOLY CHARACTERISTICS One seller; many buyers PRICING DECISION High degree of control over price OLIGOPOLY PURE COMPETITION Few sellers; many buyers Great number of buyers and sellers Firms are interdependent No seller can command a price above the one that is prevailing OLIGOPSONY Many sellers; few buyers Helpless in controlling the price of their product MONOPSONY Many sellers; one buyer Monopsonist has a very high degree of control over the price of the commodity he is buying.