fundamentals of pricing nen advanced course: getting to market- commercializing your idea
DESCRIPTION
Price Ceiling Maximum price is determined by customer value and sensitivity to pricing: – Reference value: cost to the customer of the next best alternative – Differentiation value: value to the customer of differences between the firm’s product and the next best alternative This value is not always positive – the maximum price may be lesser than the alternativeTRANSCRIPT
![Page 1: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/1.jpg)
Fundamentals of Pricing
NEN Advanced Course: Getting to Market- Commercializing your Idea
![Page 2: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/2.jpg)
Where to Begin?
• Define the range of acceptable prices for the product/service
• Identify minimum and maximum price that can be charged by the firm
![Page 3: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/3.jpg)
Price Ceiling
• Maximum price is determined by customer value and sensitivity to pricing:– Reference value: cost to the customer of the next best
alternative– Differentiation value: value to the customer of
differences between the firm’s product and the next best alternative
• This value is not always positive – the maximum price may be lesser than the alternative
![Page 4: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/4.jpg)
Price Floor
• Determined by variable costs of producing the product
• Often the price ceiling and price floor are wide apart
![Page 5: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/5.jpg)
Sensitivity to Pricing• Product category factors – sensitivity is lower in low cost
product categories• Who pays?• Price/ Quality Relationships• Competitive factors:
a) Sensitivity is higher• When significant differences between alternate
products are not perceived• Due to presence of more knowledge about alternate
productsb) Sensitivity is dampened when products or prices are not easily comparable
![Page 6: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/6.jpg)
Narrowing the Range of Prices
Two more set of factors determine the appropriate price:1. Risk and Uncertainty 2. Reference prices – competitor’s price, current or
last paid price, perceived fair price (cost + margin), what others are paying, expected price
![Page 7: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/7.jpg)
Narrowing the Range of Prices
• Other Internal factors:1. Is the price consistent with the
– Product’s positioning– Prices of other relevant products in the portfolio– Firm’s desired image?
2. Does the firm have enough capacity to satisfy customer demand at proposed price?
3. How will the target segment feel about the proposed price?
![Page 8: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/8.jpg)
Prof. S.Garimella, IMI, New Delhi
Break-Even Chart
![Page 9: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/9.jpg)
Assessing a Product’s Value to Customers
• Judgments based on an understanding of the buyer’s cost structure
True Economic Value (TEV) = Cost of the Alternative + Value of Performance Differential
• Customer Surveys
![Page 10: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/10.jpg)
Customizing Price to Value Delivered
• Product line sorting• Controlled availability• Price based on buyer characteristics• Price based on transaction characteristics
![Page 11: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/11.jpg)
Integrating Price with other Mix Elements
• A key to effective pricing is to have pricing’s value extraction “in synch’ with the value creation process of the other elements in the Marketing Mix
• Marketing Effort/spend matrix:
No Unit Sales Feasible
Feasible No unit Contribution
High
Low
Low High
Price
![Page 12: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/12.jpg)
Pricing Mistakes
• Determine costs and take traditional industry margins
• Failure to revise price to capitalize on market changes
• Setting price independently of the rest of the marketing mix
• Failure to vary price by product item, market segment, distribution channels, and purchase occasion
![Page 13: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/13.jpg)
Price Cues
• “Left to right” pricing (Rs.299 versus Rs.300)• Odd number discount perceptions• Even number value perceptions• Ending prices with 0 or 5• “Sale” written next to price
![Page 14: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/14.jpg)
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
![Page 15: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/15.jpg)
Step 1: Selecting the Pricing Objective
• Survival• Maximum current profit• Maximum market share• Maximum market
skimming• Product-quality
leadership
![Page 16: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/16.jpg)
Price Sensitivity
Step 2: Determining Demand
Estimating
Demand Curves
Price Elasticity of Demand
![Page 17: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/17.jpg)
Inelastic and Elastic Demand
![Page 18: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/18.jpg)
Step 3: Estimating Costs
Types of Costs
Target Costing
Accumulated Production
Activity-Based Cost Accounting
![Page 19: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/19.jpg)
Cost Terms and Production
• Fixed costs• Variable costs• Total costs• Average cost• Cost at different levels of
production
![Page 20: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/20.jpg)
Step 4: Compare and react to Competitor’s Pricing
![Page 21: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/21.jpg)
Prof. S.Garimella, IMI, New Delhi
Step 5: Selecting a Pricing Method
• Markup pricing• Target-return pricing• Perceived-value pricing• Value pricing• Going-rate pricing• Auction-type pricing
![Page 22: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/22.jpg)
Pricing Strategies
![Page 23: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/23.jpg)
Prof. S.Garimella, IMI, New Delhi
Step 6: Selecting the Final Price
• Impact of other marketing activities
• Company pricing policies• Gain-and-risk sharing
pricing• Impact of price on other
parties
![Page 24: Fundamentals of Pricing NEN Advanced Course: Getting to Market- Commercializing your Idea](https://reader035.vdocument.in/reader035/viewer/2022062311/5a4d1aeb7f8b9ab05997abbc/html5/thumbnails/24.jpg)
References
• Fundamentals of Pricing, Darden Business Publishing, University of Virginia
• Chapter 26, Pricing: A Value- based Approach, Marketing Management , Text and Cases, Rajiv Lal, John Quelch and Kasturi Rangan, Tata McGraw Hill Publication