pricing strategies ppt @ bec doms mba bagalkot

8/2/2019 Pricing Strategies Ppt @ Bec Doms Mba Bagalkot

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Pricing StrategiesPricing Strategies


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OutlineOutline

IntroductionIntroduction

Pricing strategies and processPricing strategies and process

Reactions to price changesReactions to price changes

Impact on discountingImpact on discounting


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IntroductionIntroduction

We need to set price when we have aWe need to set price when we have anew product, or when we enter a newnew product, or when we enter a new

market with an existing productmarket with an existing product

How?How?Need to decide what position you wantNeed to decide what position you want

your product to be in (see quality-priceyour product to be in (see quality-pricerelationshipnext slide)relationshipnext slide)


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Price-Quality StrategiesPrice-Quality Strategies

Philip Kotler identified 9 price-qualityPhilip Kotler identified 9 price-qualitystrategiesstrategies

PremiumHigh

Value

Super

Value

OverCharging

MidValue

GoodValue

Rip-offFalse

EconomyEconomy

High Qualityigh Quality

Low Qualityow Quality

High Priceigh Price Low Priceow Price


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Pricing ProcessPricing Process

1.1. Set Pricing Objectives (see next slide)Set Pricing Objectives (see next slide)2.2.Analyze demandAnalyze demand

3.3. Draw conclusions from competitiveDraw conclusions from competitiveintelligenceintelligence

4.4. Select pricing strategy appropriate toSelect pricing strategy appropriate tothe political, social, legal andthe political, social, legal andeconomical environmenteconomical environment

5.5. Determine specific pricesDetermine specific prices


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Possible Pricing ObjectivesPossible Pricing Objectives

Profit objectives e.g.Profit objectives e.g.Targeted profit returnTargeted profit return

Volume objectives e.g.Volume objectives e.g.Dollar or unit sales growthDollar or unit sales growth

Market share growthMarket share growth

Other objectives e.g.Other objectives e.g.Match competitors priceMatch competitors price

Non-price competitionNon-price competition


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Discussion: Impact of Ethics onDiscussion: Impact of Ethics on

PricingPricing

How should you price if your product isHow should you price if your product isa life-saving drug?a life-saving drug?

What are the ethical considerations?What are the ethical considerations?Customers have no choiceCustomers have no choice

Need to pay for the researchNeed to pay for the research

When cheaper options doesnt workWhen cheaper options doesnt workCompetition decidesCompetition decides


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New-Product Pricing StrategiesNew-Product Pricing Strategies

1.1. Skimming pricingSkimming pricing Charging a high price initially and reducingCharging a high price initially and reducing

the price over timethe price over time

Commonly used when introducing new &Commonly used when introducing new &innovative productsinnovative products

1.1. Penetration pricingPenetration pricing

Charging a low price when entering theCharging a low price when entering themarket to capture market sharemarket to capture market share


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New-Product PricingNew-Product Pricing

Strategies (contd)Strategies (contd)

3.3. Intermediate pricingIntermediate pricing Pricing somewhere in between thePricing somewhere in between the

skimming strategy and the penetrationskimming strategy and the penetrationstrategystrategy


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Pricing Strategies for EstablishedPricing Strategies for Established

ProductsProductsThree strategic alternatives:Three strategic alternatives:

Maintain the price if you are the leader e.g.Maintain the price if you are the leader e.g.

In 1999, Shell in Singapore maintained its price whenIn 1999, Shell in Singapore maintained its price whenother petrol companies engaged in a price war untilother petrol companies engaged in a price war until

towards the end of the engagementtowards the end of the engagement

Reduce the price e.g.Reduce the price e.g.

In this regularly we need to reduce price inIn this regularly we need to reduce price inanticipation of the developing market situationsanticipation of the developing market situations

Increase the priceIncrease the price during inflation, or if demand is expected to increase orduring inflation, or if demand is expected to increase or

if you wish to harvest e.g. in Indonesiaif you wish to harvest e.g. in Indonesia


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Price-Flexibility StrategyPrice-Flexibility Strategy

One-price policysetting one fixedOne-price policysetting one fixedprice for all marketsprice for all markets

Flexible-price policysetting differentFlexible-price policysetting differentprices in different markets based on:prices in different markets based on:

Geographic Location,Geographic Location,

Time of delivery, orTime of delivery, orThe complexity of the productThe complexity of the product


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How much flexibility in price?How much flexibility in price?

Depends on the Demand-Cost gap andDepends on the Demand-Cost gap and

the influence of competition, social,the influence of competition, social,legal and ethical considerationslegal and ethical considerations

Example: Life-saving drugsExample: Life-saving drugs


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Penetration PricingPenetration Pricing


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Market SkimmingMarket Skimming

Plasma screens: Currently athigh prices but for how long?


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Value PricingValue Pricing

Companies may be able to set pricesaccording to perceived value.

Companies may be able to set pricesaccording to perceived value.


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Loss LeaderLoss Leader


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Psychological PricingPsychological Pricing


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Going Rate (Price Leadership)Going Rate (Price Leadership)

T d P i iT d P i i


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Tender PricingTender Pricing

A European consortium led by Airbus recently

won a contract to supply refuelling services tothe RAF priced at 13 billion!


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Price DiscriminationPrice Discrimination

Prices for rail travel differ for thesame journey at different timesof the day


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Destroyer Pricing/PredatoryDestroyer Pricing/Predatory

PricingPricing


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Microsoft have been accused of predatorypricing strategies in offering free software aspart of their operating system InternetExplorer and Windows Media Player - forcingcompetitors like Netscape and Real Player outof the market.


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Absorption/Full Cost PricingAbsorption/Full Cost Pricing


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Marginal Cost PricingMarginal Cost Pricing


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Marginal Cost PricingMarginal Cost Pricing

Example:Example:

Aircraft flying from Bristol to Edinburgh Total Cost (includingnormal profit) = 15,000 of which 13,000 is fixed cost*

Number of seats = 160, average price = 93.75

MC of each passenger = 2000/160 = 12.50

If flight not full, better to offer passengers chance of flying at12.50 and fill the seat than not fill it at all!

*All figures are estimates only


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Contribution PricingContribution Pricing


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Target PricingTarget Pricing


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Cost-Plus PricingCost-Plus Pricing


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Influence of ElasticityInfluence of Elasticity


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New Product Pricing StrategiesNew Product Pricing StrategiesNew Product Pricing StrategiesNew Product Pricing Strategies

Market SkimmingMarket Skimming Market PenetrationMarket Penetration

>Setting a HighPrice for a NewProduct toMaximizeRevenues from theTarget Market.

>Results in Fewer,More ProfitableSales.

> Setting a Low Pricefor a New Product inOrder to Attract aLarge Number ofBuyers.

>Results in a Larger

Market Share.


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PRICE DISCRIMINATIONPRICE DISCRIMINATION

Price discriminationPrice discriminationis the businessis the businesspractice of selling the same good atpractice of selling the same good at

different prices to different customers,different prices to different customers,even though the costs for producing foreven though the costs for producing for

the two customers are the same.the two customers are the same.


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Price discrimination is not possible when aPrice discrimination is not possible when agood is sold in a competitive market sincegood is sold in a competitive market sincethere are many firms all selling at the marketthere are many firms all selling at the market

price. In order to price discriminate, the firmprice. In order to price discriminate, the firmmust have somemust have some market powermarket power..

Perfect Price DiscriminationPerfect Price Discrimination Perfect price discrimination refers to the situationPerfect price discrimination refers to the situation

when the monopolist knows exactly the willingnesswhen the monopolist knows exactly the willingnessto pay of each customer and can charge eachto pay of each customer and can charge eachcustomer a different price.customer a different price.


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Two important effects of priceTwo important effects of pricediscrimination:discrimination:

It can increase the monopolists profits.It can increase the monopolists profits. It can reduce deadweight loss.It can reduce deadweight loss.


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Examples of Price DiscriminationExamples of Price DiscriminationMovie ticketsMovie tickets

Airline pricesAirline pricesDiscount couponsDiscount coupons

Financial aidFinancial aid

Quantity discountsQuantity discounts


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TREND PROJECTION METHOD

This method is essentially concerned with the study of

movement of variables through time. The use of this methodrequires a long & reliable time series data

There are 3 techniques of trend projection based on time-

series data

Graphical method

Fitting trend eqn./ least square method

Box-Jenkins method.


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Time-Series AnalysisTime-Series Analysis

Secular TrendSecular Trend Long-Run Increase or Decrease in DataLong-Run Increase or Decrease in Data

Cyclical FluctuationsCyclical Fluctuations Long-Run Cycles of Expansion andLong-Run Cycles of Expansion andContractionContraction

Seasonal VariationSeasonal Variation

Regularly Occurring FluctuationsRegularly Occurring Fluctuations

Irregular or Random InfluencesIrregular or Random Influences


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Trend ProjectionTrend Projection

Linear Trend:Linear Trend:SStt = S= S00 + b t+ b t

b = Growth per time periodb = Growth per time period Constant Growth RateConstant Growth Rate

SStt = S= S00 (1 + g)(1 + g)tt

g = Growth rateg = Growth rate Estimation of Growth RateEstimation of Growth Rate

lnSlnStt = lnS= lnS00 + t ln(1 + g)+ t ln(1 + g)


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Analysis of Time Series Analysis

A time series is a set of observations taken at specified times, usually at

equal intervals

Mathematically noted as Y1, Y2 Y3 Y4 ..

Classification components of time series analysis

Long term secular movements: General direction in which the graph of a timeseries appears to be l0ong over along period of time

Also called as secular variation trend

2. Cyclical movements: refers to long term oscillations or swings about a trend

line or curve

May or may not be periodic

Eg: business cycle


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3. Seasonal Movements /Seasonal variations: refers to identical which a time

series appears to fallow during corresponding months of successive years

4. Irregular or random movements: refers to sporadic motions of time seriesdue to chance events such as floods, strikes, elections etc.,


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Estimationof trend

Method of least squares

Free hand method

Moving average method

Method of semi averages

Estimation of seasonal variations

Average percentage method

percentage trend/ ratio to trend method

Percentage moving average

Types of market structure


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Types of market structure

Mkt strkt str No. of firms ando. of firms anddegree of productegree of productdifferentiationifferentiation

Nature of industry whereature of industry whereprevalentrevalent Control overontrol overpricerice Method of marketingethod of marketing

PerfectPerfect Large no. of firmsLarge no. of firms

with identicalwith identical

productsproducts

Financial markets and someFinancial markets and some

farm productsfarm productsnonenone Market exchangeMarket exchange

or auctionor auction

ImperfectImperfect

MonopolisticMonopolistic Many firms withMany firms withreal or perceivedreal or perceived

productproduct

differentiationdifferentiation

Manufacturing:Manufacturing:tea,toothpastes,TV sets,tea,toothpastes,TV sets,

shoes, refrigerators etc.,shoes, refrigerators etc.,

NoneNone CompetitiveCompetitiveadvertising,advertising,

quality rivalryquality rivalry

OligopolyOligopoly Little or no productLittle or no product

differentiationdifferentiationAluminum, steel,Aluminum, steel,

cigratees,cars, etc,cigratees,cars, etc,SomeSome CompetitiveCompetitive

advertising,advertising,

quality rivalryquality rivalryMonopolyMonopoly A single producer,A single producer,

without closewithout close

substitutesubstitute

Public utilities: telephones,Public utilities: telephones,

electricity etc.,electricity etc.,ConsiderableConsiderable

but usuallybut usually

regulatedregulated

PromotionalPromotional

advertising ifadvertising if

supply is largessupply is larges


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Economics of scale

Two types

Internal/real economics

External/Pecuniary economics


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Internal economics: are those arise from the expansionof the plant-size of the firm and are internalizes.this means that

internal economics are exclusively available to the expanding

firm. Internal economics may be classified under the following

categoriesEconomics in production

Economics in marketing

Managerial Economics

Economics in transport and storage


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External / pecuniary economics of scale

Accrue to the expanding firms from the advantages arising outsidethe firm. E.g. input markets

Large scale purchase of raw material

Large scale acquisition of external finance

Massive advertisement campaigns

Large scale hiring of means of transport and warehouses etc.,


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Diseconomies of scale

Are disadvantages that arise to the expansion ofproduction scale and lead to a rise in the cost of production

Reasons

Internal diseconomies

Managerial inefficiency

Labour inefficiency

External diseconomies

pricing strategies ppt @ bec doms mba bagalkot

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