global pricing strategy

7/30/2019 Global Pricing Strategy

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Global Pricing Strategy 1

Manish Sharma - 06 MBA-IB 12

Saniya Mahajan - 19 MBA-IB 12


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Pricing is the process of determining what acompany will receive in exchange for itsproducts.

Pricing factors:

Manufacturing cost

Market place

Competition

Market condition Quality of product



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Pricing is a fundamental aspect of financialmodelling.

One of the four Ps of the marketing mix. The

other three aspects are Product, Promotion,andPlace.

Price is the only revenue generating elementamongst the four Ps, the rest being cost centres.



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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.



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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 inthe future (e.g. after a patent runs out).

Examples include: PlayStation, jewellery,digital technology, new DVDs, etc.



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Price set in accordance with customerperceptions about the value of theproduct/service.

Examples include status products/exclusiveproducts.



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Goods/Services deliberately sold below cost toencourage sales elsewhere.

Typical in supermarkets, e.g. at Christmas,

selling bottles of gin at 3 in the hope thatpeople will be attracted to the store and buyother things.

Purchases of other items more than covers

loss on item sold.



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In case of price leader, rivals have difficulty incompeting on price too high and they losemarket share, too low and the price leaderwould match price and force smaller rival outof market.

Where competition is limited, going ratepricing may be applicable banks, petrol,supermarkets, electrical goods find verysimilar prices in all outlets.



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Charging a different price for the samegood/service in different markets.

Requires each market to be impenetrable.

Requires different price elasticity of demand ineach market.



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Deliberate price cutting or offer of freegifts/products to force rivals (normallysmaller and weaker) out of business or prevent

new entrants. Anti-competitive and illegal if it can be proved.



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Full Cost Pricing Attempting to set price tocover both fixed and variable costs.

Absorption Cost Pricing Price set to absorb

some of the fixed costs of production.



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Marginal cost the cost of producing one extraor one feweritem of production.

MC pricing allows flexibility.

Particularly relevant in transport where fixedcosts may be relatively high.

Allows variable pricing structure.



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Contribution = Selling Price Variable (directcosts)

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.



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Calculation of the Average Cost (AC) plus amark up.

AC = Total Cost/Output



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Any pricing decision must be mindful of theimpact 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



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global pricing strategy

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