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PRICING

PARAMJIT SHARMA 1
PRICING

Price is the only Revenue….

….. Rest are costs

PARAMJIT SHARMA 2
WHAT IS PRICE FOR AN OFFERING ? PRICING

RENT FOR A BUILDING

Tariff for phone

Airlines,Rly.,Bus, Cab….Fare

Express way…..Toll
Can it be price ?
PARAMJIT SHARMA 3
Price…..Quality…..Segmentation
PRICING
SEGMENT AUTOMOBILES

ULTIMATE Rolls Royce


GOLD STD. Mercedes
LUXURY Audi
SPF. NEEDS Volvo
MIDDLE Buick
EASE/CONV. Ford Escort
ME TOO Hyundai
PRICE ALONE Kia

PARAMJIT SHARMA 4
Price…..Quality…..Segmentation
PRICING
SEGMENT AUTOMOBILES

.
LUXURY Mercedes
SPF. NEEDS Honda Civic
MIDDLE Octavia
CONV. Cheverolet Optra
EECONOMY Santro
ME TOO Alto
PRICE ALONE Maruti 800

PARAMJIT SHARMA 5
Price …..Quality ….Strategies
Price PRICING
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA 6
Price …..Quality ….Strategies
Price PRICING
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA 7
Price …..Quality ….Strategies
Price PRICING
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA 8
Price …..Quality ….Strategies
Price PRICING
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA 9
Perceived Delivered Value

H
PRICING
Missing
Opportunity

Price Paid
M Price = Value

Un harvested
Value

L
M Value Received H
PARAMJIT SHARMA 10
Factors in setting Prices
PRICING
1 4
Selecting pricing Analysing competitors
objective Costs,prices & offers

5
2
Selecting pricing
Determining
Method
Demand

3 6
Estimating Selecting the final
costs Price

PARAMJIT SHARMA 11
1 SELECTING PRICING OBJECTIVE
PRICING

Survival
Maximizing Current Profit
Max. Market Share
Max. Market Skimming
Maximising Product Quality
Non Profit Organizations.
PARAMJIT SHARMA 12
2 DETERMINING DEMAND
PRICING

Price Sensitivity
Estimating demand curves
Price elasticity of demand

PARAMJIT SHARMA 13
Price Sensitivity
PRICING

Unique value effect


Substitute awareness effect
Difficult comparison effect
Total expenditure effect
End benefit effect
Share cost effect
Sunk investment effect
Price quality effect
Inventory effect

PARAMJIT SHARMA 14
Measuring Demand-Price Relationship
PRICING

Statistical Analysis

Conducting Price
Experiments

Buyers Surveys

PARAMJIT SHARMA 15
Price Elasticity of Demand
PRICING
A Inelastic demand B Elastic demand

Price
price

1oo 105 50 150


Qty. demanded per period Qty. demanded per period

PARAMJIT SHARMA 16
3
Estimating PRICING
Costs
•Types & level of prod.
•Accumulated Production
•Differentiated mktg Offer
•Target costing

PARAMJIT SHARMA 17
Types of costs & level of Production
A cost behaviour in a fixed B cost behaviour over diff.
PRICING
size plant size plant

Cost per unit


Cost per unit

1000 1 2 3 4
Qty. produced per day Qty. produced per day

PARAMJIT SHARMA 18
Accumulated Production
PRICING

10

8
Cost per unit

1 2 4 8
Accumulated Production
PARAMJIT SHARMA 19
PRICING

4
ANALYSING COMPETITORS’

COSTS

PRICES &

OFFERS
PARAMJIT SHARMA 20
5 SELECTING PRICING METHOD PRICING

MARK UP PRICING
TARGET RETURN PRICING
PERCEIVED VALUE PRICING

VALUE PRICING
GOING RATE PRICING
SEALED BID PRICING
PARAMJIT SHARMA 21
SELECTING A PRICING METHOD

THREE Cs Model PRICING

HIGH
PRICE
Customers Low
Assessment of Comp price Costs price
No UPF Sub,Price
Possible Ceiling Price No
Ortn.Price Floor Price
demand Possible
profit

PARAMJIT SHARMA 22
Markup Pricing PRICING

Unit Cost Rs20 HIGH


---------------------- =------ = Rs25
( 1- Desired Return) 1-0.2

Seasonal
Slow Moving
High Storage
Life saving Drugs
PARAMJIT SHARMA 23
Target Return Pricing
PRICING

Desired Return* Invested Cap


Unit cost +----------------------------------
Unit Sales

PARAMJIT SHARMA 24
Perceived Value Pricing
PRICING
St. Offer Premium Added Value
Attributes
Offer
Quality Impurities10% Less than 1% 150

Delivery within 2 wks within 1wk 20

System supply ch’cal total system 80

Innovation less R& D High R & d 300

Service Regional Local 50

PARAMJIT SHARMA 25
PRICING
VALUE PRICING

EDLP Charging low for


High quality

Wal-Mart

PARAMJIT SHARMA 26
Save up to 80% on 2002's hottest toys!

 
PRICING

                             
             

$38.00
 

Was: $69.77

PARAMJIT SHARMA 27
PRICING

$26 $192 $41


Was Was Was
$32 $231 $61

PARAMJIT SHARMA 28
See the Big Games on a New TV
    PRICING
The football playoffs
are starting, so get
ready with a flat-
screen model,
projection TV or an
HDTV.
   
Philips 50-inch
Digital HDTV Monitor 50PP9202

$1,654.00

    Was
$1874

PARAMJIT SHARMA 29
Auction Pricing
PRICING

Dutch Auctions
English Auctions

Sealed-Bid
Auctions

PARAMJIT SHARMA 30
Effects on Different Bids

PRICING
Bid Profit Prob of Expected
getting bid profit
9500 100 81% 81

10000 600 36 216

10500 1100 9% 99

11000 1600 1% 16

PARAMJIT SHARMA 31
SELECTING THE FINAL PRICE
PRICING
M
M
Inf
PP
n y
l uen
ce m pa
C o
2 3

4
1 Im
l pac
ic a t
o g on
l ot
ho he
yc rs
Ps
PARAMJIT SHARMA 32
Adapting the
Price PRICING

Geographical demand & costs


Market Segment Requirements
Purchase Timings
Order levels
Delivery Frequency
Service Contracts
Guarantees………
PARAMJIT SHARMA 33
Geographical
PRICING

Discounts &
Allowances
Adapting
Promotional
The Price
Discriminatory

PARAMJIT SHARMA 34
Geographical
PRICING

Different or same price……


How to get paid

•Barter
•Compensation Deal
•Buyback
•offset
PARAMJIT SHARMA 35
Price Discounts
&
Allowances PRICING

Cash Discounts
Quantity Discounts
Functional Discounts
Seasonal Discounts
Allowance
Trade-in-Allowance
Promotional Allowance

PARAMJIT SHARMA 36
Promotional
Pricing PRICING

Loss Leader
Special Events
Cash Rebates
Low interest Financing
Longer Payment Terms
Warranties & Service Contracts
Psychological Discounting

PARAMJIT SHARMA 37
Discriminatory
Pricing PRICING

Customer Segment Pricing-Museums


Product Form Pricing-Cola Packing
Image Pricing-Perfumes
Channel Pricing-Rly Station..Theatre…5 star
Location Pricing-Balcony..Dress circle
Time Pricing..seasons….day…night

PARAMJIT SHARMA 38
PRICING
Product Line Pricing
Operational feature Pri.
Captive Product Pricing
Product-Mix Two part Pricing
Pricing By Product Pricing
Product Bundling Pricing

PARAMJIT SHARMA 39
PRICING

INITIATING PRICE
CUTS

•Low quality trap


•Fragile market share trap
•Shallow pocket trap

PARAMJIT SHARMA 40
PRICING

INITIATING PRICE
INCREASE

Over Demand
Inflation

PARAMJIT SHARMA 41
PRICING

Response To Over demand


Without Raising Price
Shrinking the product
Substitute materials
Reducing product features
Red. Product services
Using less Pac. Mat.
Red. The No. of sizes
Creating economy brand
PARAMJIT SHARMA 42
PRICING
Reactions
To
Price Changes

CUSTOMERS COMPETITORS

PARAMJIT SHARMA 43
PRICING

Maintain price &


Maintain price & Responding to
add value Competitors
Reduce price Price changes
Increase price &
Improve quality
Launch a low price
fighter line

PARAMJIT SHARMA 44
PRICING

PARAMJIT SHARMA 45