pricing decisions-3!12!12 [compatibility mode]
TRANSCRIPT
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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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COST BASED PRICING-3
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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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COST BASED PRICING-5
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COST BASED PRICING-6
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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- , ,
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
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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)