Professional Documents
Culture Documents
Creating Value
Capturing Value
Communicating Value
Delivering Value
Sustaining Value
The art & science of choosing, acquiring,
retaining, growing customers through
creating, delivering & communicating
superior customer value
Agenda
Gain a Better understanding on importance of
Pricing?
Develop a systematic approach to deciding
pricing
How to respond to Price wars?
Revenue
Producer
Cost
Cost
Pricing
How many of you involved in the pricing
decisions in your business?
Price Rs
Units Sold
Revenue
Costs Rs
Profits Rs
Now
10
100
1000
-970
30
If
10.1
100
1010
-970
40
Then
1%
33.33%
Pricing right is the fastest and most effective way for managers to increase profits.
Pricing
$31.50
Bargaining
$33.50
$29.99
$19.99
$24.99
Selective Pricing
Negotiate Prices
Monitor Customers
Pricing Department
A Black T-Shirt
Armani
Rs 2750
Benetton
Rs 1490
FM Rs 490
Reference Prices
Fair price, Last paid price,
Max/ Min bound price, Usual
discounted price, expected
future price
99
$1.
Price Endings
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
Determining Demand
Price sensitivity
Estimating demand curves
Price Elasticity of Demand
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
Estimating Costs
Types of costs
Fixed Costs
(overhead)
Variable Costs
Total Costs
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
Reaction
Worth to Customer
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
Pricing Methods
Markup
Target-return
Perceived-Value
Value
Going-rate
Auction-type
Markup Pricing
Variable cost per toaster
$10
Fixed costs
$300,000
50,000
Target-Return Pricing
The firm determines the price that yields its target rate of ROI.
Public utilities, which need to make a fair return on investment,
often use this method.
Perceived-Value Pricing
Customers perceived-value
Performance $$$
Warranty $
Customer support $
Reputation $$
(trustworthiness, esteem)
LOW PRICES
EVERY DAY
Level of
Quality
P1
C1
P2 C2
High
Pricing
Low
Going-Rate Pricing
popular for commodities such as steel, paper, and fertilizer
as all firms normally charge the same price.
Commodities
Auction Pricing
English auction
(ascending bids)
Dutch auction
(descending bids)
Sealed-bid auction
Medium
Premium
Strategy
High Value
Strategy
Low
Super Value
Strategy
High
Medium
Overcharging
Medium Value
Good Value
Rip-Off
False Economy
Economy
Strategy
Low
QUALITY
High Price
(No possible
demand at this price)
Ceiling price
Three Cs
Model for
Price Setting
Customers assessment
of unique product
features
Orienting point
Competitors prices
and prices of
substitutes
Costs
Floor Price
Low Price
(No possible
profit at this price)
4 Competitor Analysis
3
Estimate Costs
2 Determine Demand
Pricing Objective
Brand
Quality
Impact on others
parties
Distributors, retailers, customers, competition, legal.
Will any intervene or react?
Pricing Policies
Airlines for changes in bookings, Banks for credit card, Hotels for no shows
Gain-and-risk-sharing
Price Discounts
and Allowances
Differentiated Pricing
Promotional Pricing
Geographical demand and costs, market-segment requirements, purchase timing,
order levels, delivery frequency, guarantees, service contracts, and other factors affect pricing
Differentiated Pricing
Customer-segment pricing: Eg Students,
service personnel, senior citizens
Product-form pricing: Pharma, Water (not
Differentiated Pricing
proportional)
Image pricing: Fragrances
Channel pricing: CSD, water
Location pricing: Theatres, airlines
Time pricing: Hotels, airlines, utilities, pubs
Cutting Prices
Competitor Moves
Low-quality trap
Fragile-market-share trap (mkt share but know loyalty)
Shallow-pockets trap (no staying power)
Price-war trap
Raising Prices
Why?
Cost inflation, Over demand
How?
Delayed quotation pricing: Does not set a final price until
the product is finished or delivered (industrial construction
and heavy equipment)
Escalator clauses: Inflation protection for major industrial
projects, such as aircraft construction and bridge building
Unbundling: Cars & features/ models
Reduction of discounts: sales force not to offer its normal
cash and quantity discounts
Further 16.3%
revenue
reduction