- Ankur Rajput
FINANCIAL PERSPECTIVE
Pric e
Profit =
ECONOMICS PROFESSOR
What do you Think, Feel, and Believe when it comes to {price}?
{Price}
the
pricing for maximum impact
is
RIGHT
{Marketing} Specialist
customer
customer customer
customer
customer
This is the {only} Thought, Feeling, or Belief that matters!
INTRODUCTION
Developing a pricing strategy is a continuous marketing process and is undertaken when:
1. 2. 3. 4. 5. 6. 7.
A new product is introduced An existing product is revised The competitive environment changes A product moves through its life cycle A competitor initiates a price change Costs rise or fall dramatically The firms prices come under government scrutiny
HOW ???
Need to decide what position you want your product to be in. Ex; Tata Nano / Fiat 500
PRICE {QUALITY STRATEGIES}
Philip
Kotler identified 9 price-quality strategies.
High Price High Quality Premium High Value Over Charging Rip-off Mid Value False Economy Low Price Super Value Good Value Economy
Low Quality
PRICING {PROCESS}
1. 2. 3.
Set Pricing Objectives. Analyze demand Draw conclusions from competitive intelligence Select pricing strategy appropriate to the political, social, legal and economical environment
4.
POSSIBLE PRICING {OBJECTIVES}
Profit
objectives
Ex; Targeted profit return
Volume
objectives e.g.
Ex; Market share growth
Other
objectives e.g.
Ex; Match competitors price
DEMAND {ANALYSIS}
Measure
the impact of price change on total revenue. unit sales volume and total revenue for various price levels. customers have different price sensitivities and needs
Predicts
Different
TYPES OF {PRICING}
PENETRATION {PRICING}
PENETRATION {PRICING}
Price set to penetrate the market. Low price to secure high volumes. Typical in mass market products chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles. May be useful if launching into a new market.
MARKET {SKIMMING}
MARKET {SKIMMING}
High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc.
Plasma screens: Currently at high prices but for how long?
VALUE {PRICING}
VALUE {PRICING}
Price set in accordance with customer perceptions about the value of the product/service Examples include status products/exclusive products
Companies may be able to set prices according to perceived value.
LOSS {LEADER}
LOSS {LEADER}
Goods/services
deliberately sold below cost to encourage sales elsewhere. in supermarkets, e.g. at Christmas, selling bottles of gin at 3 in the hope that people will be attracted to the store and buy other things. of other items more than covers loss on item sold.
Typical
Purchases
PSYCHOLOGICAL {PRICING}
PSYCHOLOGICAL {PRICING}
Used to play on consumer perceptions. Classic example - 9.99 instead of 10.99! Links with value pricing high value goods priced according to what consumers THINK should be the price
GOING RATE {PRICE LEADERSHIP}
GOING RATE {PRICE LEADERSHIP}
Rivals have difficulty in competing on price they lose market share and the price leader would match price and force smaller rival out of market. May follow pricing leads of rivals especially where those rivals have a clear dominance of market share. Where competition is limited, going rate pricing may be applicable banks, petrol, supermarkets, electrical goods find very similar prices in all outlets
TENDER {PRICING}
TENDER {PRICING}
Many
basis.
contracts awarded on a tender
Firm
(or firms) submit their price for carrying out the work. then chooses which represents best value. done in secret
Purchaser
Mostly
PRICE {DISCRIMINATION}
PRICE {DISCRIMINATION}
Charging a different price for the same good/service in different markets. Requires each market to be impenetrable. Requires different price elasticity of demand in each market.
DESTROYER {PRICING}
DESTROYER {PRICING}
Deliberate price cutting or offer of free gifts/products to force rivals (normally smaller and weaker) out of business or prevent new entrants Anti-competitive and illegal if it can be proved.
Microsoft have been accused of predatory pricing strategies in offering free software as part of their operating system Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market.
ABSORPTION / FULL COST{PRICING}
ABSORPTION / FULL COST{PRICING}
Full
Cost Pricing attempting to set price to cover both fixed and variable costs. Cost Pricing Price set to absorb some of the fixed costs of production. Industry.
Absorption
Manufacturing
MARGINAL COST{PRICING}
MARGINAL COST{PRICING}
The
cost of producing ONE extra or ONE fewer item of production. relevant in transport where fixed costs may be relatively high. variable pricing structure.
Particularly
Allows Ex;
Hotel Industry: and extra bed
CONTRIBUTION {PRICING}
CONTRIBUTION {PRICING}
Contribution = Selling Price Variable (direct costs)
Prices
set to ensure coverage of variable costs and a contribution to the fixed costs Similar in principle to marginal cost pricing Break-even analysis might be useful in such circumstances
TARGET {PRICING}
TARGET {PRICING}
Setting price to target a specified profit level. Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the markup. Mark-up = Profit/Cost x 100
COST {PLUS PRICING}
COST {PLUS PRICING}
fixed costs
+
variable costs
TOTAL COSTS
DESIRED MARGIN
PRICE
Rs.
VALUE {BASED PRICING}
customer value
price
INFLUENCE OF {ELASTICITY}
INFLUENCE OF {ELASTICITY}
Any pricing decision must be mindful of the impact of price elasticity The degree of price elasticity impacts on the level of sales and hence revenue Elasticity focuses on proportionate (percentage) changes PED = % Change in Quantity demanded/ % Change in Price
DISCUSSION: IMPACT OF ETHICS ON PRICING
How
should you price if your product is a life-saving drug? are the ethical considerations?
What
Customers have no choice Need to pay for the research When cheaper options doesnt work Competition decides
INFORMATION NEEDED FOR PRICE CHANGE
Customers
ability & willingness to buy; customer lifestyle; benefits sought; characteristics of the product.
Ex; Cup of Tea at hotel & Cutting Chai
Need
to know everything about the competitors
HOW MUCH FLEXIBILITY IN PRICE?
Depends
on the Demand-Cost gap and the influence of competition, social, legal and ethical considerations Example: Life-saving drugs
PRODUCT-LINE PRICING
When
pricing products in different lines, must take cross-elasticities of demand across the set of products into consideration. idea is to maximize the profits of the entire organization rather than that of a single product or a single line
The
PRICE WAR
Price wars are frequent in industries where Cost differentiation opportunities exists Capital is intensive and products are homogeneous Examples: Airfares, ISP, Petrol, & Loans e.g.
The Home Loan price war in Singapore in Sept 2000 involving OUB, UOB, DBS among others
Thank You
