Professional Documents
Culture Documents
7 TH
7 TH
Marketing
SHAILENDRA MATHUR
Key Learnings – from Previous Class
SHAILENDRA MATHUR
AGENDA
• WHY PRICE IS A CRUCIAL ELEMENT
• FACTORS INFLEUNCING PRICING STRATEGY
• PRICING STRATEGY
• PRICING POLICIES
• Q&A
• TAKE HOME POINT
WHY PRICING IS A CRUICIAL ELEMENT
• BUYER’S PERSPECTIVE – A MUST
• COST WEIGHED AGAINST PRODUCT QUALITY
• COST WEIGHED AGAINST PRODUCT FEATURES
• COST WEIGHED DELIVERY
• COST WEIGHED AGAINST SERVICE
• COST WEIGHED AGAINST OVERALL PRODUCT EXPERIENCE
WHY PRICING IS A CRUICIAL ELEMENT
• SELLER’S PERSPECTIVE – A REALITY CHECK
• PRICE VS COST ANALYSIS
• PRICE VS MARGIN ANALYSIS
• PRICE VS POST SALES ANALYSIS
• PRICE VS RESEARCH & DEVELOPMENT ANALYSIS
• PRICE VS OPERATING EXPENSES ANALYSIS
INDUSTRIAL BUYER’S PRICE PERCEPTION
• PRICE IS ONLY 1 PERSPECTIVE
• HE IS CONCERED WITH TCO – TOTAL COST OF OWNERSHIP
• INCLUDES
• (1) SELLERS PRICE
• (2) TRANSPORTATION CHARGES
• (3)COST OF INSTALLATION OF CAPITAL EQUIPMENT
• (4)INVENTORY CARRYING COSTS (CONCEPT OF SHELF LIFE)
• (5)OBSOLOSCENCE COSTS
• (6)ORDER PROCESSING COSTS
• (7)PRODUCTION FAILURE COSTS
• (8)LATE DELIVERY
• (9)POOR UPTIME
• (10)MTBR / MTBF
• INDUSTRIAL CUSTOMER ONLY LOOKS AT BUYING “COST” AND NOT “PRICE”
FACTORS INFLUENCING PRICING
1. CUSTOMER DEMAND
2. NAURE OF DERIVED DEMAND
3. COMPETITION
4. COST & PROFIT RELATIONSHIP
5. MARKET REACTION & PERCEPTION
OF PRICE
6. GOVERNMENT REGULATIONS
1. CUSTOMER DEMAND
• REQUIRES THROUGH STUDY
• MARKET IS DIVERSE & COMPLEX
• SINGLE PRODUCT CAN HAVE MULTIPLE APPLICATIONS.
• MUST ANALYSE CUSTOMER BENEFITS, LIFE CYCLE COST, OVERALL
TOTAL COST OF ONWERSHIP
• MUST ALSO ANALYSE COST SENSITIVITY. – SOLDER PASTE FOR
TELEPHONE EQUIPMENT MANUFACTURER, OR LED LIGHTS
MANUFACTURER ‐‐‐‐ COMPARED TO MOBILE PHONE
MANUFACTURER
2. NATURE OF DERIVED DEMAND
• CUSTOMER IS NOT THE END CUSTOMER
• END CUSTOMER IS THE CUSTOMER’S CUSTOMER. SO NET EFFECT
WILL BE DIRECTLY DEPENDANT ON THE CUSTOMER’S CUSTOMER
• E.G 1 SUPPLIER TO AN OEM ‐ THE OEM REDUCES THE PRICES TO
THEIR END CUSTOMER. THE OEM’S END CUSTOMERS THINK THE
OEM’S QUALITY IS LOW AND THIS EFFECTS THE NET SALES
NEGATIVELY.
• E.G 2. THE SUPPLIER TO AN OEM REDUCES THEIR PRICE TO THE
OEM. THE OEM HAD A RESERVATION ABOUT THE SUPPLIERS
QUALITY AND WITH THE REDUCTION OF THE PRICE, DECIDES NOT
TO BUY FURTHER FROM THE SUPPLIER AS THEY ARE POSITIONED
AS HIGH QUALITY MANUFACTURER.
3. COMPETITION
• COMPETITIVE LEVEL PRICE STRATEGY BAND. WHERE AM I OPERATING.
• PRICE LEADERSHIP – ARE YOU IN A POSITION TO INCREASE THE PRICE …
ARE YOU IN THAT POSITION ??
• CONDITIONS FOR PRICE INCREASE
• 1) MARKET IS VERY LARGE
• 2) OTHERS WILL FOLLOW YOUR SUITE
• 3) INITIATOR ACTION IS WELL THOUGHT AND GOOD FOR ALL SUPPLIERS.
• NORMALLY, PRICE INCREASE RARELY IS FOLLOWED
• BUT PRICE DECREASE IS FOLLOWED IMMEDIATELY, SOMETIMES UNDER
CUT
• THAT’S BECAUSE INDUSTRIAL SALES IS NOT THAT ELASTIC
4. COST & PROFIT RELATIONSHIP
• PRICE SET AT THE UPPER LIMIT BY CUSTOMERS
• LOWER LIMIT IS SET BY THE COSTS
• MAKING A STRATEGY WITHOUT LOOKING AT BOTH IS INVITATION TO
FAILURES
• SO COSTS NEED TO BE STUDIED IN DEPTH
• FIXED COSTS, VARIABLE COSTS, DIRECT COSTS, INDIRECT COST, ALLOCATED
COSTS ETC..
• CONCEPT OF MARGINAL COSTS & REVENUES… IMPORTANT TO
UNDERSTAND.. HOW ONE CAN BECOME COST LEADER.
• COST ESTIMATION USING
• (A) ACCOUNTING RECORDS
• (B) ENGINEERING & MANUFACTURING COSTS..
5. MARKET REACTION & PERCEPTION OF PRICE
• HOW DOES THE MARKET REACT
• WHAT IS THE ACTUAL SALES, PRODUCTION IN REAL TIME
• IS THE MARGINAL COSTS (having extra production) GIVING US A OPPORTUNITY
• IS THE TARGET MARKET GROWING AT THE DESIRED RATE
• THIS OPPORTUNITY CAN BE USED FOR AGGRESSIVE PRICING
• OR
• COVER COST INCURRED
• DEVELOP NEW MARKET
• INCREASE R&D SPENDS
• RAISE WORKING CAPITAL
• EXPAND PRODUCTION
5. GOVERNMENT INFLUENCE
• LEGISLATION IN THE AREA OF BUSINESS
• COST OF HEART STENTS NOW REGULARIZED
• FORBID INDUSTRY PRICE FIXATION BETWEEN SUPPLIER AND BUYER
• UNFAIR PRICING POLICIES TO DRIVE OUT COMPETITION
• GEOGRAPHIC PRICE DISCRIMINATION ETC..
• ARE SOME INFLUENCERS ON PRICE
PRICING STRATEGY
• NEW PRODUCT INTRODUCTION
• DETERMINATION OF HOW SOON YOU WANT ROI
• (A) MARKET SKIMMING – SETTING ARTIFICIALLY HIGH PRICING THAT
MARKET CANNOT SUSTAIN. DECREASING IT OVER TIME. WHY
• 1) MORE PROFITS INITIALLY.
• 2) RECOVER DEVELOPMENT COSTS FAST, USE TO DEVELOP MORE
IMPROVEMENT.. KEEP THE FOLLOWERS AT BAY. EXPAND PRODUCTION
• DISADVANTAGES. COMPETITION FOLLOWES IMMEDIATELY. –
PROFITABILITY IS HIGH.
PRICING STRATEGY
• (B) MARKET PENETRATION – VERY LOW PRICE AT A LEVEL AT WHICH IT
WOULD EVENTUALLY REACH AFTER COMPETITION IS DEVELOPED
• BASED ON ASSUMPTION THAT MARKET WILL INCREASE.
• LOW PRICE WILL SIMULATE THE MARKET & CAPTURE LARGE PORION.
• DISCOURAGE COMPETITION.. LOW MARGIN TO ENTER
• (C) PRODUCT LIFE CYCLE CONSIDERATIONS
• GROWTH – PRICING STRATEGY
• MATURITY – PRICE WAR
• DECLINE – DEFEND PRICING
• (D) FLEXIBLE PRICE STRATEGY – LATEST TREND.
• TO ADAPT TO MARKET IMMEDIATELY. WILLINGNESS TO ADJUST PRICING
RAPIDLY
PRICING POLICY
• LIST PRICE
• NET PRICE
• DISCOUNT PRICING
• TRADE DISCOUNT – DISTRIBUTOR / AGENTS
• QUANTITY DISCOUNTS
• CASH DISCOUNTS – BETTER CASH FLOW
• GEOGRAPHICAL PRICING
• SHIPPING COSTS
• COST MUST BE COVERED AND PASSED TO THE CUSTOMER
• ONLY SIGNIFICANT PRODUCT DIFFERENTIATION SHIPPING COSTS CAN BE
IGNORED
Q & A
TAKE HOME POINT