MODULE 3 PART 3: Marketing Aspects of New Ventures (Pricing)

Question 1

Primary step toward selecting the right and appropriate price for the product or service. (David, 2022)

Answer 1

• Pricing Objective

Question 2

(6) Different Objectives of Pricing:

Answer 2

1. Competition-based Objective
2. Cost-based Objective
3. Customer-value Objective
4. Market Share Objective
5. Sales Orientation Objective
6. Customer-driven Objective

Question 3

The level of competition within the industry determines the pricing strategy.

Answer 3

• Competition-based Objective

Question 4

The price of a product or service is determined by considering the total cost involved in its production.

Answer 4

• Cost-based Objective

Question 5

The value determines the price of a product or service or its benefits to customers.

Answer 5

• Customer-value Objective

Question 6

The pricing strategy is centered around two primary goals: expanding market share and cultivating strong customer awareness and loyalty.

Answer 6

• Market Share Objective

Question 7

Price is strategically designed to boost sales volume and maximize profits within a specific timeframe.

Answer 7

• Sales Orientation Objective

Question 8

The price is established depending on how much the customer is willing to pay.

Answer 8

• Customer-driven Objective

Question 9

This method involves calculating all costs associated with manufacturing a product or delivering a service then incorporating a predetermined markup to determine the appropriate selling price.

Answer 9

• Cost-Plus Pricing (Markup)

Question 10

Formula for Selling Price:

Answer 10

Selling Price = Cost per unit x (1 + Predetermined markup %)

Question 11

Percentage added to a product or service’s cost to determine its selling price.

Answer 11

• Predetermined markup percentage

Question 12

Refers to the profit level that a business aims to achieve over time. It is an assumption or estimated amount based on factors like cost of production, market competition, and inflation.

Answer 12

• Desired Profit

Question 13

The estimated amount a businessperson or entrepreneur wants to earn.

Answer 13

• Desired Revenue

Question 14

Formula for Markup Percentage:

Answer 14

Predetermined markup % = (Desired Profit / Total Cost of the product or service) x 100

Question 15

Formula for Desired Profit:

Answer 15

Desired Profit = (Desired Revenue - Total Cost of product or service)

Question 16

Steps for calculating Markup:

Answer 16

Example Problem in Pricing:

Example 1: Edward, a new entrepreneur wants to determine the selling price for the 7,000 ice cream pieces he made. He wants to earn P58,000.00, a 35% higher revenue from his total product costs. To determine the appropriate selling price of his product, he needs to calculate costs accurately.

Lists of Particular Costs:

Direct Materials
Milk = P4,000.00
Preservatives = P3,000.00
Freezer = P12,000.00
Total DM = P19,000.00

Direct Labor
Labor fee = P14,000.00
Total DL = P14,000.00 (P500 x (7,000pcs. Produced / 250pcs. Required)

Overhead Cost
Electricity fee = P900.00
Factory rent = P9,000.00
Total Overhead Cost = P9,900.00

Total Product Cost = P42,900.00

Desired Profit = (Desired Revenue - Total Cost of product or service)
= (P58,000.00 - P42,900.00)

Desired Profit = P15,100.00

Predetermined Markup % = (Desired Proft / Total cost of product or service) x 100
= (P15,100.00 / P42,900.00) x 100
= 0.35 x 100

Predetermined Markup % = 35%

Product Cost per Unit = Total Product Cost / Number of Units Produced
= P42,900.00 / 7,000 pieces of ice cream

Product Cost per Unit = P6.19 per piece

Selling Price = Cost per Unit x (1+ Predetermined markup %)
= P6.19 x (1 + 0.35)

Selling Price = P8.36 per piece