Principles of

Marketing
Quarter 4 – Week 2: Module 5
Pricing
Principles of Marketing – Grade 11
Quarter 4 – Week 2: Principles of Marketing
First Edition, 2020

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Senior High School

Principles of
Marketing
Quarter 4 – Week 2: Module 5
Pricing
Introductory Message
For the facilitator:
As a facilitator, you are expected to orient the learners on how to
use this module. You also need to keep track of the learners' progress
while allowing them to manage their own learning at home.
Furthermore, you are expected to encourage and assist the learners as
they do the tasks included in the module.

For the learner:

As a learner, you must learn to become responsible of your own
learning. Take time to read, understand, and perform the different
activities in the module.
As you go through the different activities of this module be
reminded of the following:
1. Use the module with care. Do not put unnecessary mark/s on any
part of the module. Use a separate sheet of paper in answering the
exercises.
2. Don’t forget to answer Let Us Try before moving on to the other
activities.
3. Read the instructions carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking
your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are done.
If you encounter any difficulty in answering the tasks in this
module, do not hesitate to consult your teacher or facilitator. Always
bear in mind that you are not alone. We hope that through this material,
you will experience meaningful learning and gain deep understanding
of the relevant competencies. You can do it!

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Let Us Learn
Welcome to the Principles of Marketing Module Week 2 on Pricing.

This module is designed to identify and describe the factors to consider

when setting prices and new product pricing, discuss the structure of
distribution channels, its functions and the nature of supply chain
management; and define and identify promotional tools. The learners shall be
able to identify appropriate product price.

After going through the module, you are expected to:

1. define pricing;
2. relate the different factors to consider when setting prices
and new product pricing; and
3. describe the general pricing approaches.

Let Us Try
TRUE or FALSE

Directions: Write TRUE if the statement is correct or FALSE if the statement

is incorrect.

_________ 1. Pricing enable the firm to state a specific product or

service value to the customers.
_________ 2. A product price offers an irregular measure of value
in reference to other marketers.
_________ 3. A customer can dictate product range.
_________ 4. Flour is the main ingredient in bakery, thus, all
bread and pastry product cost may vary if the price
of the flour changes.
_________ 5. Product or service price creates great impact to
customer loyalty.

Let Us Study

As part of the marketing mix, pricing is a major component in product

development. Pricing is defined as the cost of the product that includes its
value. It is the amount of money that the consumer pays to own a product
(Delayco, 2016). Pricing consists of various elements like factors that affect
the setting of price, pricing strategies and pricing approaches.

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Factors to Consider When Setting Prices

1. Organizations’ Marketing Objectives

An organization may set new standards in their marketing strategies. Among

these may include revenue maximization, increasing sales volume and
competition. Example of this is to realize a market share of 40% for Super
Kalan within 3 years of launch.

2. Fixed and Variable Costs

In determining product or service cost, it is necessary to consider production

cost. Product conversion from raw materials to finished products involves
various elements like salary payment to laborers and utilities paid for energy
consumption. These elements require detailed computations of the two types
of costs; namely:

A. Variable Cost - refers to how much it would cost to manufacture one

unit of the product. These cost depends on the quantity of goods produced or
manufactured (e.g. raw materials and packaging). It includes the cost of:

a. Direct Materials

Ø refers to the material composition of the product (e.g. plastic bottle of a

bottled water manufacturing plant)

Ø Let us assume, TOO BIG Manufacturing, a bottled water manufacturing

plant, produces 1 box of 24 bottles of a 500 ml distilled water. Details
of material computation are as illustrated in Table 1:

Table 1
Material Unit Cost Quantity Cost per Box
Bottle P 3.00 24 pieces P 72.00
Bottle Cap .99 24 pieces 23.76
Product Label .99 24 pieces 23.76
Distilled Water .99 500 ml per bottle of 23.76
24s
Total P 5.97 P 143.28

The total direct material cost for producing 1 bottle of a 500 ml distilled
water is P 5.97, and P 143.28 for 1 box of 24s.

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b. Direct Labor

Ø refers to the systematized activities to create a product (e.g. wages for

workers for a bottled water manufacturing plant)

Ø To further assume TOO BIG Manufacturing, a bottled water

manufacturing plant, production workers are paid on a per-piece basis,
so to compute for the labor cost per piece, refer to Table 2:

Table 2
Process Area Labor Cost per
Box
Bottle Blowing Rinsing, filling, capping P .33
Labeling Printing, labeling .33
Sealing Sealing, packing .33
Total P .99

The total direct labor is P .99 / 24 bottles = P .0425 per bottle.

c. Direct Overhead

Ø are costs incurred during the production process regardless of the

output that the company produces. (e.g. electricity and water
consumption)

Ø this can be derived by dividing the total factory manufacturing overhead

for the month by the number of units produced
Ø For example, if total factory manufacturing overhead is P50,000, and
the number of bottled water produced is 5,000 pieces, then its direct
overhead cost is P 10.00 per unit.

B. Fixed Costs – refers to the expenses incurred by the organization that

are not related in manufacturing the product. These are costs that remains
constant as the quantity of goods produced increase or decrease (e.g. rent,
insurance and employees salary). These are the office rental, executive and
staff salaries, advertising, promotions, professional fees and other related
expenses to yield a product.

Let us assume the following details of TOO BIG Manufacturing, a bottled

water manufacturing plant:

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Table 3
Fixed Expenses
Rent P 8,000.00
Salaries 6,000.00
Insurance 5,000.00
Advertising 4,000.00
Total Fixed Costs 23,000.00

This means that if in a particular month, TOO Big Manufacturing incurred a

total fixed costs of P 23,000.00 while producing 10,000 units, each bottle of
water would have to absorb P 2.30 of fixed cost.

P 23,000.00 Fixed Costs ÷ 10,000 units = P 2.30 per unit

Taking the entire costing example, therefore, the total unit cost of each
bottled water would be:

Table 3
Costs Unit Costs Cost per Box of
24s
Direct Materials P 3.00 72.00
Direct Labor .99 23.76
Direct Overhead .11 2.64
Unit Fixed Cost 2.30 55.20
Total P 9.37 153.60

Therefore, if TOO BIG Manufacturing is able to sell each of the 10,000

bottled water it produced in a particular month at its unit cost of P 9.37, the
company would make no profit but will also incur no loss. This is called the
break-even point. This is the lowest possible price the company can set for its
shirts (under normal circumstances).

As illustrated in Table 4, if the company decides to sell its bottled water

at only P 9.00, it will incur a loss of P 0.37 per bottled water, thereby
accumulating to a loss of P 3,700.00 for a given 10,000 produced bottled
water.

However, if the company will decide to sell the bottled water at P 10.00,
then they can generate a profit of P 0.63 per bottled water. If the company
sells 10,000 bottled water at a P 10.00 unit cost, then the company would
make a profit of P 6,300.00.

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Computation:
Table 4
Selling Price Units Produced Total Sales
P 9.37 10,000 P 93,700 No Loss/ Profit
9.00 10,000 90,000 Loss P 3,700.00
10.00 10,000 100,000 Profit P 6,300.00

3. Target Markets’ Willingness to Pay

In the market, consumers believe that a higher price indicates higher quality.
Products in the market have their individual price range depending on
product specifications and/or performance. Consider one pad of yellow paper
within the price range of Php 28.00 to Php 42.00.

4. Competition

Prices may vary depending on the prevalent trends and the available product
substitutes in the market. The more a particular product is in demand, the
higher price the consumer will pay. As more producers stand to make the
product, a lower product price will be offered in the market.

New Product Pricing

Customers are more likely to seek newly innovated products to uplift the
burden of just settling with products which can only partially provide for their
current needs. Thus, companies have conducted various research to compete
in introducing a new product.

New Product Pricing Strategies (Delayco, 2016)

New product pricing strategies are used for products in the introduction stage
of the Product Life Cycle (PLC) (Delayco, 2016)

A. Market penetration is a strategy where a company initially offers lower

than regular market prices to enter a market. Once sales and market share
objectives are achieved, the company will then increase the price.An example
of this is introductory offers of a new brand to television in the market.

B. Market Skimming is a strategy where a company is the first one to

market a new high-end product or an innovative product. Its objective is to
have maximum revenue from the market before competitors catch on. When
the objective is achieved, the company can lower the price. An example here
is the offering of “smart” watches by technology and telephone companies.

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General Pricing Approaches

Since pricing is an important aspect of a business, pricing strategies are

utilized to uphold a usual standard in price setting to be able to abreast
customer’s perception.

1. Value-based pricing is setting a price based on the perceived value of

product (Delayco, 2016). Like that of custom-made products, its price would
vary depending the specifications dictated by the client. Popular and highly
raved coffee, served at Starbucks are more costly than other coffee shops.

2. Mark-up pricing is a pricing strategy that allows the seller a fixed

markup every time the product is sold, (So and Torres, 2016) For example, if
a product sells for P 250.00 yet only costs P200, then the mark up is P 50.00
which is (((P 250 – P 200) / P 200) x P100 = 25%) 25% of the given cost.

3. Competition based pricing is a pricing strategy that draws its basis from
products in the market. A 2019 Intel Core i3 laptop here in the Philippines
would fall within the price range of P 12,000.00 to P 16,000.

4. Promotional pricing strategy that upon purchase within a limited

period, product price decreases. An example of this is the midnight sale
offered by several department stores here in the Philippines, wherein, a
stipulated price is offered from the onset of the scheduled midnight sale until
the closing time of the store.

5. Geographical pricing is setting a modified price depending on the

geographical location of the customer. Shipping price offered by online sellers
may vary depending on their specific shipment location. Online selling is now
a widespread means of selling and purchasing of product with a specified
delivery fee depending on its destination.

Let Us Practice

Instruction: Assuming you are producing bottled kalamansi juice with a unit
cost of P 5.00 per bottle with total labor cost amounting to P 1.50 per box, total
incurred factory manufacturing overhead is P 60,000 and Fixed cost is at P
48.00.
Required:
1. If a client ordered 15,000 bottles, how much will you be selling your
product?
2. How much is the cost at break-even point?

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3. What does these figures imply in your product price?

Costs Amount
Direct Materials
Direct Labor
Direct Overhead
Fixed Cost
Total

Let Us Practice More

Instruction: Based on the table above, answer the following questions:

1. Should your prices be set in line with your long-term business goals? Yes
or no? Explain your answers
2. Why do you need to consider the customers’ willingness to pay for your
product?
3.Is it necessary to get an overview of a competitive price for your product?
Yes or no? Explain your answers
4. Is it best to offer price adjustments? Yes, or no? Explain your answers
5. Is it an advantage on your part to base your price on the value of your
product? Yes or no? Explain your answers

Respond To Discussion Rubrics

5 4 3 2 1
Ø Rich in Ø Substantial Ø Generally Ø Very simple Ø Student
content information competent statements with demonstrates
demonstrating that comments minimal little or no
critical demonstrates but analysis/insight understanding
thinking, thought, information expressed. of the problem
insight and insight, and is thin and or questions
analysis. analysis has limited. to be
taken place. discussed.
Ø Organized
effectively,
cited
correctly, and
the language
use is clear
and effective.

Let Us Remember

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I. FILL IN THE BLANKS
Instructions: Complete the following statements. Write the word/s that would
complete the
given statement.

1. The formula of ___________________________ is the total cost of

production per unit less the result from the total variable cost per unit
of production.
2. A ____________________ helps the business to quickly adjust its product
price to make it more enticing for customers.
3. Iphones are made of high-quality materials, which gives them the edge
at holding their value to sell their products at the best possible price,
these occurs when consumers establish the maximum amount buyers
are willing to pay for a given market quantity is an example of
__________________________________________________.
4. _________________________________________ is directly proportional to
production, it increases as production increases and decreases as
production fall.
5. _________________________ is important to your business because it
allow the firm to identify and improve their unique traits that will keep
their appeal to the market and will eventually be more effective to bring
in new customers.

Market Penetration Strategy Variable Costs

Value-based Pricing Fixed Costs
Establishment Competetion

Let Us Assess
MULTIPLE CHOICE.

Instruction: Write the letter of the correct answer:

_______________1. Which of the following types of costs includes direct

material, direct labor and direct overhead?

A. Fixed Cost C. Total Cost

B. Variable Cost D. Periodic Cost

________________ 2. Which is true about break-even point?

A. It occurs when the unit cost is equal to the selling price.

B. It occurs when the direct material cost is equal to the direct labor
cost.
C. When the value of the profit is P 0.

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D. Both A and C

________________ 3. Statement 1 – Market skimming allows a company to

dictate product price level. Statement 2 – Market penetration allows a
company to measure the sales volume of an existing product in the market

A. Only statement 1 is true C. Only statement 2 is true

B. Both statements are true D. Both statements are false

________________ 4. How does mark-up pricing work?

A. 30% profit of the selling price of P 1,500.00 is P 450.00.

B. A motorcycle at a cost of P 70,000.00, sells for P 85,000.00, makes
a total mark up of P 15,000.00
C. Only statement B is true
D. Both statements A and B are true

_________________ 5. Statement 1 – Considering the organization’s marketing

objective is important in order to align marketing strategies to its expected
sales forecast within a given period.
Statement 2 – Customers’ willingness to pay for a particular product may vary
on the value of the product.

A. Only statement 1 is true C. Only statement 2 is true

B. Both statements are true D. Both statements are false

Let Us Enhance

Instruction: Write your answers in a separate sheet.

Look for a small business within your vicinity. Do a business case
analysis and identify pricing strategies used. Perform an environmental
scanning to its competitors and consumers. Complete the table below:

Company Product Competitors Consumers Appropriate

Name Pricing
Strategy

Let Us Reflect

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Reflective Question: During this pandemic situation, how will a business be
able to introduce a product price which would create an independent market
in the existing industry? Explain

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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Let Us Assess
Multiple Choice
1. B. Variable Cost
2. D. Both A and C
3. B. Both statements are true
4. D. Both statements A and B are true
5. B. Both statements are true
Let Us Practice More Let Us Remember
Costs Amount Fill in the blanks.
Direct Materials P 5.00 1. Fixed Costs
Direct Labor 1.50 2. Market
Penetration
Direct Overhead (P 60,000.00 / 15,000 bottles) 4.00 Strategy
Fixed Cost (P 48.00 / 24 bottles per box) 2.00 3. Value-based
Pricing
Total P 12.50
4. Variable Costs
Let Us Practice Let Us Try
No. Description Product Service Experience 1. True
1 Haircut P 2. False
2 Car repair P
3 Toys P 3. False
4 Furniture P
P 4. True
5 Cozy ambiance
6 Medical check-up P
5. True
7 Mail delivery P
8 Original themes and décor P
9 Mouthwatering P
presentation
10 Bicycle P
Answer Key
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Let Us Enhance
3 points 6 points 8 points 10 points
Depth of Writing Writing Writing Writing
Reflection demonstrates demonstrates a demonstrates a demonstrates an
lack of minimal general reflection in-depth reflection
reflection on reflection on on the selected on the selected
the selected the selected topic, including a topic, including
topic, with no topic, including some supporting supporting details
details. a few details and and examples.
supporting examples.
details and
examples.
Required Writing does Writing Writing includes Writing surpasses
Components not include includes a few the required the required
the required components of components of the components of the
components the selected selected topic. selected topic.
of the topic.
selected topic.
Quality of Information Information Information clearly Information clearly
Information has little to clearly relates relates to the main relates to the main
do with the to the main topic. It provides 1- topic. It includes
main topic. topic. No 2 supporting details several supporting
details and/or and/or examples. details and/or
examples are examples.
given.
Structure & Writing Writing is Writing is clear, Writing is clear,
Organization unclear, unclear, and concise, and concise, and well
disorganized thoughts are organized with the organized with the
thoughts. not expressed use of excellent use of excellent
Make little to in a logical sentence/paragrap sentence/paragrap
no sense. manner. h structure. h structure.
Thoughts are Thoughts are
expressed in a expressed in a
logical manner. logical manner.
Grammar There are There are There are less There are no
numerous spelling or spelling or spelling or
spelling or grammar grammar errors of grammar errors of
grammar errors of writing reflection. writing reflection.
errors per writing
page of reflection
writing
reflection
References

So, R. C & Torres, O. G. (2016). Principles of Marketing. Philippines: Vibal

Group, Inc.

Business-Marketing Learning Materials for Marketing Insurance and

Business. Features of Good Packaging. (n.d). Retrieved July 20, 2020,
from https://marketinglord.blogspot.com/2012/06/features-of-good-
packaging.html

https://www.patriotsoftware.com/blog/accounting/value-based-pricing/

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