8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 1/22

STEPS

FOLLOWED

IN PRICING

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 2/22

ITM Business School, Navi Mumbai

Factors involved in price setting

1. Selecting the price objective

2. Determining Demand

3. Estimating Costs

4. Analysing competitor's cost, prices and offers

5. Selecting a pricing method

6. Setting a final price

Steps Involved in Setting the Price

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 3/22

ITM Business School, Navi Mumbai

Determining Demand 

Market Demand

Total volume that would be brought by adefined customer group in a defined geographical

area in a defined time period in a defined marketing

environment under a defined marketing program

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 4/22

Determining Demand 

Market Demand Function

MarketMinimum

Market Potential

Market Forecast ± Mkt demand corresponding tothe industry level expenditure

that actually happens

Distance between market minimum & Market

 potential is the market sensitivity of demand

Expansible & Non ± ExpansibleMarkets

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 5/22

Company Demand Function: Company's estimated share

of market demand at alternative levels of company's

marketing efforts

Determining Demand 

Company Sales Forecast : Expected level of company

sales based on a chosen marketing plan and an

assumed marketing environment

Sales Quota , Sales Budget & Company Sales Potential

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 6/22

ITM Business School, Navi Mumbai

E stimating Current Demand 

AreaMarket Potential :

Market Build up

Method ± For business markets

Multiple Factor Index Method ± for Consumer Markets

Uses Brand development Index -- BDI

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 7/22

ITM Business School, Navi Mumbai

State wise Sales of Tyres (all brands) & CEAT

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 8/22

ITM Business School, Navi Mumbai

State wise Market Share of CEAT

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 9/22

ITM Business School, Navi Mumbai

State wise BDI for CEAT

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 10/22

ITM Business School, Navi Mumbai

E stimating Current Demand 

Industry Sales &Market Shares

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 11/22

E stimating Future Demand 

ITM Business School, Navi Mumbai

Forecasts are made at 3 levels

Macroeconomic Forecast

Industry Forecast

Company Forecast

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 12/22

E stimating Future Demand 

Survey of Buyer's Intentions

Composite of sales force opinions

Expert Opinion

Past Sales Analysis

Market Test Method

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 13/22

Demand & Pricing 

Price Sensitivity of Demand

Demand curve ± Plotting Vol vs Price

Price sensitivity of Demand Can be determined by:

Statistical Analysis

Price Experiments

Surveys

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 14/22

E stimating Costs

Impact of Volume of Production on Costs

Accumulated Production

Activity Based Costing

Target Costing

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 15/22

ITM Business School, Navi Mumbai

Break E ven Concept 

Break - even Volume = Fixed Cost/ (Price ± Variable cost)

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 16/22

ADAPTING

THE

PRICE

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 17/22

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 18/22

Counter Trade

Barter ± Eg. Malayasian govt tied up with IRCON and gave

them palm oil as payment

Compensation Deal ± Similar to barter but part payment is cash

Eg. British Aircraft manufacturer sold planes to

Brazil at 70% cash and the rest was in coffee

Buyback Arrangement : Avon build plants in developingcountries and export outp

other countries

Offset Eg. Pepsi sold its products against vodkas & naval

vessels to Russia

Coke sells its products to Romania & Yugoslavia

against wine products

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 19/22

Price Discounts &  Allowances

Cash Discounts

Quantity Discounts

Functional Discounts

Seasonal Discounts

Allowance

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 20/22

Promotional Pricing 

Loss Leader Pricing

Special event pricing

Cash rebates

Low interest financing

Longer payment terms

Warranties & Service contracts

Psychological discounting

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 21/22

Differentiated Pricing 

Customer Segment Pricing ± Eg. Discounts to

Product form pricing ± Eg. Iodex cream & Sprays

Image pricing ± Eg. Perfume & Alcohol brands

Channel pricing ± Eg. Coke

Location pricing ± Eg. Taxation

Time pricing ± Eg. Happy Hours

 Also called as Price Discrimination

ITM Business School, Navi Mumbai

8/7/2019 Steps in Pricing (Costs)

http://slidepdf.com/reader/full/steps-in-pricing-costs 22/22