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    Asdsc

    Uploaded by

    KUMAR FIRAKE

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Asdsc

    Uploaded by

    KUMAR FIRAKE
    5 views45 pages

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    asdsc

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    Copyright:

    © All Rights Reserved
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    5 views45 pages

    Asdsc

    Uploaded by

    KUMAR FIRAKE

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 45

    Pricing

    Concepts
    Leverage for profit
    Reinforce Brand standing
    Deliver Value
    Fight Competition
    Discussion Structure
    Pricing: Economics Vs Marketing

    Pricing Objectives

    Price Elasticity

    Understanding cost

    Pricing Methods

    Pricing Perspectives

    Adapting Price – Separate Presentation Deck


    Marketing Departs from Economics

    • Converting commodity to brand


    • Product and service Differentiation
    • Adding different layers of value
    • Segmentation/Targeting/ Positioning
    • Branding and Customer Connect
    • Optimization in the longterm Vs short term
    Marketing about creating value

    • Pricing is about sharing the value created with


    the customer

    • How much value to charge/recover and how


    much to leave with customer
    Impact of Price Increases

     1% increase in profit lead to 33.3% increase in profit.


     1% increase in volume would yield the same profit ONLY if ……
    Step 1: Selecting the Pricing Objective

    Maximum
    Survival
    current profit

    Deter Maximum
    Competition market share

    Maximum
    Product-quality
    market
    leadership
    skimming
    Step 1: Selecting the Pricing Objective
    Step 2. Understanding Demand and Price
    Elasticity
    • Price sensitivity.
    • Estimating demand curves
    – Surveys, price experiments,
    & statistical analysis
    • Price elasticity of demand
    Price Sensitivity

     Product related
     Product and awareness related
     Product intangibility/observability

     Buyer related
     Buyer related
     Value/materiality related
    • Ability to absorb/pass on
    • Total value

    • Value – perception related


    • Perishablility
    Elastic Demand Curve
    Inelastic Demand
    Price Sensitivity

    13. Ticket size is high


    14. Buyer can rent or share with
    others
    15. Need is not urgent
    Understanding Costs

    • Types of costs and levels of


    production
    – Fixed vs. variable costs
    – Total costs
    – Average cost
    Step 3: Estimating Costs

    • Accumulated production
    – Experience/learning curve
    Step 3: Estimating Costs
    • Target costing: Price less desired profit
    margin
    • Costs change with production scale and
    experience.
    • And over time thru R&D
    • Market research establishes desired price for
    value offered in competitive context.
    • This price less desired profit margin leaves
    the target cost the marketer must achieve.
    • Cost cutting cannot go so deep as to
    compromise the brand promise and value
    delivered.
    Iso-Profit Curve
    Step 4: Selecting a Pricing Method
    4C MODEL OF PRICING Possible Band for Pricing

    Low Price
    C C C High Price
    (No possible Competitor Customer (No possible
    profit at this Costs prices/price willingness demand at this
    price) of substitutes price)
    to pay

    Context
    Nature of product/ Price sensitivity/
    Perspective ( Time/objective)
    Pricing Methods
    1. A) Sales Price= Cost ( 1+ mark Up Margin %)
    1. B) Cost= (Dep + Interest on Capex)/volume +( Recurring fixed
    cost/ Volume)+ Variable
    1 C) Target-Return Pricing = (Fixed cost+ Depreciation) per
    annum/((SP- VC)* Volume)
    2 Perceived Value Pricing: Customers perceived value of total benefit
    derived
    3 Scale (for money) pricing– Operating to scale and passing on scale
    benefit to customers
    4 Strategic Pricing - based on context and objective
    5 Sealed-Bid Pricing- Enterprise pricing context
    Pricing Method 1: Target Return
    • Fixed Cost
    • Variable Cost
    • Break-even quantity = Fixed Cost/( Price- Variable
    Cost) per unit
    • Or
    • Break even Price per unit= (Fixed Cost/Quantity)+
    Variable Cost per unit
    Break-Even for Target-Return Price
    Pricing Method-2 Perceived Value

    How can I understand the Value


    that consumers will discover and
    can I get that full value

    Or deliberately leave something


    on the table for the consumer
    Pricing method- 3 Scale pricing

    True Economic value

    Marketing effort
    Scale : Economies
    Pass on to consumer
    Erect Barrier
    Perceived Customer's
    value incentive

    to buy

    Product
    Price Push the cost down and push
    the price down
    Firm's incentive
    to sell
    Cost of
    Goods Sold

    Rs. 0
    4. Strategic Pricing
    Retail Pricing context
    • Loss Leader
    • Drive Volume to drive
    costs lower
    • EDLP
    – Assurance
    – Best Deal
    – All the time
    Value of the resource- opportunity Based

    A scarce and valuable resource will


    search for the buyer who is ready to pay
    the highest price
    Spectrum/ Coal: auction-based price
    discovery
    Price & Quality
     Signals quality
    Is tangible---most other elements are not
    Signals whether the product is for me– can
    I afford it
    Signals association within and across
    category
    Price & Advertising Spend
     Firm’s price and marketing activities must work together.
     Two feasible strategies with respect to pricing and marketing efforts.
    New to market– No competition

    Skimming Pricing= Short term


    Extreme Opportunity based

    Opening day Movie ticket=


    Opportunity price
    ( Black market)
    One –time customer
    Location and time based

    Bus stand retail outlet= Sell


    unknown brand
    Price to recover value delivered

    Perceived Value Pricing=


    Segmenting and understanding
    customers
    Does TAPMI follow this Pricing Strategy
    Competition Checked Price

    Perceived Value Pricing=


    Segmenting and understanding
    customers subject to competition
    benchmark
    Long term

    Long term Pricing = Consumer


    perceived value less Consumer Surplus
    with intent to

    + Expand usage
    + Build Loyalty
    + Deter Competition
    Modular Price: Base+ Extra

    Value is variable by
    individual/time/context.
    How can we discover value and flex
    price is the art (of marketing)
    Car + Accessories
    Long term

     Upfront Price + recurring price=


    Lifetime Cost

     Lifetime benefit Vs Lifetime Cost


    Price and brand

    • Branding argues for price stability

    • Exclusive segment with ability to pay, creates opportunity


    for premium pricing
    Value and Price

    Which one you cant afford??


    Cars priced higher with airbags or
    Cars without airbags
    Changing Business MOdels
    • Internet

    – Achieve Customer
    share
    – Figure out revenue
    stream later
    – Following Media
    business model
    Pricing Method-5 Enterprise Pricing
    • Auction-type pricing: Auction-type pricing is growing more popular, especially with scores of
    electronic marketplaces
    • Competitive pricing context

    seller puts up an item and bidders raise their


    English (ascending) offer prices until the top price is reached.

    Seller announces a high price and then slowly


    Dutch (descending) decreases the price until a bidder accepts.
    Buyer announces need for a product and sellers
    compete to offer lowest price

    Sealed-bid auctions let would-be suppliers


    Sealed-bid submit only one bid; they cannot know the
    other bids.
    Typical Pricing Bloopers

     Price after I have become customer


     5 Star hotel charging for packaged food
     High cancellation charge
     Annual Maintenance cost not disclosed
     Shock pricing of spare parts & service
     Indigo charging for water, seat, check-in, Fare change
    Sum Up-1 : Selecting the Pricing Objective
    Sum Up 2- Pricing Methods
    • Core
    – Cost Based
    – Competition based
    – Perceived value based
    – Strategic pricing
    – Auction pricing

    • Key considerations
    – Usage Based: Leverage Elasticity
    – Create Entry barrier
    Sum Up 3- Strategic Pricing
    • Short Term
    – Opportunity
    – Market development
    – Stimulate Usage
    • Long Term
    – Profit
    – Volume
    • Customer centric
    – Transparent/Fair
    – Stability/predictable
    • Competition Benchmarked
    – Erect Barrier
    – Leader / Follower/ parity Pricing
    – Other category substitutes benchmarked
    • Bundle Pricing
    – Pure/ Mixed
    • Discriminatory Pricing
    – Time/Place/Segment
    Sum Up 4- Presenting the Pricing decision
    • Upfront
    – Upfront
    – Deferred
    • Bundling
    – Base
    – Accessories
    – Base+ Accessories
    • Entry pricing
    – Full amount upfront
    – Down payment+ EMI
    – EMI @ no interest cost
    • Other Value Proposition
    – Exchange offer
    – Repurchase offer
    – Upgrade offer
    • Promotional Pricing
    – Cash Rebates, Introductory pricing
    Have Fun
    learning

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