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Price analysis
When is price analysis required?
Commodities Critical products
High
Strategies: Strategies:
1. Leverage preferred suppliers 1. Cost analysis
V 2. Price analysis using market 2. Collaborative cost reduction
a forces efforts focused on total cost
l
u Unique products Generics
e
Strategies: Strategies:
Low
1. Cost analysis – reverse 1. Total delivered cost
pricing 2. Automate to reduce
2. Standardize requirements purchasing involvement
Low High
No. of available suppliers
Price analysis is used for commodities and generics
To understand factors affecting the pricing levels in a
given market, we need to carry out market analysis
supply
Supplier’s Buyer’s
Price
market market
demand
Volume
Factors affecting price
1. Market structure
2. Economic conditions
3. Pricing strategy of the seller
1. Market structure
Economic conditions
Industry growth stages
Macroeconomic conditions – interest rates, labor
market etc.
Pricing strategy of the seller
Long term pricing strategy or short term?
Price leader or follower?
Is seller trying to establish entry barriers by adopting a
low price strategy initially?
Cost based pricing approach or market based pricing
approach?
Market driven pricing models
1. Price volume model
Study the price per unit and quantity of sales that
maximizes the profit
Quantity discounts