21:52 f 2.00 KB/S 6 11 72 Quarter: 4 Week: 2 SSLM No. 2 MELC(s): Identify and describe the factors to consider when setting prices and new product pricing and its general pricing approaches (ABM_PM11-llae-17) >Objectives: 1. Classify business expense according to cost categories. 2. Identify the factors that influence product/services price setting. 3. Explain the importance of pricing strategy and approaches in company's performance. > Title of Textbook/LM to Study: SLM Principles of Marketing Q4 M 2 >Chapter: None Pages: 14- 19 Topic: Pricing Strategies and Approaches Let Us Discover Welcome! You have learned from the previous lesson about products and services. Now we will proceed to the pricing strategies of the products and services. You will understand the importance of price setting. Are you ready? PRICE Price is the amount of money a buyer pays to a seller in exchange for products and services. It reflects the economic sacrifice of the buyer must make to acquire something. Payment of the price is expressed in monetary unit, that is Money. Money is any commodity or token that is generally acceptable as means of payment for products and services. 1 GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 14, 2021 PRICING The activities involved in the determination of prices at which products or services will be offered for sale is pricing. It is the more "flexible" and can be easily changed suit the marketing strategies of the company or firm. PRICING STRATEGIES AND APPROACHES The following are alternative pricing strategies and approaches used by businesses. 1. Discount Pricing A discount is a reduction from the original value. For example, the cost of the product is P 100.00, a 20% discount would bring the amount to P 80.00. a. Cash Discounts are offered for prompt payment. b. Trade Discounts are given to wholesalers and retailers for marketing > > functions they will perform like selling, storing and record-keeping. Normally these customers buy goods in volume or in bulk. 2. Promotional Pricing Under this approach, businesses may offer temporary reduction of prices to stimulate sales in a certain promotional period. This happens in some cases where the business is too low or during a special event. 3. Bundling or Tie-ups. This maximizes the value of combining separate products into a bundle, such as a body soap, a toothpaste and cologne in a single package for a single price. 4. Premium Pricing. This approach sets higher prices (premium) on more de- luxe product versions. This is also common on personal care products and often occur for some beverages, appliances and automobiles. 5. Going-rate Pricing. In some markets, such as gasoline, diesel and fuels are typically set on" going rate" basis. The firms adapt a price based in the competitor's prices. There is little price competition between suppliers. 6. Perceived Value Pricing. This approach establishes the price of a product based on buyer's perceptions of the value of the product or service. 7. Sealed Bids Pricing. The firm sets its price which is thought to be a little lower21:52~ f 0.06 KB/S 6 11 72 7. Sealed Bids Pricing. The firm sets its price which is thought to be a little lower than the competitors. This happens in bidding where competitors outdo each other in winning the bid. 8. Psychological Pricing (Odd-Numbered Pricing). This refers to the practice of setting price at below peso amounts. Example, selling a product at P 99 rather than at P100.00 or P999.00 instead of P 1,000.00. It appears more attractive to prospective buyers. 9. Geographical Pricing. This pertains to price adjustments due to costs resulting from a distance or location of the business. Under this approach, the cost of shipping is a primary consideration and prices are quoted from the point of production. 2 GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 14, 2021 10. New Product Pricing- When a new product or service is introduced in the market, businesses may offer introductory price to encourage customers to buy their products or services. 11. Cost Plus Pricing. This is the simplest approach to setting prices and employs little understanding of customers and their needs. Prices are set at cost price plus a percentage mark-up. The added percentage constitutes the profit margin while total costs represent the direct costs and the overhead costs. PRODUCT COST ESTIMATION The cost of day-to-day basis are analyzed under the headings of direct and indirect cost; 1. Direct Costs are those costs that are absolutely necessary, or directly involved, in the production of the products. 2. Indirect costs are the costs of supporting the product or service and are often associated with administrative processes. Indirect costs are often called "Overheads' In a restaurant, food to make up and the salary of the chefs preparing the meal are direct costs, while the salary of the bookkeeper who prepares the restaurant's accounts is an overhead or indirect cost. Direct and indirect costs can also be reclassified into another group called fixed costs and variable costs Fixed costs are costs that remain constant, irrespective of changes in the level of production or sales (for example the rent on your business premises). Total fixed costs incurred in a specific period must be shared by all units of the product produced in the same period. o Variable costs refer to the cost to manufacture one unit of the products. It tends to vary, usually proportionally, to change in the level of production or sales this includes direct materials, direct labor and direct overhead. The formula adapted as follows: > > Price= Direct Costs + Overhead Costs + Profit Margin Where direct costs= Materials + labor; Overhead costs= a share of fixed indirect costs; Profit margin= a fair amount of return. Example: If direct costs is P 850.00, overhead costs is P 280.00, and profit margin is 25% of total cost, how much is the price of the product? 3 GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 14, 2021 E O21:52 6.00 KB/S 72 Answer: Price = Direct Costs + Overhead Costs + 25% = P 850.00 + P 280.00 + 25% (P 75 + P 25) = P 1,130.00 + P 282.50 Price = P 1.412.50 Let Us Try I BELONG! Directions: Classify the following business cost by checking the column that corresponds their answer. Indicate whether it is direct or indirect cost and the other side if it is fixed or variable cost. Direct Indirect Fixed Variable Cost Cost Cost Cost 1. Marketing and Advertising 2. Staff Salaries 3. Factory wages 4. Packaging 5. Materials 6. Maintenance 7. Power/ Electricity 8. Insurance Premiums 9. Telephone and Postage 10. Delivery Costs Let Us Do PERFECT MATCH! Direction: Choose the appropriate term for each description from the pool of words inside the box. Write the letter of your answer in the space provided. A. Pricing F. Price B. Direct Cost G. Money C. Cost Plus Pricing H. New Product Pricing D. Trade Discount 1. Geographical Pricing E. Promotional Pricing J. Variable Cost 1. This refers to the costs that are absolutely necessary, or directly involved, in the production of the products. 2. This pertains to price adjustments due to costs resulting from a distance or location of the business. GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 14, 2021 3. It is any commodity or token that is generally acceptable as means of payment for products and services. 4. It is the amount of money a buyer pays to a seller in exchange for products and services. > > 5. This is the simplest approach to setting prices and employs little understanding of customers and their needs 6. These activities involved in the determination of prices at which products or services will be offered for sale. 7. This cost tends to vary, usually proportionally, to change in the level of production or sales 8. This discount is normally these customers buy goods in volume or in bulk. 9. This is offered by some businesses as introductory price to encourage customers to buy their products or services. 10. This pricing approach may offer temporary reduction of prices to stimulate sales in a certain promotional period. E O21:52 11.0 KB/S 72 Let Us Apply EXPRESS LANE! Directions: Read the statements below and express your ideas based on our discussions. Write your answers in your activity notebook. 1. What are the factors must be taken into account before determining product/ service price? 2. How does the pricing strategy and approach affect the company's market position? 3. Among the listed pricing strategies, choose at least three that you think can effectively maintain the company's price competitiveness and contribute to market share? Why? 5 GSC-CID-LRMS-ESSLM, v.r. 03.00, Effective June 14, 2021 Rubrics Express Lane will be rated using this rubric. Good Fair CRITERIA Excellent Very Good 10 8 6 Exceptionally Generally Lacks clarity Unclear and Clarity clear and clear and and is difficult hard to easy to quite easy to to understand understand understand understand Thorough Substantial A partial or Misunderstandin explanation explanation not g of serious Comprehensiveness comprehensi misconception ve on the explanation explanation Relevance Highly Generally Somewhat Irrelevant relevant relevant relevant References > > Pabroa, N.P ( 2020) Quarter 4- Module 2: Developing Marketing Mix: The Price of Principles of Marketing, First Edition 2020 SSLM Development Team Writer: Lezlee G. Agcaoili Content Editor: Jim Boy M. 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