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PRICING

The document discusses pricing objectives and procedures. It outlines the key steps in determining price: 1) defining pricing objectives like profit maximization or sales growth, 2) analyzing the realistic price range, 3) selecting a pricing strategy like market skimming or penetration, 4) evaluating economic feasibility of price points, and 5) setting the final price. The overall goal is to determine the optimal price considering objectives and market factors.

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Alj Kapilongan
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39 views16 pages

PRICING

The document discusses pricing objectives and procedures. It outlines the key steps in determining price: 1) defining pricing objectives like profit maximization or sales growth, 2) analyzing the realistic price range, 3) selecting a pricing strategy like market skimming or penetration, 4) evaluating economic feasibility of price points, and 5) setting the final price. The overall goal is to determine the optimal price considering objectives and market factors.

Uploaded by

Alj Kapilongan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PRICING

Pricing may be defined as those


activities involved in the
determination of the price at which
products that will be offered for sale
considering the various objectives of
the firm
Pricing Objectives
• Before setting prices, the firms pricing objec
tives must first be determined. Pricing objec
tives may consist of any of the following:
• Profit -oriented objectives
• Target return objective
• Sales oriented objectives; or
• Status quo-oriented objectives
Profit-Oriented Objective
s
• Profit-Oriented Objectives call for pr
ofit generation. This may either be:
• To achieve the target return on inves
tment or net sales or
• To maximize profit
The Profit Maximization Ob
jective
• This refers to the pricing objective o
f seeking as much profit as possible
. This may be achieved by increasin
g the quantity sold or increasing th
e profit margin
Sales-Oriented Objectives
• Sales-oriented pricing objectives refer to t
hose that will provide higher sales volume.
This may be achieved through any of the f
ollowing:
• Increasing sales volume; or
• Maintaining or increasing market share
Increasing Sales Volume
• This objective requires an increase in sal
es volume for a given period. For examp
le, the company may seek to increase it
s sales by 20% annually. This may be ad
apted to achieve long-term profitability
even if losses are sustained in the first f
ew years
Maintaining or increasing market
share

• This objective requires maintaining or in


creasing the company's market share. If,
for instance the company's market shar
e grew from 30% last year to 40% this y
ear, this will surely indicates that the co
mpany is growing.
Status Quo-Oriented Objectives
• Status quo pricing requires, maintaining the sa
me prices for the company's products. This hap
pens when the firm is satisfied with its current
market share and profits. Status quo pricing ma
y be due to any of the following:
• To stabilize prices;
• To meet competition;
• To avoid competition
The pricing procedure
• The pricing procedure refers to the series of steps
adapted in the determination of price. The series
of steps are the following:
• The determination of the realistic range of choice
• The selection of pricing strategy
• The evaluation of economic feasibility; and
• The setting of the price
The determination of the realistic
range of choice
• The first step in pricing is the determination of the
realistic range of prices by which a final choice shal
l be made. If blank CDs are sold , for example, at va
rious prices(from above P20, between P20 and P1
0, and below P10), the price setter will have to find
out from the stated price information his realistic p
rice range. If a small volume is sold at prices above
P20 and below P10, then his realistic price range is
between P20 and P10.
The selection of pricing
strategy
• The next step in the pricing procedure is
the selection of pricing strategy. The de
cision maker may adapt any of the follo
wing:
• Market skimming strategy; or
• Penetration stategy
Market skimming strategy
• The market skimming strategy requires the setting
of price at the upper limit of the realistic range of
choice. In the example provided previously, it will
be P20. The purpose of skimming is to maximize p
rofits as the product is first introduced. Later, a slo
w reduction in price over time is made to capture
new target markets.
Penetration strategy
• The penetration strategy calls for se
tting price at the bottom of the reali
stic price range, which in our examp
le would by P10. The purpose is to p
enetrate the market as rapidly as po
ssible.
Evaluating the economic fea
sibility
• After the pricing strategy has been selected,
a list of the various price alternatives must b
e prepared. Then, a study on the economic f
easibility of the alternatives is made. An illust
ration is shown in table 8 qhich shows three
pricing alternatives. The computations will su
rely provide decisions.
Table 8
The Economic Feasibility of Price Alternatives for Produ
ct A of Company X
Potential Potential
Alternative Price/Unit sales Gross Profit ROI
(units/year)

1 700.00 80,000 12M 20%

2 800.00 70,000 12M 25%

3 900.00 60,000 15M 30%


Setting the price
• After determining the economic feasibili
ty of the various alternatives, the firm is
now ready to set the price of the produ
cts. This will of course, be done after co
nsidering the pricing objectives.

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