CHAPTER 4: LET THE MARKET

KNOW YOU BETTER

• In its broadcast sense, marketing is about creating and
accumulating customers. Marketing plans are designed to capture
market share and defeat competitors. The marketing function and
the marketing mix serve the overall business strategy. It is
summarized in seven Ps by which the enterprise will engage
competitors and gain customers. These Ps are Positioning,
Product, Packaging, Place, People, Promotion, and Price.
Positioning in the context of a marketing battle plan,
has three overlapping objectives
• First, positioning has an enterprise perspective. The enterprise
scan the market environment and decides to position itself with
products that specifically address the needs of a chosen target
market. Second, positioning has a competitive perspective. The
enterprise has to differentiate and distinguish itself from its
competitors. Third, positioning takes the customers’
perspective. Positioning is the way the customers perceive the
enterprise and its products or services in their minds. The
stronger the overlap is in these three perspectives, the more
defined the positioning of an enterprise is in the marketplace.
• Enterprises can establish their positioning either by starting with
their own product creations or with their customers’ outcome
expectations. The competitors will always be part of the
positioning equation, whether the enterprise starts with the
product or the customer perspective. After all, marketing warfare
takes place in a competitive arena.
• The competitive landscape of the enterprise, relative to its market,
can be clearly mapped out by laying out both the latitudinal and
longitudinal market dimensions.
• Latitude lays out what is important to the different customer
segments from their differing points of view. Certain customers may
claim that what is important to them are the quality features of
durability and functionality. Other customers may be looking for style,
design, and aesthetic appeal. There would be customers who do not
have the purchasing power to afford any of the above quality
definitions. They would buy lower priced products with lesser quality.

• Longitude in the marketing map represents the product features and

attributes of competitors in the marketplace. Most competitors would
be offering product features which the major customer segments
want to buy. A few will focus on niche customers who are not in the
mainstream. The latitudinal and longitudinal dimensions will draw the
parameters of the map, locating both the customers and the
competing enterprises in their respective positioning.
• In determining the MVP, the enterprise must assess its products from
the customers’ viewpoint. It must evaluate the other six Ps of
marketing to find out if they complement and reinforce one another.
Price might be out of line with the promotion message, or the people
chosen might be the wrong message carriers. Each of the Ps of
marketing must communicate something to the customer.

• The enterprise should carefully assess whether it’s chosen MVP is the
most sought after by its targeted market segment. Some enterprises
have discovered that their intended customers are not the ones
buying their products but some other segments. Their choice, then, is
to either reposition their products toward the unintended customers
or to reinvent their products to fit their intended customers.
Sometimes, all that is necessary is a change of message but, most of
the time, what is required is an overhaul of the marketing mix.
• To establish the positioning of its various products in the
marketplace, the enterprise endeavors to build the brand of each
product. Branding serves three purposes. First is to differentiate the
product from other products. Second is to avoid a commodity
image for the product. Third is to fill a space in the customer’s mind
that would prevent other products from occupying the same space.
• Once a space gets filled in the consumer’s mind, it is very hard to change. We
all remember the first man on the moon, the first person to circumnavigate
the world, and the first murderer, but we do not remember the second.
Number two will only be remembered if it makes a big thing out of being
number two like Avis. People know that as the ‘number two’ car rental
company, Avis, “tries harder.”
 Branding and brand equity development go
hand-in-hand with positioning, Volvo stresses
its safety brand positioning by crashing their
test cars into brick walls to dramatize the minimal effect on the owner-driver.
Powerful brands have become the generic name for their product categories like Kleenex,
Band-Aid, Xerox, and Scotch Tape. It is hard to separate these brands from their permanent
positioning in the marketplace. These brands have also been able to extend their good image
to their other product lines, Johnson and Johnson, Procter and Gamble, Pfizer, Ayala, and SM
have been able to leverage their enterprise brand image to all of their product lines. These
enterprises have assumed the reputation and image of top caliber establishments whose
magic wand can transform new products into instant successes.
• A product is the tangible good or intangible service that the enterprise offers to
its customers in order to satisfy their needs and to produce their expected
results. Products are often identified with their brand names to distinguish them
from other products in the market. Some products have built up so much loyalty
to the point that their brand names have become their bestselling proposition.

There are four general types of products that are marketed by entrepreneurs:
1. Breakthrough products
2. Differentiated products
3. Copycat products
4. Niche products
Breakthrough products
Breakthrough products offer completely new performance benefits. They may
double the performance at half the cost. They may be much more convenient
and easy to use. They may cater to a unique set of customer needs that have
not yet been tapped. They may create a new demand. Marketing
breakthrough products need a higher level of customer education and
orientation.

Common examples of breakthrough products are some borne out of the

biotechnology field particularly in terms of coming up with new vaccines to
protect people from certain viruses.
Differentiated products
Differentiated products try to claim a new space in the mind of the customer
different from the spaces occupied by existing products. The performance
benefits may be close to existing products but there would be additional benefits
on special aspects of the product.

There are many different eyeglasses available today but Transitions lenses was
able to differentiate itself from the rest because the lenses they use adapt to
changing light. With this feature, the wearer gets additional protection against
ultraviolet rays, glare, and eye fatigue. Transitions lenses become very clear
while indoors and become darker outside, depending on the sunlight and other
sources of light and glare. It is actually a pair of eyeglasses and sunglasses rolled
into one.
Copycat products
Copycat products will not make much impression on the customer’s mind. The
marketer should make up for this lack of mental space by offering more physical
space in the shelves, lower prices, easier access, promotional freebies, and the
like. Aggressive advertising may add to market demand but at a greater cost
than the leading brands.

A classic Philippine example of copycat products is the Beer na Beer brand of Asia
Brewery pitted against San Miguel Pale Pilsen. Both have amber colored bottles
with similarly styled white colored font printed outside the bottle. No wonder
after Beer na Beer came out of the market, San Miguel filed a law suit against
Asia Brewery for trademark Infringement. In this case, San Miguel prevailed.
Niche products
Niche products do not intend to compete directly with the giants. They are
products with lower reach, lower visibility, lower price, and lower top of mind.
They are content to play a minor roles in specific and smaller market segments.

Have you ever heard of the Dirty Rotten Flowers delivery service in the United
States? In contrast to romantics wanting to send the best and most beautiful
flowers to their love ones, this company caters to the wronged ones or those
who want to seek revenge.
• There used to be a time when products came wrapped in ordinary packaging
that prominently displayed the brand name, the main attributes of the product,
the company’s logo, and its place of business. Packaging came in small,
medium, and large sizes without much variation in the material, shape, and
purpose of the packaging. That is a time long gone.
• Now, packaging can even be more important than the product itself. If done
imaginatively. One example is the entrepreneur who took ordinary rocks from
riverbeds and packaged them as “pet rocks.”
Today, packaging serves several important purposes, which elevate it to one of
the seven Ps of marketing.
• First, packaging identifies the product, describes its features and benefits, and
complies with government rules on specifying its contents, weight, chemical
composition, and potency. Packaging provides easy brand identification for the
consumers.
• Second, packaging differentiates the product from its competitors and even
from its other brand offerings. For example, liquor brands differentiate their
premium scotch and brandy offerings by packaging them in ceramic bottles.
• Third, packaging lengthens the lifespan, physically protects, and extends the
usefulness of the product. Vacuum-packed or aseptically packaged products
prolong the shelf lives of many food and beverage items. High-tech packaging
protects fragile and sensitive products like crystal sculptures, laptops, precision
tools, and the like.
• Fourth, packaging has become an environmental issue by itself. Many packages
are discarded after the contents have been taken out. This generates waste and
poses environmental hazards. Recyclability and biodegradability are now major
concern of packagers and consumers alike.
• Fifth, the aforementioned purposes of packaging have increased the cost of
packaging and, therefore the price of the product. To counteract this, the
packaging must possess its own value proposition for the customers as well as
for the enterprise. For the customers, they may put some premium on
environment-friendly packaging. Customers may even be able to convert the
packaging into money if the packaging were exchangeable for cash. Some
packaging are so beautiful, they can create their own value as collectibles.
• Packaging does not refer only to the wrapper or container of the product. It
can mean the bundle of products or services that are put together to attract
and delight customers. It can also mean the terms and conditions attached to
the sale or after-sale servicing of the product.
• “[Link].” This is the often-recited mantra of
salespeople who want to have the best access to their customers. Although
finding a good location proves to be challenging, even more challenging is
maximizing the potentials of that location.
Initial Location Screening

In finding a good location, one needs to consider the following.

1. The number of customers residing or working in the area, and the number of
customers who frequently pass through the area.
2. The density or number of customers per unit area.
3. The access routes to alternative locations and their traffic crowds in those
routes.
4. The buying habits of customers or where they buy, at what time and how
frequent.
5. Locational features such as parking spaces, foot access, creators’ comforts,
and the like.
In a similar way, the entrepreneur must be able to determine the price that comes
with the location because it will spell out the success or failure of the business. The
entrepreneur has to consider the following:

1. The cost of buying or renting, renovating, and operating the location.

2. Customer volume, drop-in rates (what percentage of customer traffic would
stop by the store) and sales conversion ratios (what percentage of drop-ins
would actually purchase something from the store).
3. Revenues based on the volume and mix of goods and services expected to be
sold at certain prices.
4. Profits.
In addition to the above factors, the final choice of location must be
based on the following:

1. Image and location conditions. This refers to the physical look of a

location, sanitary conditions, crimes and safety levels, etc. the
reputation of a location is also important. For instance, would it be
better to put up your store in an upscale shopping mall or in a low-
end “tiangge” or flea market?
2. Exact fit to target customers. Is the location traffic generally
composed of your target customers?
3. Clustering of competitor establishments. This oftentimes results
in drawing a bigger market to the location.
4. Future area development. A certain location might not have the
most customers or the best economics in the short term, but it might
become a central business hub within the next five years. Watch out for
signs of development like a construction boom or a new shopping mall
nearby.
5. Fiscal and regulatory requirements. An entrepreneur would want to
set up shop in a town or city with low tax rates, good governance,
excellent infrastructures, and great public services.
Relevant Location Drivers
It would benefit the entrepreneur to do an in depth location analysis.
The entrepreneur can make use of the following relevant location
drivers for location selection. These are the ‘musts’ in choosing the
location for your business.
1. Physical Proximity to Target Market
 For most entrepreneurs, locations are chosen based on how close it is
to the target market. Ideally, the best locations should be easily
accessible from home or the workplace. However, physical proximity is
not always important. For instance, most parents will send their kids to
the nearest elementary or high school. However, when it comes to
college, most students wouldn’t mind going to a faraway university if it
means getting the best education possible in the course of their choice.
2. Customer Traffic Flow
Customer traffic flow refers to the people that regularly come into
contact with your business establishment. Your shop might not be near
to customer’s homes or workplaces, it might be situated somewhere
along their daily routes. Higher traffics flows mean higher drop-in rates
for stores along the traffic route. Important data to research include
daily volume of people and/or vehicles passing through, as well as
information on the “peak hours” and the “slow hours”.
3. Industry Clustering
A lot of competitors clustered in one location usually draw in a bigger
market to the area. Three stores side-by-side offer more choices to
customers than one stand-alone store. The downside is that clustering
also results in fiercer competition. As such, some entrepreneurs prefer
to establish a monopoly far away from competitors.
4. Convergence of Multiple Industries
Locations where multiple industries converge, such as central business
districts, shopping malls, and public markets are able to attract more
customers because of one-stop shopping convenience. But again,
competition is usually strong in such areas.
5. Population Concentrations
Urbanization creates population concentrations. Where people live,
goods and services follow. The greater the number of people, the
greater the number of needs and wants to be satisfied. Simply put, the
more populous the location is, the greater is the opportunity for
business and profit.
6. Activity Hubs
Activity hubs such as large schools, high-rise buildings, public parks,
transport terminals, and entertainment centers provide good
location potentials for food establishments and client-specific
services.
 
 7. Growth Potential
Businesses are always looking for new areas to expand and grow.
This is especially true when crowded centers become saturated with
many providers of goods and services. Hence, the new development
site will be the natural greener posture for early locators. The early
locators will catch the early customers.
 
8. Business Climate
• Enterprises prefer locations that are conducive in doing business.
This includes areas with:
• High economic growth
• Stable political situation
• Effective social services
• Good infrastructures
• Cheap utilities
• Efficient transportation and logistics
• Availability of skilled labor force
• Low crime rates
• Good fiscal incentives
• Trusted public officials
9. Cost of Doing Business and Producing Goods and Services
For industrial establishments, the more relevant criteria are those
locations with lower cost of doing business and lower cost of
producing goods and services. Hence, these industrial
establishments would prefer locations outside the main population
centers but with government-supplied amenities.
Comparative Location Analysis

Perhaps the most common way by which an entrepreneur ‘surveys’ a potential

location is through comparing it with other locations with more or less the same
features and tenant mix or clusters of competitors. These locations must have
that ‘extra something’ that makes competitors fight for a store space within the
same area. Keen observation is required for an entrepreneur if he or she wants to
draw several insights from these favored locations.
Geography and Atmosphere Determinants
Another way of looking at a location or place to sell the product or service can be based on
two major place determinants: geography and atmosphere. Within each determinant,
there are extreme opposite qualities that create a dilemma for the entrepreneur. To better
understand what these dilemmas are, let us take a look at each one of these determinants.

For the geography determinant there are six decisions tensions:

1. Concentration versus Destination
2. Access versus Abundance
3. Clustered versus Dispersed
4. Developed versus Underdeveloped
5. Physical versus Virtual
6. Upscale versus Downscale
• It is natural for entrepreneurs to prefer place where there is a large
concentrations of target customers (e.g., commercial centers, malls).
Nowadays, modern transportation means and the longing to be
relieved from city living-related stress have paved the way from
destination places.

• Access is the ability to reach a place easily and inexpensively. Twenty-

four-hour convenient stores and nearby community or strip malls may
offer easy access to customers but their product and service offerings
may be limited unlike large commercial malls that offer a wide range
of products and services.
• Clustered competitors allow customers to choose from a great variety
of product offerings. The clustering of many sellers attracts many
buyers. On the other hand, dispersed competitors experience better
business results in certain industries because they practically ‘own’ the
market located within the area of business.

• There is also some tension in choosing to locate in highly-developed

areas of business versus locating in relatively underdeveloped areas.
Developed areas would have ready-made markets and all the utilities
and transportation systems in place but tend to be more expensive
than underdeveloped areas. The latter may be cheaper to locate in,
but the market would take time to grow and all the usual amenities
might not yet be in place.
• The internet has enables the proliferation of virtual market places
where customers and sellers converge at the comfort of their own
homes or wherever they are through computers, laptops, or mobile
devices. This defies the traditional way where the customers has no
choice but to go to the shop where the product or service is available
no matter how long it takes them to get there. Now, everything is just
a click away and it does not make any difference whether you are just
buying one item or in bulk. In fact, some people find virtual shopping
more convenient because it spares them the hassle of getting stuck in
traffic for long hours. However, there is limited interaction between
the seller and the buyer and the latter will not have the opportunity to
taste, feel, or smell what he or she is buying.
• Finally, there is tension between choosing upscale places versus
downscale places. The more well-off customers can afford to spend
more in upscale places. Downscale places have the advantage of
attracting the masses that might have lower purchasing power but
greater numbers.
For the atmosphere determinant, there are five decision
tensions:

1. Formal versus Informal

2. Exclusive versus Public
3. Conservative versus Adventurous
4. Aesthetics versus Functionality
5. Minimalist versus Maximalist
Atmosphere refers to the state or condition of the environment which allows the
mind and mood of customers, either in a positive or negative way. Atmosphere
brings out the intangible qualities which customers are looking for (e.g.,
peacefulness, excitement, beauty, bliss, sorrow) through the tangible or physical
manifestations of the place (e.g., light, color, texture, shape, scent, sound,
temperature, taste, etc.)
A formal atmosphere projects stylized, classy, highly organized and well-
structured image for the place. It gives customers the feeling of elegant tradition
and civilized order. On the other hand, an informal atmosphere projects a casual,
easy going unstructured and unpretentious image for the place.
Exclusivity is the preferred atmosphere by some customers who want privacy and
elitist isolation. The opposite feeling is desired by customers who want a public
atmosphere, one where people from all walks of life can congregate.
Some customers do not want to take risk and want a conservative atmosphere,
one where they can feel safe and secure. These customers want to experience the
familiar, the tried and tested, and the “normal.” At the other end, customers crave
for adventurism. They want to try out-of-the-ordinary escapades.
There are customers who go for the aesthetics of a place while others go for the
functionality of the place.
There are customers who do not want clutter in the atmosphere. They like the
minimalist approach and believe in the adage that “less is more.” The opposite is true
for customers who are maximalists. They like everything to be in one place altogether.

The geography and atmosphere decision tensions provide alternative choices to the
marketing strategies. The final decision would depend on the positioning of the
enterprise and its products in the marketplace.
 Examples of Store Atmosphere

Macy's stores tend to be very

The design and colors of Target stores organized, polished, and have bright The dim lights and loud music in
are easily recognizable and induce a lighting. Hollister's stores allow for a club-like
bright, vibrant atmosphere. environment that attract
teenagers.  The environment in their
stores appear more darker with a hint
of flirtation.
 Examples of Store Atmosphere

A Kohl's store displaying their

Nordstrom is a more high-end store, merchandize beautifully that allow Saks Fifth Avenue, another high-
and has a very elegant-like for a more attractive atmosphere. end specialty store with a luxurious
atmosphere that is pleasing for design that appeal to many
many.  Their stores are clean, consumers.
organized, and known to have a great
team of staff to assist their guests.
People
• People are the ultimate marketing strategy. People sell and push the product.
People search hard to find the right market. People distribute, promote, price,
and sell the products in the most attractive market places. People aim to please
the customers through continuing service and product enhancements long
after the customers have bought the product. People are the regular contact
points between the enterprise and its market.
• The people in a marketing organization play a crucial role in the success of the
enterprise. At one end of the spectrum, they are conducting the market and
consumer research that would lead to the development of the product(s) and
the formulation of the marketing strategy. At the middle of the spectrum, they
are devising the marketing plans and programs that would be translated to the
specific elements of the marketing mix. At the other end of the spectrum, they
are contacting, reaching, and convincing customers to buy the product(s).
• The market strategizing must be matched by the footwork that goes into
distributing and selling products. One without the other will fail. If all the
marketing research and planning work did not produce the right products for
the intended customers, then it would be extremely difficult to distribute and
sell the products. The wrong products need a superhuman sales force with
charismatic powers. The right products only need good distribution channels
and an effective sales force.
• The marketing efforts of people are organized at four levels: (1) to create
customer awareness; (2) to arouse customer interest; (3) to educate customers
as they evaluate their buying choices; and (4) to close the sale and deliver the
products.
To arouse the interest of customers, the enterprise can use several
people or organizational modalities.
• The first modality is to outsource the people from advertising agencies, events
management outfits, call centers, and telemarketers. The second modality is to
build in-house capabilities by hiring market researchers, brand managers,
salespeople, public relations officers, website writers, orchestrators, etc. the
third modality is to collaborate or enter into partnerships with principals,
distributors, dealers, and industry associations.
Educating customers in their evaluation process requires the enterprise
to know the customer’s decision- making process.
1. What and who are involved in the buying process?
2. Where are the customers in the buying process? Are they still canvassing and
“shopping around”? Are they currently focusing on a few candidates? Are
they seriously evaluating the company’s product?
3. What are the next steps of the customers and how can the company facilitate
their next steps? What else do the customers need to know and what issues
must be addressed by the marketer? The customer evaluation process may
follow something to Table 4.1
 Table 4.1. Consumer Evaluation Process
INITIAL PROCESS MID PROCESS FINAL PROCESS
• Comparison of product • Costumers who have • Taste tests
features and probable tried the products before
results by: • Professional evaluator’s • Physical demo
guidebook on competing
 Window shopping products • Free trial period
 Internet browsing • Testimonials from
 Brochures collection and credible endorsers • Money back guarantee
comparison • How often others are offer
 Asking friends and seen actually using the
relatives product or services

• Word of mouth feedback

• Gut reaction
Finally, the sale must be closed and the products should be delivered
to the customer. Closing the sale demands that the product be
available, adequate, acceptable, and affordable.

Availability means that the enterprise has the goods or services on

hand. Accessible means that the customers can easily get the
product from their usual buying places or the products can be
conveniently delivered to them. Adequate means the product meets
the quality and delivery specifications of the customer. Acceptable
means that the customer is convinced by the selling points of the
product, finds very little or no objectionable features in the product,
and accepts the conditionality, warranties, and amenities given by
the seller. Affordable means the price and payment terms are right.
The organizational modality to educate the customers,
to help them in their decision making process, and to
close the sale would depend on four variables.
1. Is there a need for high contact (face to face) or will low contact (Internet)be
sufficient?
2. Is there a need for high accessibility? If so, the company requires
distributors, dealers, branches, and franchisees to expand their reach.
Alternatively, they need a very fast, reliable, and economical delivery
system.
3. How heavy or light is the transaction cost? High transaction cost products
need new competent people to sell them.
4. Does the customer need a lot of sale servicing and after sales servicing?
• Promotion is the explicit communication efforts of the
enterprise, such as advertising, public relation campaigns,
promotional tours, product offerings, point of sale displays,
websites, flyers, emails, letters, telemarketing, and others.
Indirectly the enterprise communicates indirectly through its
location, its office premises and branches and its pricing
strategy.
• Effective promotion depends on three critical factors: the
credibility of the communicator; the message and the medium
of the message; and the receptiveness of the audience to all
that is being communicated.
• Promotion is the explicit communication efforts of the enterprise,
such as advertising, public relation campaigns, promotional tours,
product offerings, point of sale displays, websites, flyers, emails,
letters, telemarketing, and others. Indirectly the enterprise
communicates indirectly through its location, its office premises and
branches and its pricing strategy.
• Effective promotion depends on three critical factors: the credibility of
the communicator; the message and the medium of the message; and
the receptiveness of the audience to all that is being communicated.
• Before crafting promotion and communication strategy, the
communicator must profile the target audience very well. In business,
this requires some research on who exactly is the market audience,
what they are looking for in a particular product offering and what it
will take to convince them to purchase the product offering.
• Atthe beginning of its operations, the enterprise may have a
very limited market to cover. The narrower the market
coverage is, the more focused the promotion campaign
should be. Neighborhood flyers, word-of-mouth promotion,
and house-to-house campaigns might suffice for highly-
localized businesses. For niche markets like vintage car
enthusiasts or rare orchid growers, trade magazines and
active participation in special trade shows would be more
effective in directly reaching this exclusive audience. For the
marketing of corporate services like advertising, business-
process outsourcing and management seminars, it is bet to
find contact persons, write letters customized to the needs of
the targeted corporate market, and make impressive face-to-
face presentation.
• Asthe targeted audience becomes bigger, the marketer
can shift from a rifle to a shotgun approach. Electronic
mails, websites, letter blasts, radio broadcasts, and print
ads in certain publications might serve the purpose.
• For mass markets, television commercials, ubiquitous
billboards, and high-circulation broadsheets, magazines
or tabloids would already be cost effective and create
quite an impact. The idea is to match the size of the
market with the medium used and the resources of the
enterprise. The enterprise should monitor the impact of
its promotion campaigns.
Price
Pricing depends on the business objectives set by the enterprise. While price is a
major factor for the customer in buying a product, it is not the only factor such as
in the case of buying premium products. Non-price factors outweigh the price
factor whenever a customer is buying a premium item because he or she is more
particular about the ‘premium-ness’ in terms of quality, the status or image that
the product brings, shorter waiting time or immediate delivery, and other such
decision criteria.

Finding the right price for a product is, therefore, not a simple matter of adding a
mark-up on the cost of a product or service, as some companies do.
The enterprise should set the prices of its products or services based on
its business objectives such as the following:
1. Profit maximization
2. Revenue maximization
3. Market share maximization
4. Attainment of the desired prestige or quality leadership
5. Penetration, survival, or liquidation
6. Scarcity pricing or market skimming
7. Cost recovery
8. Subsidy pricing
9. Marginal pricing
The first three pricing strategies pertain to the related dynamics of the
different price ranges applied across different product volumes or
quantities while considering the product costs incurred as these
products are bought or sold. For a better appreciation, let us take a look
at Table 4.2.
PRICE VOLUME TOTAL TOTAL TOTAL UNIT COST
REVENUES COSTS PROFITS

₱10 100 ₱1,000 ₱800 ₱200 ₱8.00

₱12 90 ₱1,080 ₱750 ₱230 ₱8.33
₱14 75 ₱1,050 ₱675 ₱375 ₱9.00
₱16 60 ₱960 ₱600 ₱360 ₱10.00
₱18 50 ₱900 ₱550 ₱350 ₱11.00
 PRICE VOLUME TOTAL
REVENU
TOTAL
COSTS
TOTAL
PROFITS
UNIT
COST
• Table 4.2 shows an example of a
ES
profit, revenue, and market share
₱10 100 ₱1,000 ₱800 ₱200 ₱8.00 maximization pricing strategies.
₱12 90 ₱1,080 ₱750 ₱230 ₱8.33
Prices ranging from ₱10 to ₱18 per
unit have been market tested as
₱14 75 ₱1,050 ₱675 ₱375 ₱9.00 shown in the first column. These
₱16 60 ₱960 ₱600 ₱360 ₱10.00
prices have resulted in volumes (see
second column) ranging from 50
₱18 50 ₱900 ₱550 ₱350 ₱11.00 units at the price of ₱18 per unit to
100 units at the price of ₱10 per unit.
• The total revenues are computed by multiplying price quantity as
provided in the third column. The total costs are computed in the fourth
column, assuming fixed costs of ₱300, irrespective of the volume level,
ad variable costs of ₱5 per unit. The fifth column calculates the total
points.
 PRICE VOLUME TOTAL
REVENU
TOTAL
COSTS
TOTAL
PROFITS
UNIT
COST
• At the price of ₱14 per unit, the
ES
profits are maximized at ₱375,
₱10 100 ₱1,000 ₱800 ₱200 ₱8.00 compared to the other price levels
₱12 90 ₱1,080 ₱750 ₱230 ₱8.33
which yield lower profits. Unit cost is
computed in column six in order to
₱14 75 ₱1,050 ₱675 ₱375 ₱9.00 illustrate its decline as volume goes
₱16 60 ₱960 ₱600 ₱360 ₱10.00
up.
• The revenue-maximizing price is
₱18 50 ₱900 ₱550 ₱350 ₱11.00
derived by multiplying the different
prices by their expected demand volumes. As shown in the table, the
revenue-maximizing price is ₱12, generating total revenues of ₱1,080.
This revenue-maximizing price model is easier to derive than the profit-
maximizing price. It should be used when the total costs are mainly
fixed (little change over a wide volume range).
 PRICE VOLUME TOTAL
REVENU
TOTAL
COSTS
TOTAL
PROFITS
UNIT
COST
• Market share maximization is
ES
achieved by the price that obtains
₱10 100 ₱1,000 ₱800 ₱200 ₱8.00 the highest volume of sales
₱12 90 ₱1,080 ₱750 ₱230 ₱8.33 without sacrificing too much
profitability. In the same table, this
₱14 75 ₱1,050 ₱675 ₱375 ₱9.00
market share-maximizing price is
₱16 60 ₱960 ₱600 ₱360 ₱10.00 ₱10, with the volume of 100 units.
At this low price, profits are still
₱18 50 ₱900 ₱550 ₱350 ₱11.00
realized.
Perhaps a bigger volume can be obtained at the lower price of ₱8 per
unit. At this prize level, a possible demand for 110 units would produce
revenues of ₱880 and total costs of ₱ 850, yielding a miniscule profit of
only ₱30. at this point, going for market share might be sacrificing
profits too much.
 One market research approach in estimating the demand, given the
different price levels, is to conduct a price tolerance survey of randomly
selected respondents.

Assuming that 100 respondents are chosen (at 90% confidence

level), the respondents should be asked whether they would buy a
product at, say, ₱10 a piece. After securing their answers, the
respondents should be queried if they would still buy at ₱12 apiece. The
surveyor should, subsequently, move up to the higher price levels.
There would be less and less respondents answering “yes” to the
question. The percentage of respondents answering “yes” at the
different price levels could be multiplied by the estimated population of
the target market to obtain the size of the demand.
 As mentioned earlier, prices could be set at a premium to project a
quality image and to distance the product from its inferior competitors.
The idea is to attract customers who are willing to pay extra for the
quality difference.

At the other end, prices can be set very low to survive in a

competitive market or to get rid of mounting inventories and convert
them into cash. The other objective of a low pricing strategy is to
penetrate the market fully and overtake the competition.

Products that are very scarce or rare would appeal to wealthier

customers who wish to belong to an exclusive club of owners.
 Cost recovery pricing charges a price that allows the organization to
merely recover its full costs. The purpose is to reinvest the sales
proceeds to produce additional products and reach out to more people.
Marginal pricing sets the price higher than the variable costs of a
product but lower than the full costs in order to increase overall
profitability. This practice is done to utilize excess production capacity
that would otherwise be unused.
There are other pricing objectives which the enterprise may have. It
may offer introductory or promotional pricing to launch a new product.
It may charge different prices in different geographical areas to take
care of additional logistics costs in farther locations or to
accommodate the lower purchasing power in poorer geographic areas.
Discount pricing may be given to loyal and regular customers to
maintain their patronage.
END