Pricing for Industrial Goods

8/2/2019 Pricing for Industrial Goods

1/34

PRICE


2/34

Marketing of Industrial Goods2

Characteristics of Price

The factors like delivery, installation costs,

discounts, training costs, trade-in-allowances etc. influences the true price ofthe industrial goods

Pricing is also affected by product, promotionand distribution strategies.


3/34


Characteristics of Price (cont..)

Price of a particular product is decided by taking intoaccount other products that are substitutes orcomplements sold by the company

Price is more flexible decision area (changingquantity of goods provided by the seller, changingpremiums and discounts that are offered, changingthe time and place of payment. )


4/34


Characteristics of Price (cont..)

Prices are established by industrial bidding and in

many cases by means of negotiations

Industrial price increases are justifiable on basis ofcost increase or product improvement

Industrial prices are also affected by inflation,interest rate changes, and exchange rates.


5/34


Factors affecting industrial Pricing

Internal factors.

Pricing objectives Cost conditions

Pricing policies

External factors.

Competition

Demand conditions

Government regulations


6/34


Pricing objectives

Market Skimming

Market Penetration

Product Differentiation

Achieve Targeted ROI

Support Corporate Image

Discourage Competitor Entry Maintain and Improve Market Share

Meeting Competition


7/34


Market Skimming

Newly introduced product maximize the profit Heavy competition arises

Skimming is effective if the products arepatent protected or technologically complex


8/34


Market Penetration

Market penetration- low price

Suitable when price elasticity of demand is Marketer plans to capture huge amount of market

share

Used when competition is high

Volume are high and unit price gets lowered More complementary products would be sold

Large volume have to be sold

ROI is lower


9/34


Product differentiation

Unique Features of Product

Image, design, technology or customerservice

Company charge a premium for the product

Better Returns to the organization

Acts as a entry barrier due to the strongbrand loyalty


10/34


Demand Conditions

Demand is a derived demand

Industrial buyers consider factors likequality, service and delivery


11/34


Cost efficiency of firm

Cost efficiency of firm how favorable is the

fixed cost and variable cost as compared tothe competitors


12/34


Competition

Monopoly Patent products

Oligopoly


13/34


Factors related to competition

Firm size

1. Large sized firms- decide on fixing price

2. Medium sized firms fix price with reference tolarge sized firms

3. Small sized firms concentrate on segmentsoverlooked or ignored by the large players


14/34


Factors related to competition (cont..)

Product type

Technical and specialized

no price competition

Sole products cost is apportioned

Joint products demand for joint product canaffect the pricing.


15/34



Product life cycle

Market development Rapid growth

Saturation

Maturity

Decline


16/34



Price leadership

Firm that sets the price for a particularproduct is called as a price leader.

eg Steel, Oil, Cement industries.

Product Differentiation

If the product of the company is strong andunique it will be able to manipulate the price


17/34


Costs

Pricing decision is influenced by the costs of

production (fixed and variable) Cost flexibility extend on its cost efficiency

which is how favorable is the fixed andvariable costs compared to the competitors.


18/34


Market Characteristics

Demand Trends

Importance of product to business buyers

Trade characteristics


19/34


Exchange Rate

Firms which have international business

Price of imported products is affected Domestic price is also affected


20/34


Experience/ Learning Curve

Variable or volume-dependent cost decline

by predictable and constant percentage eachtime cumulative volume is doubled.

Volume depended phenomena


21/34


Experience/ Learning Curve (cont..)

Cost savings can be regulated by

Managerial decision making Product and process design

Distribution system

Marketing programs


22/34


Image of firm

Higher reputed firms can easily increase

price Image of the country affects the pricing

freedom

Poor quality image is a hindrance to better

price


23/34


Government factors

Export pricing is influenced by Government

Policies & Regulations Regulation of Margins

Price Floors and Ceiling

Subsidies

Tax Concessions and Exemptions (Dutydraw back scheme)


24/34


Government factors (Government

Policies & Regulations) cont

Incentives

Government Competition Taxes (customs duties, sales tax, excise

duties)

International Agreement


25/34


Pricing Objectives

Market Penetration

Low price

Market Share

Price is manipulated to increase the market share

Market Skimming New products introduced with higher price


26/34


Pricing Objectives (cont)

Fighting Competition

Reduction in price to fight against competitor Preventing New Entry

Price is reduced to restrict new entrants

Shorten pay back period

Retrieval of investment when market is uncertainand risky


27/34



Early Cash Recovery

Firm facing liquidity problem will adopt means torecover cash

Meeting Export Obligation

Price lower than cost

Disposal of surplus Form of dumping


28/34



Optimum Capacity Utilization

Achieving required quantity of export is objectiveof export pricing

Return on Investment

Profit Maximization


29/34


Pricing Decision

Company and Country image

Exchange Rates

Experience Curve

Government Factors

Market Characteristics

Strategic Objectives Costs

Competition


30/34


COST IN INDUSTRIAL PRICING

Cost and Supply conditions gives minimum

price the seller should get Demand and competitive conditions

determine the maximum price the seller cancharge


31/34


Types of costs in Industrial Marketing

Production cost

Selling and Delivery cost


32/34


Production cost

Fixed costs

Variable costs


33/34


Selling and Delivery cost


34/34


PRICING METHODS/ APPROACHES

Cost based pricing

Market Oriented Pricing

Following Competitors

Negotiated pricing

Customer determined pricing

Break-even price Marginal Cost pricing

Creative pricing

Documents

Pricing for Industrial Goods