Principles of Marketing

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

The marketing mix - price

Learning Objectives:
At the end of this module, student must be able to:
a. be familiar with the different pricing methods
b. have a greater understanding of using price as a communication tool
c. know the different pricing strategies

You might have noticed that in almost

every store you go to, there’s always that
price that seem cheap but is actually not.

You may have wondered why is this.

Actually, there are a lot of odd prices

that you’ll notice if you go around. Say for
example, why are some small items so
expensive like say a piece of diamond, when
you can’t even do a lot of things with it. Some
prices of items with similar functions also differ,
why is that so?

In this module, you will learn different

reasons to answer some of your questions
about pricing or products. Why are they
different and how do they help a company
sell products?

The Meaning of Price

Price is the money, good, or service exchanged for the ownership or use of a good or service.
When one hundred pesos is paid for a sack of corn, that amount is the price of the corn. When a boy
is asked to carry a sack of corn from the parking area to the store and is paid a kilo of corn, the price
of the service is one kilo of corn. When a bundle of sweet potato tops is exchanged for a bundle of
string beans, each is the price of the other.

Pricing Objectives
Before setting prices, the firm’s pricing objectives must first be determined. Pricing objectives
may consist of an of the following:
1. Profit-Oriented Objectives
Profit-Oriented Objectives call for profit generation. This may either be:
a. To achieve the target return on investment or net sales
This refers to the pricing objective requiring a certain level of profit. Most often, it is stated
in terms of percentage of sales or on capita investment. An example is the 21 percent return
on investment required by the company, or the 2 percent return on sales required by another
firm.

You might have experienced a situation where you just want to get back your money so
you sold an item with similar amount to what you wanted. Or when you are desperate for
some amount that you sold an item regardless of its original price just to get that certain
amount you want. In its sense, it’s similar to when your pricing objective is concerned only on
getting back your investment or target sale.

Principles of Marketing Page 1 of 11

 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

b. To maximize profit
This refers to the pricing objective of seeking as much profit as possible. This may be
achieved by increasing the quantity sold or increasing the profit margin. However, even if
the firm succeeds in the attempt, it will not be for long because the situation will invite
competition and will ultimately result to a decrease in profits.

Usually, the scenario is, a person selling something suddenly increases his price due to the
high demand of the product and when there are no other competitors around, customers
just cannot do anything about the price and tend to buy the item at the price stated by the
seller. Or if the price remained the same, to earn more, the seller created and sold more of
the item because it is of high demand. You can’t certainly do that if the product or service
is not in demand.

2. Sales-Oriented Objectives
Sales-Oriented Pricing Objectives refer to those that will provide higher sales volume. This
may be achieved thorough any of the following:
a. Increasing Sales Volume
This objective requires an increase in sales volume for a given period. For example, the
company may seek to increase its sales by 20% annually. This may be adapted to achieve
long-term profitability even if losses are sustained in the first few years.

Sometimes, companies will lower their price or will offer discounts or promos just to sell a
target sales volume or number of inventories. This also happens to us when we just want all
our products to be sold, like let’s say you are a vendor or street food. Obviously, you don’t
want leftovers so sometimes you sell the product at a slightly cheaper price to be able to sell
them all. This of course happens only when you are about to end your day and yet you have
remaining products. But other companies do it even on normal circumstances.

You probably have seen a lot of these promos in malls or stores. They market as buying
two items at a price slightly lower than the original prices of the two items combined. They
could either be marketing it that way just so you could buy from them more or they could
also just be disposing some items that are not selling well. In another perspective, you are just
like buying two items at a discounted price. Because the other item was never really free.

b. Maintaining or Increasing Market Share

This objective requires maintaining or increasing the company’s market share. If for
instance, the company’s market grew from 30% last year to 40% this year, this surely indicates
that the company is growing.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

3. Status-Quo Objective
Status-Quo Pricing requires maintaining the same prices for the company’s products. This
happens when the firm is satisfied with its current market share and profits. Status-Quo pricing
may be due to any of the following:
a. To stabilize prices;
b. To meet competition;
c. To avoid competition

The Pricing Procedure

1. Pricing Objective
Before setting any price as mentioned in the topic above, you need to first select your pricing
objective. In other words, what do you want to achieve in setting a certain price to your product?

2. Assessment of Target Market’s Evaluation of Price and Its Ability to Purchase

Although it is assumed that price is a significant issue for customers, the price depends on the
type of product and the type of market the company targets.

By assessing the target market’s price evaluation, a marketer is better positioned to know how
much emphasis to place on price. Information about the target market’s price evaluation may also
help a marketer determine how far above the competition a firm can set its prices.

Understanding buyers’ purchasing power and knowing how important a product is to them
compared to other products helps marketers assess the target market’s price evaluation
accurately.

Cost of Living in Philippines (2021)

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

SOURCE: https://www.expatistan.com/cost-of-living/country/philippines

3. Determination of Demand
The level of demand for a product depends on the price set levels, thus having different impacts
on the concerned firm’s marketing objectives. We can understand the relationships between price
and demand through the demand schedule.

The demand schedule tells us how much a product will be demanded (sold) at various prices.
It is known that the price-quantity relationship is inverse except for a few exceptions. That is, less will
be demanded if the price is charged high, and more will be demanded if the price is charged less,
which means that buyers are price sensitive.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

In the case of specialty or prestige goods, a price increase may increase demand because
buyers draw a price-quality relationship: they take the higher price to signify a better or more
exclusive item. We shall now discuss the factors affecting the price sensitivity of buyers.

Factors Affecting Price Sensitivity

Nine factors affect price sensitivity, as identified by Nagle. They are:

1. Unique value effect: When the product is considered more unique by the buyers, they will usually
be less price sensitive.
2. Substitute awareness effect: When buyers are less aware of substitutes, they are less price-
sensitive.
3. Difficult comparison effect: When buyers cannot easily compare substitutes’ quality, they are
usually less price sensitive.
4. Total expenditure effect: If the product’s expenditure is less than the ratio to buyers’ income,
they are less price-sensitive.
5. End-benefit effect: The less the expenditure is to the end product’s total cost, the less price-
sensitive buyers are.
6. Shared cost effect: When another party bears part of the cost, buyers are less price sensitive.
7. Sunk investment effect: If the product is used in conjunction with assets previously bought, buyers
will be less price-sensitive.
8. Price-quality effect: When the product is assumed to have more quality, prestige, or
exclusiveness, buyers are less price sensitive.
9. Inventory effect: When buyers cannot store the product, then they are less price sensitive.

Methods of Estimating Demand Curves

Several methods can be used to measure the demand curve of a company’s product.

They are discussed below:

First, existing data on past prices, quantities sold, and other factors can be analyzed statistically.

Second, price experiments may be conducted either by estimating the demand curve based
on in-store sales data of a product at various prices or selling products at various prices in various
territories and see their effect on sales.

Third, buyers may be asked how much they will buy a product at various prices.

Price Elasticity of Demand

It is the relative responsiveness of changes in quantity demanded to changes in price. Price
elasticity should be taken into consideration in setting prices.

If the change in price does not affect the demand position, we can call it an inelastic demand
situation, and, elastic demand situation is where a slight price change considerably affects the
demand position. A product, demand of which is elastic, marketers can ensure increased sales by
lowering the prices.

The elasticity of demand depends on several conditions, and the demand for a commodity is
likely to be less elastic if the following conditions are present:

1. where the number of substitutes or competitors are few in number;

2. where buyers do not readily notice the change (increase) in price;
3. where buyers are relatively brand loyal; and,
4. where buyers consider price increase as logical.

Principles of Marketing Page 5 of 11

 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

4. Analysis of Cost
In setting prices, a company considers its production, distribution, and other costs as demand
elasticity.

To stay in business, a company has to set prices that cover all its costs.

Here we shall discuss;

1. types of costs,
2. cost behavior at different levels of production per period,
3. cost behavior as a function of accumulated production,
4. cost behavior as a function of the differentiated marketing offer, and,
5. target costing, in understanding how costs are estimated.

Types of Costs
Costs are associated with the production of any good or service. Determining costs of
production necessitates distinguishing fixed costs from variable costs.

The cost that does not vary with the quantity of production can be termed as FIXED COSTS such
as house rent, executives’ salary, etc. The cost of renting a factory, for example, does not change
because production increases from one shift to two shifts a day.

VARIABLE COSTS, on the other hand, are directly related to the quantity of production. They
increase production and decrease with the fall of production, such as raw material cost. These
costs are usually constant per unit. The average variable cost is the variable cost per unit produced.

It is calculated by dividing the variable costs by the number of units produced. Total costs are
the sum of fixed and variable costs. In price fixation, a company normally charges a price that
covers at least its total cost.

Cost Behavior at Different Levels of Production Per Period

Costs of production vary with different production levels because the utilization rate varies and
fixed costs per unit also vary. Management should find the optimum production level to keep the
fixed cost per unit at a minimum level.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

Cost Behavior as a Function of Accumulated Production

A company’s per-unit production costs keep reducing as it increases its production up to a
certain level because it accumulates experience as it progresses.

For example, if the company produces 50,000 units per unit, production cost maybe Php15; if it
produces 100,000 units per unit, production cost may come down to Php12.

An experienced company may exploit this experience by reducing its price compared to
competitors’ prices to drive a few of the competitors out of the race and significantly increase its
market share.

Cost Behavior as a Function of Differentiated Marketing Offers

Since this is the era of extreme competition, companies try to satisfy their customers by fulfilling
their requirements. It leads to the idea of offering different terms to different customers since they
vary in their requirements, and as a result, marketer’s costs will differ with different customers.

Since marketers’ costs vary here, marketers should fix different prices for different customers, and
in fixing prices here, they should rely on activity-based cost (ABC) instead of standard costing.

Target Costing
Here a company first determines the price of a product at which it must sell, and from there on,
it deducts the desired profit margin to arrive at the target cost. Efforts are taken thereafter to keep
the production cost and other costs limited to the target cost.

Target cost for this purpose is broken down to all of the costs involved with the commodity
production and marketing so that measures can be taken to keep the cost of every item limited
within the target cost.

5. Evaluation of Competitors’ Costs, Prices, and Offers

To set prices appropriately, a company should have a clear picture of competitors’ cost, prices,
and reactions against the possible range of prices determined by market demand and cost. It is also
imperative to know in detail about competitors’ offers regarding quality, price, and other variables.

If the company finds that its offer is more or less similar to competitors’ offers, it should price close
not to lose sales. If it finds that it is in a superior position, it can charge a high price and charge a lower
price than competitors if its offer is found inferior to competitors’ offers.

Becoming aware of competitors’ prices, particularly, is not always an easy task, especially in
producer and reseller markets. Competitors’ price lists are often closely guarded.

Even if a marketer has access to competitive price lists, these lists may not reflect the actual
prices at which competitive products are sold. The actual prices may be established through
negotiation.

Therefore, marketers need to be cautious in utilizing competitive price information

while reaching price decisions.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

6. Selection of a Pricing Method

When a company has three Cs in hand, it is ready to select a price. The three Cs are customers’
demand schedule, cost function, and competitors’ prices.

In selecting a price, a company has to select a particular pricing method, including cost
considerations, competitors’ prices, prices of substitutes; and, customers’ assessment of unique product
features.

We shall now discuss different pricing methods, any of which may be selected by a company:

Markup Pricing
This is the easiest pricing method. Here marketers first find out various costs and add a standard
percentage with it as profit.

For example, a particular item’s fixed and variable costs are Php20, and the marketer decides
to make a profit of 20%, then the product’s price will be Php24/= Php(20+4).

Target-Return Pricing
Here, the price is set at that level, which will yield the target rate of return on the company’s
investment.

For example, a company has invested Php1,000,000/- in its business and expects a sale of
100,000 units, and the per-unit cost is Php10/-. The company wants to achieve a 20% rate of return on
investment.

In this case, its target return price will be Php12/-. The formula used to calculate target return
pricing is as follows:

Target Return Price = Unit Cost + { ( Desired Return x Invested Capital ) / Unit Sales }

Perceived-Value Pricing
This is one of the contemporary pricing methods under which marketers set their prices do not
consider their costs as a key consideration. Rather they see the buyers’ perception of value.

To build up perceived value in the buyers’ minds, marketers use non-price variables such as
durability, reliability, service, etc. in their marketing mix. Perceived value is captured to set a price
accordingly.

Value Pricing
This is also a modern pricing method where high-quality products are priced significantly low,
i.e., high-value is offered to customers.

Value pricing is not a matter of simply setting lower prices compared to competitors. Rather it is
a matter of re-engineering the company’s operations to truly become the low-cost producer without
sacrificing quality and lowering one’s prices significantly so that a large number of value-conscious
customers are attracted.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

Going-Rate Pricing
It is a popular pricing method and used when costs and competitors’ responses are difficult to
measure. Firms here do not consider their costs and demand positions to set prices rather than
determine prices based on their competitors’ prices. They can charge similar, lower, or higher prices
than their competitors.
ME SEARCHING FOR MY COMPETITOR’S PRICE

Sealed-Bid Pricing
This type of pricing method is followed when a firm wishes to win a contract or job. Pricing here
is done, keeping in mind the probability of winning the contract and expected profit, not the firm’s
cost and demand position. If a firm wants to increase the probability of winning, it has to set a lower
price.

7. Determination of a Specific Price

The final price may be selected easily based on the pricing methods discussed earlier. To select
the final price, a few additional factors to be taken into consideration by a company.

These are psychological pricing, influences of other marketing mix elements on price, company
pricing policies, and price impact on other parties.

Psychological Pricing
Price sometimes denotes psychological meanings such as high price means high quality or odd
price means lower price range or may convey the notion of discount or bargain.

For example, a particular product priced at Php200/- per unit may contain Php150/- worth of
that product, but the consumer will not mind paying Php200/- for the product because it may
communicate an image of Php200/- worth. In the case of ego-sensitive products, higher prices may
be charged.

Another example could be a product charged Php199/- instead of Php200/-. Customers may
see this as a price in the Php100/- range rather than the Php200/- range.

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 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

The Influences of Other Marketing Mix Elements on Price

In selecting the final price, a company should consider the influence of other marketing mix
elements such as the quality of the product, the advertising budget, etc. A particular brand could be
priced high if its relative quality is average, but the advertising budgets are high.

Brands that are of high average quality and advertising budgets are high may also be priced
high. If a product is in the later stage of its life cycle and occupies a major portion of market share may
also be priced high.

Company Pricing Policies

The final price is also the outcome of the pricing policy being pursued by a company. For
example, if a company emphasizes its sales force’s price recommendations, it may select the final
price based on the salespeople’s price quotes.

Impact of Price on Other Parties

The final price is also selected considering its impact on other parties such as distributors’
reactions, sales people’s objections, government reactions, competitors’ policies, and the effect of
legislation on prices.

Pricing Under Various Market Conditions

Knowing the price of the competitor’s products is important but anticipating his pricing behavior
may even be more important. Economists have put forward some concepts in market structures and
how the sellers will probably behave under various kinds of competition. The kinds of competitive
situations are as follows:
1. Pure Monopoly
This is a competitive situation where there is only one seller in a market. The monopolist
enjoys a very high degree of control over the price of his products. His only worry is pricing too
high to invite competition.

2. Oligopoly
In oligopoly, only a few firms compete in the sale of a commodity. These few firms are
interdependent in many of their activities including pricing. The oligopolists would have to
consider the effects of their actions (like price changes) on the behavior of their rivals, where
retaliation is almost certain. An example of an oligopoly is the Organization of Petroleum
Exporting Countries (OPEC) which prescribes prices for crude.

3. Pure Competition
Pure competition refers to that market where there are a great number of sellers and
buyers. Products sold are regarded as homogenous and the buyers will be motivated to switch
from one seller to another because of price. No seller can command a price above the one
that is prevailing. This is best exemplified by vegetable trading.

Principles of Marketing Page 10 of 11

 Principles of Marketing
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 11- ABM
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 7 – MKTG Subject Teacher: Kenny Jones A. Amlos

4. Oligopsony
In oligopsony, only a few buyers compete in the purchase of a commodity. The sellers
are helpless in controlling the prices of their products. This is exemplified by the existence of a
very few buyers of fighter planes.

5. Monopsony
Monopsony is a competitive situation characterized by the presence of only one buyer.
The monopsonist has a very high degree of control over the price of the commodity he is buying.
An example is the government which is the only authorized buyer of explosives.

COMPETITIVE NUMBER OF NUMBER OF DEGREE OF CONTROL OVER PRICES

SITUATION SELLERS BUYERS SELLER BUYER
Pure Monopoly One Many Very High None
Oligopoly Few Many High Very Slight
Pure Competition Many Many None None
Oligopsony Many Few Very Slight High
Monopsony Many One None Very High

References:
• Go, J., & Escareal-Go, C. (2017). Principles and Practices in Marketing in the Philippine Setting.
14 Ilang-Ilang St., New Manila, Quezon City, Philippines: Josiah and Carolina Go Foundation.
• Medina, R. (2008). Principles of Marketing. Manila Philippines: Rex Bookstore, Inc.
• Ligaya, E. F., Jerusalem, V. L., Palencia, J. M., & Palencia, M. M. (2017). Principles of Marketing.
Sampaloc, Manila, Philippines: Fastbooks Educational Supply, Inc.
• Ilano, A. B. (2019). Principles of Marketing. Manila Philippines: Rex Bookstore, Inc.
• https://www.iedunote.com/price-setting

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