9_pricing strategy for business markets modified
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8/7/2019 9_Pricing Strategy for Business Markets modified
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Pricing Strategy forBusiness Markets
Dr. Neeraj Pandey
NITIE, Mumbai
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Concept of Value
Value = Utility to You/ Price you pay
Example: Niche Market, Feeling of security and friendship(reliability)
Customer value represents a business customer·s overallassessment of the utility of relationship with a supplier basedon benefits received and sacrifices made.
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Customer Value in Business Markets
Customer Value
Benefits Sacrifices
Core Benefits Add-on Benefits Acquisition Costs Processing Costs Usage Costs
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Broad perspective needed in examining the costs that any particularalternative may present for buyer.
Rather than deciding based on price alone, organizational buyers
emphasize the total cost in use of particular product or service.
Customers· Cost-in-Use Components
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Key Components of the Price-Setting Decision Process
No easy formula for pricingindustrial product or service
Decision is multidimensional.
Each interactive variable
assumes significance.
Set Strategic Pricing Objectives
Estimate Demand and the Price Elasticity of Demand
Determine Costs and their Relationship to Volume
Examine Competitors Prices and Strategies
Set the Price Level
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The Pricing Process in Business Markets
Four main factors affecting price in Business Markets is:
(1) Pricing Objectives
(2) Demand determinants
(3) Cost Determinants
(4) Competition
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Price Objectives
Pricing decision must be based on marketingand overall corporate objectives.
Marketer starts with principal objectives andadds collateral pricing goals:
± Achieving target return on investment.
± Achieving market-share goal.
± Meeting competition.
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Equation highlights how customers compare relative perceived values of twocompeting offerings.
Premium price differential, or perceived relative value, can be broken down
intocomponents
based oneach important attribute
: ± Value of the attribute to the buyer, and
± Perception of how competing offerings perform on that attribute
Relative Perceived Value of Two Product Offerings
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Price Elasticity of Demand
Percentage change in quantity demanded given aparticular percentage change in price.
Factors that influence price elasticity:
± Ease with which customers can comparealternatives.
± Importance of product in cost structure.
±
Value that product represents to customer.
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Cost Classification System Goals
Proper classification of cost data into fixed and variablecomponents.
Proper attribution of costs to activity creating them.
Cost-plus Pricing
Target Pricing
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Cost Concept Analysis
Direct traceable or attributablecosts
Indirect traceable costs
General costs (Overhead)
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Under certain conditions, followers entering a market may confront lower initialcosts than did the pioneer. By failing to recognize potential cost advantages of lateentrants, the business marketer can dramatically overstate costs differencesbetween earlier and later entrants.
SelectedCostComparison
Issues:FollowersVersus thePioneer
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Pricing New Products
Skimming
±
Appropriate for distinctly new products; provides the firm withopportunity to profitably reach market segments not sensitiveto high initial price.
± Enables marketer to capture early profits.
± Enables innovator to recover high developmental costs more
quickly
Penetration appropriate when:
± H igh price elasticity of demand,
±Strong threat of imminent competition,
± O pportunity for substantial production cost reduction asvolume expands
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Responding to Price Attacks by Competitors
Rather than emphasizing the lowest price, most businessmarketers prefer to compete on providing superior value.
Long-term strategic consequences of price wars
Ignore ² Accommodate - Retaliate Strategy
Accommodate : Launching a new low-cost version eg.Cerrus chip by Intel for cost-conscious market segment
Build Switching Cost Barriers
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Competitive Bidding
Normal Bidding ( Closed and Open)
Reverse Auctions (fear: commoditization; drive profit
margins down and reduces opportunity to develop mutuallybeneficial relationship)
Choose potential bid opportunities with care
Gaining initial contract at v low price to securelong-term follow-up business
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Competitive Strategy Rules
Never participate in competitive engagement youcannot win.
Always participate in competitive engagementfrom advantageous position. Don·t fight bycompetitors rule
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