pricing for value mba

7/30/2019 Pricing for Value MBA

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Pricing for ResultsApproaches in Industrial Markets

Vinod Puri98206 94960 26314644


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Value

Directly related to

Product/Service Quality& Psychic

FactorsInversely to Price and Time

Perceived worth of economic financial &technical benefits received in exchange of

the price paid for the offering consideringcompetitive offerings


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Three Aspects of Customer Value

Psychological: CustomerIntimacy

Functional: Product Leadership

Economic: Operational Excellence


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A broad perspective needed in examining the costs aparticular alternative may present for the buyer.

Rather than making a decision on the basis of price alone,organizational buyers emphasize the total cost in use of a

particular product or service.

Customers Cost-in-Use Components


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Value Analysis

What provides value:

Ease in maintenance & handling

Fewer parts Convenience

Fast / easy operations

Greater accuracy Reduced Costs


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Process of Value Analysis

Define The Function: Primaryand Secondary

Value provided by Use, Cost &Esteem

Analysis equally important to find

what does not


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Cost-Based PricingPrice is set by calculating

the cost of an offering,then adding a standard

percentage profit.

Value-Based PricingPrice is set based on

perceived customer value.

Cost-Based vs. Value-Based Pricing

Cost-Based Price IssuesCosts depend on volume.

Costs assigned by

standard rates may have

no relationship to actual

costs.Price has no relationship

to customers perceptions

of the offerings worth.

Value-Based Price IssuesMore difficult to implement

than cost-based pricing.

Need to establish the

evaluated price(the price of

the offering from thecustomers perspective

after all costs associated

with the offering are

evaluated).


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Customers Perception of Value and

Evaluated Price


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Relevant Costs

must meet the following four criteria

Resultant

Costs

Avoidable

Costs

Forward-looking

Incremental

Costs

Realized

Costs


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Relevant Costs:On-going revenues must pay for on-going costs

Resultant

CostsCosts that result from the decision

Realized

CostsActual costs incurred

Forward-

looking

Incremental

Costs

Costs that will be incurred for the

next units of product sold whenthe decision is implemented

Avoidable

CostsCosts that would not be incurred

if the decision were not made to

launch the offering.


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Cost Classification System Goals

1. Properly classify cost data intotheir fixed and variablecomponents.

2. Properly link them to the activitycausing them.


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Analysis of Cost Concepts

1. Direct traceable orattributable costs.

2. Indirect traceable costs.3. General costs.


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Fig. 15.2

Key Components of the IndustrialPricing Process

There is no easy formula forpricing an industrial productor service.The decision ismultidimensional.The each interactivevariable assumessignificance.


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Price Objectives

The pricing decision must be basedon objectives congruent withmarketing and overall corporateobjectives.

The marketer starts with principalobjectives and adds additionalgoals:

1. Achieving a target return oninvestment,

2. Achieving a market-share goal,

3. Meeting competition.


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Sources of the Experience Effect

1. Learning by doing.

2. Technological

improvements.

3. Economies of scale.


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Competitive Bidding

Closed bidding, often used bybusiness and governmental buyers,involves a formal invitation topotential suppliers to submitwritten, sealed bids for a particularbusiness opportunity.

Open bidding is more informal andallows suppliers to make offers (oraland written) up to a certain date.


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Several Marketing Objectives Addressed by Pricing

Strategic Purposes

Achieve a target levelof profitability

Build goodwill in amarket

Penetrate of a newmarket or segment

Maximize profit for anew product

Keep competitors out

of an existingcustomer base

Tactical Purposes

Win new and importantcustomer business

Penetrate a newaccount

Reduce inventorylevels

Keep business ofdisgruntled customers

Encourage product trial

Encourage sales ofcomplementaryproducts


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Managing Pricing Tactics

BundlingSelling several products and/or services

together as one

Discounts &Allowances

Reductions in price for a special reason

(but some customers can get hooked onthem!)

Competitive

Bidding

Sealed bidsinvolve private bids bypotential suppliers. In open bids,

competitors see each others bids.

InitiatingPrice Changes

Need to react and change marketing

activities as events unfold, such as

changes by competitors or customers.


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Sources of the Experience Effect

1. Learning by doing.

2. Technological

improvements.

3. Economies of scale.


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Negotiating Situations in B2B Sales

Situation

Stand-alone

Transaction

Balanced betweenTransaction and

Relationship

Effectivebargainingstyles

Competitive;Problem solving

Problem solving;Compromising

Effectiveapproach Use of leverage

Seek commoninterests


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Preparation

in negotiation

is key

Know your customers needs

and their relative importance.

Know the price range anticipated

by the customer.

Know who has the authority tomake a final decision.

Know the bargaining styles of the

individuals involved in the

bargaining decision process.

Know whether the situation is

perceived as:

A transaction,

Part of a relationship, orA combination of the two


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Pricing and the Changing Business

Environment

As time pressures increase, marketers must react quicklyto changes in customer needs or competitor actions. Two

examples are hypercompetitionand the Internet.

Hypercompetition:

requires constant collection

of information on customer

value-cost models and

paying attention to yourcustomers customers and

their perceptions of value.

The Internet:

Improves communication,

increases both buyers and

marketers preparation. The

Internet also facilitates on-line auctions this is good

for commodities, but can

minimize relationships for

other products.

pricing for value mba

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