Pricing Decisions-3!12!12 [Compatibility Mode]

7/29/2019 Pricing Decisions-3!12!12 [Compatibility Mode]

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Session Coverage-Pricing Decisions

External and Internal Factors Affecting

Pricing ObjectivesPricing Approaches

Cost Based Pricing

Buyer Based Pricing

Com etition Based Pricin


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Session Coverage-Pricing Decisions

Product-mix Pricing Strategies

rce us men ra eges

Price Changes


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Price is amount of money and/or otherems w u y nee e o acqure a

product.


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The Importance of Price to Marketers

Pri in nl l m nt th t r

Revenue ; Other elements producet

Prices are the easiest marketing mix

Price communicates to the market the

'its product or brand


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The purpose of price is not to recover

,

of the product in the minds of the.

(Nimer)

Is this all?


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Current Pricing Trends in IndianMarkets

Product Price Rs Then Now Less

Weight(Grams)

1 LaysChips 20 68 61 72 GoodDayBiscuits 10 100 84.5 15.53 DairyMilkChocolate 20 50 38 124 BritanniaBread 12 400 375 255 Maggi 10 100 80 206 HaldiramSnacks 10 52 48 4

ux oapTimes of India-November 20, 2011


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CUSTOMERS MIND Some customers interested in low prices,

service, quality, value and brand image.

esearc ent e segment o

shoppersBrand loyal: relatively uninterested in price

S stem beaters: refer certain brands butbuy them at reduced price.


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CUSTOMERS MIND

brand or low price.

Study had differentiation in demographics.So, psychographic factors responsible fordifferent degree of price sensitivity. Value is

also very important


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Importance of Pricing-McKinsey

changes in price can translate into hugeim rovements in rofitabilit .

McKinsey found that a 1% increase

7% assuming no change in salesvolume.


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marketing through price.

1. Corporate & Marketing objective of firm

.

3. Characteristics of Product

. rce e as c y o eman5. Stage of product in its life cycle


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.

7. Extent of differentiation practiced

. ompos on o pro uc ne o pro uc s

9. Other elements of market mix of firm andtheir interaction with pricing.


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. ,

Customer and Competition).

3. Bargaining power of major customers4. Bargaining power of major suppliers

5. Com etitors ricin olic

6. Government control/regulation on pricing

.


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.

9. Understanding reached if any with price.


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Authors + Publishers = 75%

e a ers =

Suppose price of book is Rs 50 (37.50&12.5)

Author ets 10-15% of wholesale rice

. - .

Publishers Share= Rs 31.87-33.75


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Revised Editions- takes 1-1.5 years- ,

cover cost of MR, Art, Design, Production,

Distribution, Salaries of sales force, distributionof promotional material AND

OVERHEAD Costs-Office, Computers etc

Spend 15-20 lakh upfront.


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Personal and Operation Cost=50 %

Marketing Cost =13-15%

Taxes = 10-15%Income:

.Publisher = 7.5%

Retaile = 5


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ompanes ma c w a

COMPETITORS Charge for similar offerings

52% Com anies choose rice that cover

costs and provide fair profit.


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..

2. Profit optimization (to make somethingas goo as can e n ong erm.

3. Achieving a particular market share4. Deeper penetration in the market

.6. Keeping parity with competition


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.

weaker sections..stimulate economic development.

providers of essential commodities and public

.

Firms seek to meet basket of returns through.

SINGLE OBJ ECTIVE


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Firms use pricing for Variety of

ectves- , an Asian Paints Uses Price to Protect MS

M.Leader, 33% Share, but industry highly competitive.Has reduced prices of all items to protect MS.

British Airways (Enhance Profitability)

Started focusing of Business/Executive & Economy. .

LG (MS to Profitability)-Came in 2001-Objective wasvolume MS.Profits came down to 2% of sales in 2005.

Now objective is Profitability.

Have increased the prices and working on differentiation


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Setting the Price

2. Determinin Demand Price sensitivity

Estimating Demand Curves

Inelastic


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Setting the Price

3. Estimatin Cost

Fixed costs Variable cost

Average cost

Fixed cost:

Examples: Rent, Overhead, Salaries

Variable Cost

Changes with production

Examples: Cost of materials that go directly into the product, wages

Average Cost (= Total cost / No of units in Production)


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Settingthe Price

1. Cost based pricing

. eman ase r c ng

3. Competition Based pricing4. Value Pricing

.

6. Tender Pricing

. eren a e rc ng


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COST BASED PRICING-2

1. Mark-up Pricing/Cost plus pricing

. sorp on cos prcng u cos prcng

3. Target rate of return pricing


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-

Selling price of product is fixed by adding.

Slower the turnaround, larger mark-up

Used b com anies who do not have

manufacturing of their own.


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Mark-up or Cost Plus Pricing-4

1) Estimate Total Cost Per Unit

e.g., TOTAL COST + 30-50% or anything%

Problem

IGNORES demand

Advantage SIMPLE


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1. Target rate of return pricing

= .

b. Estimated Sales Volume = 80,000 units

c. = s , , ,

d. Target ROI = 20%

.20 x Rs10,000,00 =Rs 2,000,00 NeededProfit


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-

Total Cost + Profit

= s , , + s , , =

Rs12,000,00Unit Price

= REVENUE / VOLUME

= Rs12,000,00 / 80,000

.


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-


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- , ,

interrelated

associated cost level generates a.

When we consider different price level, we

ave eren pro eve s. Firm can accordingly project profits at

different price levels and chose the one

that suits them the most.


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(in Units) = (SP-VC)

(15.00-6.25)

5 71 428 units


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(in Rupees) = 1-(VC/SP)

, ,

1-(6.25/15)

, ,


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2. DEMAND BASED PRICING-1

.

2. Skimming Pricing

. ene ra on r c ng


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DEMAND BASED PRICING-2

.

axmum prce a a cus omer can pay.

Safe when demand is inelastic. Buyer opposition or new firms will create

difficult .


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DEMAND BASED PRICING-3

.

High Price+High profits at early stages, later.

For example: I-Pod, Mobile Phones


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2.DEMAND BASED PRICING-4

.

Penetration through low prices when new.

3 COMPETITION ORIENTED


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3. COMPETITION ORIENTED

-

Premium-Up

scoun - own

Parity or going rate pricing-Matchingprices of competitors


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Perceived Value Pricing (Offer more value than competitor and demonstrate it)

Perceived Value Price = F ( buyers image of product, channel deliverables, warranty quality,customer support, firm reputation, trustworthiness)

Value PricingLow price for high quality offering e.g. WalMart.

It is as much a philosophy as a method

One ricin strate basedonValuePricin isEDLP

Going Rate Pricing

Charge same as, less than or more than competitors prices

o ow t e ea er pr c ng s anot er exampe as n ommo ty o gopo es suc assteel, paper, fertilizers


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Value Pricing-Essence

Price>Value>Costs (Loss of Market Share)rce> os > a ue g ooser

Price=Value>Cost (Good)


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Promotional Pricing scrmna ory rc ng

Discounts and Allowances Product Mix Pricing

Product Line Pricin

Setting the Price


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g

Selectin the Final Price

Psychological Pricing

Reference rice

Brands with average relative quality but high relativeadvertising budgets charge premium prices

advertising budgets obtained the highest prices

The positive relationship between high advertisingbudgets and high prices held most strongly in thelater stages of the product life cycle for marketleaders

Company Pricing Policies Impact of Price on Other Parties

Discriminatory Pricing


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Loss-leader pricing -

Cash rebates

ow- n eres nanc ng

Longer payment terms

arrantes an servce contracts Psychological discounting


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--- loss leader pricing, special event pricing ( Going to school program of Bata), Cash rebates(as in

jeweler shops) low interest financing(0% for 12 months), longer payment terms,warranties / service contracts, psychological discounting(price high and then discount)

-- Geographical Pricing

-- Price Discounts and Allowances- , ,

certain functions), seasonal discount (off-peak buying), allowances (trade allowanceto resellers for participating in trade-ins, promotion allowance given to resellers forparticipating in advertisement and promotion programs of the firm)

-- Price discrimination

-- Product Mix Pricing- , ,

is low price and blade is high price), two part pricing(Mobile Phones)

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Pricing Decisions-3!12!12 [Compatibility Mode]