steps in pricing (costs)
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8/7/2019 Steps in Pricing (Costs)
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STEPS
FOLLOWED
IN PRICING
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Factors involved in price setting
1. Selecting the price objective
2. Determining Demand
3. Estimating Costs
4. Analysing competitor's cost, prices and offers
5. Selecting a pricing method
6. Setting a final price
Steps Involved in Setting the Price
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Determining Demand
Market Demand
Total volume that would be brought by adefined customer group in a defined geographical
area in a defined time period in a defined marketing
environment under a defined marketing program
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Determining Demand
Market Demand Function
MarketMinimum
Market Potential
Market Forecast ± Mkt demand corresponding tothe industry level expenditure
that actually happens
Distance between market minimum & Market
potential is the market sensitivity of demand
Expansible & Non ± ExpansibleMarkets
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Company Demand Function: Company's estimated share
of market demand at alternative levels of company's
marketing efforts
Determining Demand
Company Sales Forecast : Expected level of company
sales based on a chosen marketing plan and an
assumed marketing environment
Sales Quota , Sales Budget & Company Sales Potential
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E stimating Current Demand
AreaMarket Potential :
Market Build up
Method ± For business markets
Multiple Factor Index Method ± for Consumer Markets
Uses Brand development Index -- BDI
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State wise Sales of Tyres (all brands) & CEAT
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State wise Market Share of CEAT
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State wise BDI for CEAT
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E stimating Current Demand
Industry Sales &Market Shares
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E stimating Future Demand
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Forecasts are made at 3 levels
Macroeconomic Forecast
Industry Forecast
Company Forecast
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E stimating Future Demand
Survey of Buyer's Intentions
Composite of sales force opinions
Expert Opinion
Past Sales Analysis
Market Test Method
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Demand & Pricing
Price Sensitivity of Demand
Demand curve ± Plotting Vol vs Price
Price sensitivity of Demand Can be determined by:
Statistical Analysis
Price Experiments
Surveys
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E stimating Costs
Impact of Volume of Production on Costs
Accumulated Production
Activity Based Costing
Target Costing
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Break E ven Concept
Break - even Volume = Fixed Cost/ (Price ± Variable cost)
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ADAPTING
THE
PRICE
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Counter Trade
Barter ± Eg. Malayasian govt tied up with IRCON and gave
them palm oil as payment
Compensation Deal ± Similar to barter but part payment is cash
Eg. British Aircraft manufacturer sold planes to
Brazil at 70% cash and the rest was in coffee
Buyback Arrangement : Avon build plants in developingcountries and export outp
other countries
Offset Eg. Pepsi sold its products against vodkas & naval
vessels to Russia
Coke sells its products to Romania & Yugoslavia
against wine products
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Price Discounts & Allowances
Cash Discounts
Quantity Discounts
Functional Discounts
Seasonal Discounts
Allowance
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Promotional Pricing
Loss Leader Pricing
Special event pricing
Cash rebates
Low interest financing
Longer payment terms
Warranties & Service contracts
Psychological discounting
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Differentiated Pricing
Customer Segment Pricing ± Eg. Discounts to
Product form pricing ± Eg. Iodex cream & Sprays
Image pricing ± Eg. Perfume & Alcohol brands
Channel pricing ± Eg. Coke
Location pricing ± Eg. Taxation
Time pricing ± Eg. Happy Hours
Also called as Price Discrimination
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