Pricing Strategy in the

Indonesian Construction
Industry

Research Foundation
Indonesia Institute of Technology
Prof. Ir Krishna Mochtar, MSCE, PhD, IPU
CONTENTS
• Literature Review
• Methodology
• Findings and Discussion
• Conclusion and Recommendations
LITERATURE REVIEW
 Marketing Mix 4Ps:
– Products
– Price
– Promotion
– Place
LITERATURE REVIEW
Two extreme approaches in pricing:
– Cost-based pricing
– Market-based pricing

(Best, 1997)
LITERATURE REVIEW
Cost-based pricing:
 Starts from the total cost
 Additional cost-based markups
 Problems:
1. Underpricing
2. Overpricing
LITERATURE REVIEW
Market-based pricing:
 Starts with the customer and key competitors
 Uses the help of marketing intelligence
 The goal is to create a price based on a superior
customer value
 Different market-price strategies:
1. Price-sensitive segment
2. Quality-sensitive segment
STATEMENT OF PROBLEM
• Transactions and contracting in
construction are conducted through the
competitive bidding process, so that the
pricing approach used commonly in
construction: cost-based pricing.
Cost-Based Pricing

PROJECT DOCUMENTS: PROJECT COST ESTIMATE:

DRAWINGS & SPECIFICATIONS DIRECT COST +
BIDDING OFFER
INDIRECT COST

PROFIT/MARKUP

(Model 1)
RESEARCH OBJECTIVES
 To duplicate and modify survey and simulation
conducted by Mochtar (2000) that identify pricing
strategy in the U.S..
 To determine the extent of "market-based pricing" in
current pricing practices in construction in Indonesia.
 To explore the possibilities of implementing “market-
based pricing” in the Indonesian construction industry
in various bidding scenarios.
 To compare the findings with findings in the U.S..
METHODOLOGY
• Development and modification of survey
tool
 PROJECTBIDDINGDOCUMENT
(DRAWINGS AND SPECIFICATIONS)

DETAILPROJECTCOSTESTIMATE: YES
DIRECTCOST+ INDIRECTCOST

OPTIMIZATION
MARKUP
POSSIBLE?
COMPANYPRICE= CP NO

MARKETDATA MARKET YES

CP>MINIMUM
(OPPORTUNITIES PRICE MARKETPRICE?
AND THREATS) RANGE

NO CP>MAXIMUM
MARKETPRICE?
MARKETINGINTELLIGENCE

NO YES
COMPANY’S RISKPOLICY:
STRENGTH/WEAKNESSES SKIMMINGOR PENETRATION

DO
BID PRICE NOT
BID

NO
WIN STOP
?
YES

CONSTRUCTION

Figure 4.1. Hybrid Pricing Model, Version 1 (Model 2)

 MARKETDATA
(OPPORTUNITIES AND THREATS)

MARKETINGINTELLIGENCE

MARKETPRICERANGE

COSTTARGETS ARESETBASED ON
PROFITGOALS AND PROJECTRISKS
PROJECT HISTORICAL
BIDDING DATA
DOCUMENTS
ROUGHCOSTESTIMATINGAND ADJUSTMENTS
TO MEETCOSTTARGETS

NO DO NOTBID
FEASIBLE?

YES

COMPANY’S STRENGTHS RISKPOLICY:

AND WEAKNESSES SKIMMINGOR PENETRATION

BID PRICE

NO
WIN? STOP

YES

CONSTRUCTION

Figure 4.2. Hybrid Pricing Model Version 2 (Model 3)

 MARKETDATA
(OPPORTUNITIES AND THREATS)

MARKETINGINTELLIGENCE

MARKETPRICERANGE

COMPANY’S STRENGTHS RISKPOLICY:

AND WEAKNESSES SKIMMINGOR PENETRATION

BID PRICE

NO
WIN? STOP

YES

COSTADJUSTMENTS

CONSTRUCTION

Figure 4.3. Market–based Pricing Model (Model 4)


Type of projects
Work subcontracted
Marketing orientation
Technological sophistication
Level of Technological
Sophistication Parameters
- Computer usage
- Work quality
- Number of accidents
- Number of field employees
- Cost efficiency
- Number of reworks
- Field productivity
- Management control
- Labor motivation
- Labor training
- Constructability enhancement
- Adaptation to organizational
change
- Computer Skills
Internal Variables
Marketing expenditure
Type of clients
Level of experience
Level of Experience
Parameters
- Work quality
- Cost efficiency
- Number of accidents
- Management skills
- Labor skills
- Engineering skills
- Brand identity
- Field productivity
- Timely project completion.
Projects geographic location
Annual contract value
Policy on equipment
Market intelligence capability
Average Score
Analysis
Marketing Intelligence
Parameters
- Reading newspaper/journals
- Reading trade publications
- Talking to clients
- Talking to subs/suppliers
- Talking to managers
- Conducting market research
- Establishing MIS/DSS
- Purchasing information
- Analyzing rumors
- Collecting and analyzing
competitors' past bids
- Training in marketing issues
- Searching through internet
- Analyzing competitors' info
during bid preparation
 Pricing Models
Model 1: Cost-based pricing
Model 2: Hybrid pricing version 1
Model 3: Hybrid pricing version 2
Model 4: Market-based pricing

Average Analysis
Hypothesis Test
Fuzzy Logic Analysis

External Variables for Hypothetical

Bidding Scenarios
 Owner's characteristics
 Competitors' characteristics
 Demand/economic conditions

Contingency Table Analysis

Weighted Average Analysis

Internal Variables
Type of projects Projects geographic location

Work subcontracted Marketing expenditure Annual contract value

Marketing orientation Type of clients Policy on equipment

Technological sophistication Level of experience Market intelligence capability

Table 5.10. Hypothetical Bidding Scenarios (HBSs)
External Variables HBS 1 HBS 2 HBS 3 HBS 4 HBS 5 HBS 6 HBS 7 HBS 8

Owner's characteristics Unknown Unknown Unknown Unknown Known Known Known Known

Competitors' characteristics Unknown Unknown Known Known Unknown Unknown Known Known

Market demand Low High Low High Low High Low High
Current Pricing Practices
• Include: pricing strategy adapted, markup
automation practices, way of decision
making, importance factors in pricing
strategy
RESEARCH FINDINGS
• Sample: 122 Asosiasi Kontraktor Indonesia
(AKI) members
• Responses:
– 15 (12.3%) returned duly filled out
• Characteristics of Respondents
 Table 4.1. General Characteristics (Page 1 of 2)
Internal Variables Respondents as
Percentage
Indonesia US

Types of projects performed

Mostly building 53.3 79.1
Mostly heavy 40.0 18.7
Both (50/50) 6.7 2.2
No answer 0.0 0.0

Geographic location of most projects (by contract value)

Within Java /within US 46.7 97.8
Outside Java/Outside US 33.3 2.2
No answer 13.3 0.0

Work subcontracted (by contract value)

Under 50% 53.3 20.9
Over 50% 46.7 78.0
No answer 0.0 1.1

Marketing expenditure (% of annual contract value)

Under 2% 40.0 85.7
Over 2% 60.0 14.3
No answer 0.0 0.0

Annual contract value

Smaller (below Rp150 billion) 73.3 58.2
Larger (over Rp 150 billion) 20.0 36.3
No answer 6.7 5.5

Marketing orientation in most projects

Competitive contracts 73.3 31.9
Negotiated contracts 26.7 63.7
Both (50/50) 0.0 4.4
No answer 0.0 0.0

Type of client in most projects (by dollar value)

Public owners 46.7 27.5
Private owners 53.3 68.1
Both (50/50) 0.0 1.1
No answer 0.0 3.3

Equipment policy
Mostly owned 73.3 50.5
Mostly leased/rented 26.7 44.0
Both (50/50) 0.0 1.1
No answer 0.0 4.4
 Table 4.1. (Continued- page 2 of 2)
Internal Variables Respondents as
percentage
Indonesia US

Technological sophistication
Low 0.0 0.0
Medium 33.3 17.6
High 66.7 82.4

Experience level
Limited 0.0 0.0
Medium 26.7 7.7
Extensive 73.3 92.3

Marketing intelligence capabilities

Limited 0.0 5.5
Medium 60.0 71.4
Extensive 40.0 23.1
 Table 4.2. Technological Sophistication and Experience Level Parameters (Page 1 of 4)
Parameters Respondents as percentage
Indonesia US

Number of field accidents with fatalities

Low (no accidents) 86.7 90.1
High (equal to or more than 1) 13.3 6.6
No answer 0.0 3.3

Number of field accidents with injuries (no fatalities) per dollar of contract value
Low (below sample's mean) 26.7 24.2
High (over sample's mean) 66.7 51.6
No answer 6.7 24.2

Average number of field employees in all projects (excluding head office)

Under 100 6.7 15.4
100-500 53.3 42.9
500-1000 20.0 18.7
Over 1000 20.0 22.0
No answer 0.0 1.1

Frequency of field progress reporting to senior management

> Tri-monthly 0.0 4.4
Bi monthly 0.0 5.5
Monthly 73.3 53.8
< Bi-weekly 26.7 35.2
No answer 0.0 1.1

Frequency of site superintendent-senior management meetings

> Tri-monthly 0.0 8.8
Bi monthly 0.0 5.5
Monthly 33.3 45.1
< Bi-weekly 66.7 36.3
No answer 0.0 4.4

Timely project completion

under 70% 6.7 0.0
70-80% 13.3 6.6
80-90% 13.3 14.3
90-100% 66.7 76.9
No answer 0.0 2.2

Computer usage
1 0.0 0.0
2 6.7 2.2
3 53.3 30.8
4 40.0 67.0
No answer 0.0 0.0
 Table 4.2. (Continued- page 2 of 4)
Parameters Respondents as percentage
Indonesia US

Work quality
1 0.0 0.0
2 6.7 0.0
3 40.0 28.6
4 53.3 71.4
No answer 0.0 0.0

Cost efficiency
1 0.0 0.0
2 26.7 5.5
3 66.7 63.7
4 0.0 30.8
No answer 6.7 0.0

Number of reworks
1 40.0 46.2
2 26.7 27.5
3 26.7 19.8
4 0.0 3.3
No answer 6.7 3.3

Field productivity
1 0.0 0.0
2 0.0 8.8
3 66.7 62.6
4 33.3 27.5
No answer 0.0 1.1

Labor motivation
1 0.0 2.2
2 13.3 19.8
3 66.7 57.1
4 20.9 20.9
No answer 0.0 0.0

Labor training
1 6.7 4.4
2 33.3 31.9
3 60.0 41.8
4 0.0 20.9
No answer 0.0 1.1

Note: 1=Low; 4=High

 Table 4.2. (Continued- page 3 of 4)
Parameters Respondents as percentage
Indonesia US

Constructability enhancement
1 0.0 0.0
2 20.0 14.3
3 66.7 52.7
4 13.3 33.0
No answer 0.0 0.0

Adaptation to organizational change

1 0.0 1.1
2 26.7 9.9
3 60.0 60.4
4 13.3 27.5
No answer 0.0 1.1

Management Skills
1 0.0 0.0
2 33.3 4.4
3 26.7 57.1
4 40.0 38.5
No answer 0.0 0.0

Labor Skills
1 0.0 0.0
2 33.3 19.8
3 46.7 59.3
4 20.0 20.9
No answer 0.0 0.0

Computer skills
1 0.0 0.0
2 20.0 5.5
3 60.0 58.2
4 20.0 36.3
No answer 0.0 0.0

Engineering skills
1 0.0 1.1
2 13.3 19.8
3 60.0 39.6
4 26.7 35.2
No answer 0.0 4.4

Note: 1=Low; 4=High

 Table 4.2. (Continued- page 4 of 4)
Parameters Respondents as percentage
Indonesia US

Company brand identity

1 0.0 1.1
2 13.3 2.2
3 46.7 47.3
4 26.7 49.5
No answer 13.3 0.0

Note: 1=Low; 4=High

 Table 4.3. Marketing Intelligence Practices Characteristics (Page 1 of 2)
Types of Action Respondents as percentage Average Scores
Indonesia US Indonesia US

Reading newspapers/journals 3.33 3.08

never 0.0 3.3
sometimes 13.3 20.9
often 40.0 40.7
always 46.7 35.2

Reading trade publications 3.20 3.14

never 0.0 2.2
sometimes 13.3 18.7
often 53.3 41.8
always 33.3 37.4

Talking to current and prospective clients 3.60 3.55

never 0.0 0.0
sometimes 0.0 6.6
often 40.0 31.9
always 60.0 61.5

Talking to subcontractors/suppliers 3.00 2.97

never 0.0 2.2
sometimes 26.7 26.4
often 46.7 44.0
always 26.7 27.5

Talking to managers within the company 3.60 3.27

never 0.0 0.0
sometimes 6.7 13.2
often 26.7 46.2
always 66.7 40.7

Conducting marketing research project 2.00 2.08

never 26.7 27.5
sometimes 46.7 42.9
often 26.7 22.0
always 0.0 6.6

Establishing internal marketing information/decision support systems 2.60 2.87

never 3.3 6.6
sometimes 33.3 27.5
often 33.3 38.5
always 33.3 27.5

Note: 1=never; 2=sometimes; 3=often; 4=always

 Table 4.3. (Continued- page 2 of 2)
Types of Action Respondents as percentage Average Scores
Indonesia US Indonesia US

Purchasing information from research agency 2.0 1.68

never 40.0 49.5
sometimes 26.7 37.4
often 26.7 8.8
always 6.7 4.4

Monitoring and analyzing rumors 2.47 2.18

never 20.0 16.5
sometimes 33.0 56.0
often 26.7 20.9
always 20.0 6.6

Collecting and analyzing competitors' bids 2.53 2.14

never 6.7 22.0
sometimes 40.0 48.4
often 46.7 23.1
always 6.7 6.6

Training company's staff in marketing/sales issues 2.20 2.66

never 26.7 7.7
sometimes 33.3 31.9
often 33.3 47.3
always 6.7 13.2

Searching market information through Internet 2.50 2.27

never 13.3 14.3
sometimes 33.3 50.5
often 33.3 27.5
always 13.3 6.6

Searching and analyzing owners' and competitors' 3.00 2.76

information during preparation of bids
never 0.0 7.7
sometimes 40.0 29.7
often 20.0 41.8
always 40.0 20.9

Note: 1=never; 2=sometimes; 3=often; 4=always

Current Pricing Practices
Table 4.4. Current pricing strategy

Pricing strategy Rating Percent of Rating

system respondents (2)x(3)
(1) (2) (3) (4)

1. Detailed cost estimate is performed, then markup is set

Based on company's preferences (Model 1). 1.0 13.3 13.3
2. Detailed cost estimate is performed, then markup is set
Based on company's preferences and market conditions;
No cost adjusments (Model1-Model 2). 1.5 20.0 30.0
3. As above, but with cost adjusments/optimization (Model 2). 2.0 46.7 93.4
4. Cost/markup is set based on market conditions; then
Detailed cost estimate is made and then adjusted to
Fit cost targets (Model 2-Model 3). 2.5 13.3 33.3
5. Cost/markup is set based on market conditions; then
Rough cost estimate is made and then adjusted to
Fit cost targets (Model 3). 3.0 6.7 20.1
6. Cost/markup is set fully based on market conditions;
Costs are adjusted to fit targets only after the award of
Contracts (Model 4). 4.0 0.0 0.0

Total 100.0 190.1

Average pricing strategy 1.90
 Table 4.5. Current Automated Pricing/Markup Assessment Practices
Types of pricing/markup assessment Respondents as percentage
Indonesia US

Special pricing software 13.3 33.3

Speadsheets 80.0 55.6

 Table 4.6. Markup Decision Assessment
Types of assessment Respondents as percentage
Indonesia US

Intuition 26.7 50.5

Probability/mathematical models 26.7 14.3
Empirical models 46.7 24.2
A constant percentage that does not change 6.7 9.9
An assessment of the competition 66.7 60.4
 Table 4.7. Importance of Factors in Current Pricing Strategy (page 1 of 2)
Factors Average score Respondents as percentage
Indonesia US Indonesia US

Company's strengths and weaknesess 3.53 4.12

1 0.0 1.1
2 13.3 4.4
3 40.0 12.1
4 26.7 44.0
5 20.0 36.3

Need for work 4.00 3.97

1 0.0 3.3
2 0.0 5.5
3 26.7 14.3
4 46.7 44.0
5 26.7 31.9

Demand/economic conditions 3.87 3.67

1 0.0 2.2
2 13.3 5.5
3 13.3 29.7
4 46.7 45.1
5 26.7 15.4

Financial goals of company 4.33 4.13

1 0.0 1.1
2 0.0 1.1
3 6.7 18.7
4 53.3 40.7
5 40.0 37.4

Competition 4.13 3.40

1 0.0 5.5
2 6.7 11.0
3 6.7 36.3
4 53.3 30.8
5 33.3 15.4

Owner's characteristics 4.20 3.83

1 0.0 1.1
2 0.0 5.5
3 20.0 26.4
4 40.0 41.8
5 40.0 24.2
 Table 4.7. (Continued- page 2 of 2)
Factors Average score Respondents as percentage
Indonesia US Indonesia US

Owner's consultant characteristics 3.67 3.24

1 0.0 4.4
2 6.7 17.8
3 26.7 34.4
4 60.0 30.0
5 6.7 12.2

Project size/complexity 3.87 4.13

1 0.0 1.1
2 6.7 1.1
3 20.0 17.6
4 53.3 42.9
5 20.0 36.3

Project location 3.53 3.76

1 0.0 3.3
2 20.0 5.5
3 26.7 26.4
4 33.3 37.4
5 20.0 24.2

Subcontractors' characteristics 3.27 3.19

1 6.7 7.7
2 20.0 16.5
3 26.7 35.2
4 33.3 28.6
5 13.3 11.0

Expected future project from the owner 4.13 3.97

1 0.0 1.1
2 0.0 7.7
3 33.3 18.7
4 20.0 37.4
5 46.7 34.1

Note: 1=least important; 5=most important

Research Findings

Future Applicability of Market-Based Pricing

Table 4.9. Contingency Coefficients between Pricing Strategy and Pricing Variables in Hypothetical Bidding Scenarios (HBSs)

Variables HBS 1 HBS 2 HBS 3 HBS 4 HBS 5 HBS 6 HBS 7 HBS 8 Average

Type of most projects performed 0.1100 0.5403 0.4989 0.5178 0.4313 0.5345 0.6083 0.3536 0.4493

Geographic location of most projects 0.2774 0.5571 0.4025 0.3536 0.4129 0.4588 0.5861 0.5571 0.4507

Work subcontracted on average job 0.2351 0.3713 0.2199 0.4489 0.2828 0.2977 0.3846 0.4460 0.3358

Marketing expenditure 0.5906 0.4892 0.5252 0.3446 0.3756 0.5377 0.5423 0.4892 0.4868

Annual contract value 0.3536 0.3388 0.3815 0.5278 0.4537 0.5976 0.6447 0.3536 0.4564

Marketing orientation in most projects 0.3430 0.4042 0.1322 0.2165 0.0576 0.3806 0.4264 0.3756 0.2920

Type of client in most projects 0.2351 0.3713 0.4523 0.3752 0.2828 0.1395 0.4714 0.4892 0.3521

Equipment policy 0.3974 0.4523 0.4006 0.4909 0.0576 0.3430 0.3627 0.4042 0.3636

Technological sophistication 0.2351 0.4460 0.4794 0.3446 0.2828 0.3855 0.1556 0.5652 0.3618

Experience level 0.2351 0.4460 0.2199 0.3446 0.4729 0.5606 0.2615 0.5652 0.3882

Marketing intelligence capabilities 0.2351 0.4892 0.2199 0.3142 0.2828 0.4978 0.2664 0.4892 0.3493

Average pricing model 1.5532 1.9077 2.1689 2.1958 1.9778 2.2635 2.5124 3.0635 2.2053

Pricing models used 1,2,3 1,2,3,4 1,2,3 1,2,3,4 1,2,3 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4

Range of pricing models: lower 1.2766 1.4539 1.5844 1.5979 1.4889 1.6317 1.7562 2.0318 1.6027
upper 2.2766 2.9539 2.5844 3.0979 2.4889 3.1317 3.2562 3.5318 3.1027
Note: HBS refers to Table 4.8; box and bold face denote significant association at 95%
Table 5.11. Contingency Coefficients between Internal Variables and Pricing Strategy in Hypothetical Bidding Scenarios (HBSs)
Internal Variables Pricing Strategy in
HBS 1 HBS 2 HBS 3 HBS 4 HBS 5 HBS 6 HBS 7 HBS 8 Average

Type of most project performed 0.1170 0.1175 0.1814 0.2325 0.2780 0.1479 0.2316 0.3035 0.2012

Geographic location of most projects 0.1388 0.2209 0.0937 0.0916 0.0960 0.1073 0.1891 0.1708 0.1385

Work subcontracted on average job 0.1412 0.1306 0.2166 0.2110 0.1961 0.0755 0.1995 0.2641 0.1793

Marketing expenditure 0.2496 0.2525 0.1633 0.1299 0.1162 0.1439 0.1609 0.1636 0.1725

Annual contract value 0.3477 0.2815 0.2953 0.2466 0.2220 0.2448 0.1641 0.1826 0.2481

Marketing orientation in most projects 0.1654 0.2499 0.2111 0.1112 0.1969 0.1963 0.1607 0.2139 0.1882

Type of client in most projects 0.1365 0.1677 0.2057 0.1434 0.2999 0.2662 0.3219 0.3243 0.2332

Equipment policy 0.2142 0.2401 0.1484 0.0835 0.3359 0.2994 0.1201 0.3294 0.2214

Technological sophistication 0.1778 0.2255 0.1951 0.1991 0.2617 0.2964 0.1990 0.2035 0.2198

Level of experience 0.1367 0.1194 0.1207 0.0575 0.1566 0.1936 0.1602 0.1040 0.1311

Marketing intelligence capabilities 0.1637 0.3294 0.4083 0.3891 0.3026 0.2629 0.3804 0.4255 0.3327

Average pricing strategy 1.5874 1.8289 1.8731 1.8983 1.9745 2.0543 2.1567 2.2953 1.9586

Pricing models used 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4 1,2,3,4

Range of pricing strategy: lower 1.2937 1.4144 1.4365 1.4491 1.4873 1.5271 1.5783 1.6476 1.4793
upper 2.7937 2.9144 2.9365 2.9491 2.9873 3.0271 3.0783 3.1476 2.9793
Note: HBS refers to Table 5.10; bold face denotes significant association at alpha= 0.05
 Table 4.10. Overall Pricing Strategy of Internal Sub-variables
Range

Variables Average Lower Upper

1. Type of most projects performed
1.1. Building 2.1062 1.5531 3.0531
1.2.Heavy 2.3329 1.6665 3.1665
Ha: m1 > m2 No
2. Geographic location of most
projects
2.1. Within Java 2.2329 1.6164 3.1164
2.2. Outside Java 2.2998 1.6499 3.1499
Ha: m1 > m2 No
3. Work subcontracted on average job
3.1. Under 50% of annual contract value 2.4830 1.7415 3.2415
3.2. Over 50% of annual contract value 2.0521 1.5260 3.0260
4. Marketing expenditure
4.1. Under 2% of annual contract value 1.9933 1.4967 2.9967
4.2. Over 2% of annual contract value 2.3909 1.6955 3.1955
Ha: m1 < m2 No
5. Annual contract value
5.1. Under Rp 150 billion 2.2117 1.6059 3.1059
5.2. Over Rp 150 billion 2.2900 1.6450 3.1450
Ha: m1 < m2 No
6. Marketing orientation in most projects
6.1. Competitive bid 2.2104 1.6052 3.1052
6.2. Negotiated bid 2.4447 1.7223 3.2223
Ha: m1 < m2 No
7. Type of client in most projects
7.1.Public 2.3709 1.6855 3.1855
7.2. Private 2.2245 1.6123 3.1123
Ha: m1 < m2 No
8. Equipment policy
8.1. Owned 2.3829 1.6915 3.1915
8.2. Leased/rented 1.7538 1.3769 2.8769
9. Technological sophistication
9.1. Less (below sample's mean) 2.1418 1.5709 3.0709
9.2. More (over sample's mean) 2.4454 1.7227 3.2227
Ha: m1 < m2 No
10. Level of experience
10.1. Limited (below sample's mean) 2.0921 1.5460 3.0460
10.2. Extensive (over sample's mean) 2.5122 1.7561 3.2561
Ha: m1 < m2 No
11. Marketing intelligence capabilities
11.1. Limited (below sample's mean) 2.3161 1.6581 3.1581
11.2. Extensive (over sample's mean) 2.2294 1.6147 3.1147
Ha: m1 < m2 No
 Table 4.11. Pricing Strategy in Conditions Characterized by External Sub-variables
Range
External Variables Average Lower Upper
1. Owner's characteristics
1.1. Unknown m1= 1.9791 1.4895 2.9895
1.2. Known m2= 2.5056 1.7528 3.2528
H1: m1 < m2 Yes
2. Competitors' characteristics
2.1. Unknown m1= 1.9556 1.4778 2.9778
2.2. Known m2= 2.5133 1.7567 3.2567
H1: m1 < m2 Yes
3. Market demand
3.1. Low m1= 2.1085 1.5542 3.0542
3.2. High m2= 2.3700 1.6850 3.1850
H1: m1 < m2 Yes

Note: bold and box denote significant at = 0.05

CONCLUSION
• Current Pricing Practices:
– Average: 1.90 vs 1.62 (US)
– competition assessment
– intuition
– manual
CONCLUSION
• Future Applicability of Market-based
Pricing:
– Three external variables prerequisite
– Marketing Intelligence:
• traditional practices
• more computerized systems needed
– With IT breakthroughs, not impossible
– Proposed bidding process practices
 BIDDING INVITATION,
PROJECT EXPLANATION
AND FIELD VISITS

RECEIPT OF CONTRACTORS' FINAL

TECHNICAL AND PRICE PROPOSALS

EVALUATION BY OWNERS:
"THE LOWEST BID" SYSTEM

CONTRACT AWARD

Figure 6.1. Current Bidding Events

 BIDDING INVITATION,
PROJECT EXPLANATION
AND FIELD VISITS

RECEIPT OF CONTRACTORS' FIRST

TECHNICAL AND PRICE PROPOSALS

INITIAL EVALUATION OF PROPOSALS BY OWNER

ELIMINATED BIDDERS
NOTIFICATION

OWNER'S CLARIFICATION REQUEST

AND DEFICIENCY REPORT TO
REMAINING BIDDERS

RECEIPT OF CONTRACTORS' SECOND

TECHNICAL AND PRICE PROPOSALS

EVALUATION BY OWNER OF RESPONSES

FROM REMAINING BIDDERS

FACE TO FACE NEGOTIATIONS BETWEEN

OWNER AND REMAINING BIDDERS

RECEIPT OF CONTRACTORS' BEST AND FINAL

OFFERS (BOTH TECHNICAL AND PRICE)

FINAL EVALUATION BY OWNER:

"THE BEST VALUE" SYSTEM

CONTRACT AWARD

Figure 6.2. Proposed Bidding Events