Chapter_9_-_Marketing_-_Pricing_Principles.docx - CHAPTER...

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CHAPTER 9: THE PRICING PRINCIPLES1.Identify and understand the concept behindthe different pricing strategiesIn setting prices the company must consider theproducts total cost (Fixed cost + Variable costs), thecompetitors’ offers, and other internal and externalfactors and the customers’ perception of value.*NEW PRODUCT PRICING PRINCIPLES1.Market Skimming2.Market Penetration3.Price-quality MatrixMARKET SKIMMINGThe strategyof settinga high price for acompany’s product backed up by a strongpromotional effort.The company initially sets high prices toskim revenues layer by layer from themarket.This strategy might lead to lower demand,revenue are filled up by high price.Main Objective – is to make swift return oninvestment by offering product at a highpriceMARKET PENETRATIONThe strategy ofsetting low price for acompany’s products also backed up by astrong promotional support.The company initially sets a low price inorder to penetrate the market quickly anddeeply, that is, to attract a large number ofbuyers and capture a large market share inthe process.Main Objective – is to capture large marketshare by attracting buyers through lowpricesMarketSkimmingMarketPenetrationSelling PricePhp400 / unitPhp250 / unitDemand1000 unit1600 unitRevenuesPhp400 , 000Php400 , 000PRICE-QUALITY MATRIX1.Premium pricing strategySelling high-quality product at highprice.2.Good value pricing strategySelling high-quality product at a lowprice.3.Overcharging pricing strategySelling a low-quality product at ahigh price.4.Economy pricing strategySelling low quality product at a lowprice.Illustration:QualityHighLowPriceHighPremiumStrategyOverchargingStrategyLowGood ValueStrategyEconomyStrategy--------------------------------------------------------------**COST-BASED PRICING STATEGIES1.Cost-plus pricing2.Break-even pricing3.Target profit PricingCost-plus Pricing (Markup Pricing)This is the simplest pricing method thatrequires a standard markup in cost of aproductAfter determining the cost of the product, acompany simply sets price by adding astandard markup to the cost.Ill. A Co. spends Php40.00 to produce a unitand the compy standards markup percentageis 25%oPhp40.00 * 125% (1.25) = Php 50Price = Cost * Company’s Standard Markup %Break-even PricingBreak eve refers to a condition where thecompany neither earns nor incurs loss.

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