pricing not vry good
TRANSCRIPT
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Pricing Strategies
& Practices
Presented by:
Gireesh Rathore
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Steps in setting prices
Step 1 identifying pricing objectives and
constraints
Step 2 estimate demand and revenue
Step 3 determine cost volume and profitrelation ships
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Step 4Select an approximate price level
1. Demand oriented approach
2. Cost oriented approach3. Profit oriented approach
4. Customer oriented approach
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Step 5
One price or flexible price
Company customer and competitiveeffects
Incremental costs and revenue
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Discount
Allowances
Geographic adjustments
Step 6
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7/58Slide 14-7
Four approaches for selecting anapproximate price level
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Skimming Pricing
Skimming pricing involves setting thehighest initial price that customers really
desiring the product are willing to pay.
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Many are predicting afire sale in laptops assupply exceeds demand.
High price, Low volumes
Skim the profit from themarket
Suitable for products thathave short life cycles orwhich will facecompetition at some pointin the future (e.g. after apatent runs out)
Examples include:
jewellery, digital technology,new DVDs, etc.
Market skimming
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Penetration Pricing
Penetration pricing involves setting alow initial price on a new product to
appeal immediately to the mass market.
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Penetration pricing
Price set to penetrate the market
Low price to secure high volumes
Typical in mass market productschocolate bars, food stuffs, householdgoods, etc.
Suitable for products with long anticipated
life cycles May be useful if launching into a new
market
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Prestige Pricing
Prestige pricing involves setting a high
price so that quality- or status-conscious
consumers will be attracted to the productand buy it.
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Price Lining
Price lining involves setting a the price ofa line of products at a number of different
specific pricing points.
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Odd-Even Pricing
Odd-even pricing involves settingprices afew dollars or cents under an even number.
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Bundle Pricing
Bundle pricing involves the marketing oftwo or more products in a single package
price.
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Yield Management Pricing
Yield management pricing involves thecharging of different prices to maximize
revenue for a set amount of capacity at
any given time.
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Standard Markup Pricing(cost)
Standard markup pricing involvesadding a fixed percentage to the cost of
all items in a specific product class.
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19/58Slide 14-33
Markups for a manufacturer, wholesaler, andretailer on a home appliance sold to theconsumer for $100
http://localhost/var/www/apps/conversion/tmp/340%20SPRING%202006/Fig14-B.xls -
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Cost-Plus Pricing
Cost-plus pricing involves summing the
total unit cost of providing a product or
service and adding a specific amount to
the cost to arrive at a price.
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Calculation of the average cost (AC) plus
a mark upAC = Total Cost/Output
Cost-Plus Pricing
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Experience Curve Pricing
Experience curve pricing is a method of
pricing based on the learning effect,
which holds that the unit cost of many
products and services declines by 10
percent to 30 percent each time a firmsexperience at producing and selling them
doubles.
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Target Pricing(profit)
Target pricing involves estimating the price
that the ultimate consumer would be willing to
pay for a product, working backward through
markups taken by retailers and wholesalers to
determine what price is charged to wholesalers,and then deliberately adjusting the composition
and features of a product to achieve the target
price to consumers.
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Target Profit Pricing
Target profit pricing involves setting an
annual target of a specific dollar volume
of profit.
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Setting price to target a specified profit
level
Estimates of the cost and potential
revenue at different prices, and thus the
break-even have to be made, to determine
the mark-up
Mark-up = Profit/Cost x 100
Target Profit Pricing
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Target Return-On-Sales Pricing
Target return-on-sales pricing involves
setting a price to achieve a profit that is aspecified percentage of the sales volume.
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Target Return-On-Investment
Pricing
Target return-on-investment pricing
involves setting a price to achieve an
annual target return-on-investment (ROI).
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Slide 14-82
Above- At- or Below-MarketPricing
Above-, at-, or below-market pricinginvolves setting a market price for a productor product class based on a subjective feel for
the competitors price or market price as thebenchmark.
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Customary Pricing(competition)
Customary pricing involves setting a
price that is dictated by tradition, a
standardized channel of distribution,
or other competitive factors.
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Loss-Leader Pricing
Loss-leader pricing involves deliberately
selling a product below its customary
price, not to increase sales, but to attract
customers attention in hopes that they
will buy other products as well.
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Loss-Leader Pricing
Goods/services deliberately sold below costto encourage sales elsewhere
Typical in supermarkets, e.g. at Christmas,selling bottles of gin at 3 in the hope thatpeople will be attracted to the store and buyother things
Purchases of other items more than coversloss on item sold
e.g. Free mobile phone when taking oncontract package
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Slide 14-23
99 Only StoreWhat price policy is used?
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Company, Customer, and CompetitiveEffects on Pricing
Customer Effects
Company Effects
STEP 5: SET THE LIST ORQUOTED PRICE
Product Line Pricing
Competitive Effects
Price War
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Product Line Pricing
Product line pricing involves setting theprice of a line of products at a number of
different specific pricing points.
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Price War
A price war involves successive pricecutting by competitors to increase or
maintain their unit sales or market share.
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Marginal cost the cost of producing ONE extraor ONE fewer item of production
MC pricing allows flexibility
Particularly relevant in transport where fixedcosts may be relatively high
Allows variable pricing structure e.g. on a flightfrom Delhi to Mumbai providing the cost of the
extra passenger is covered, the price could bevaried a good deal to attract customers and fillthe aircraft
Marginal Cost Pricing
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Slide 14-30
Seasonal Discounts
Quantity Discounts
STEP 6: MAKE SPECIALADJUSTMENTS TO THE LIST
OR QUOTED PRICE
Trade (Functional) Discounts
Cash Discounts
Discounts
Noncumulative Quantity Discounts
Cumulative Quantity Discounts
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Slide 14-36
Uniform Delivered Pricing
FOB Origin Pricing
STEP 6: MAKE SPECIALADJUSTMENTS TO THE LIST
OR QUOTED PRICE
Geographical Adjustments
Single-Zone Pricing
Multiple-Zone Pricing
FOB With Freight-Allowed (Absorption) Pricing
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Slide 14-40
Price Discrimination
STEP 6: MAKE SPECIALADJUSTMENTS TO THE LIST
OR QUOTED PRICE
Geographical Pricing
Predatory Pricing
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Quantity Discounts
Quantity discounts are reductions in unitcosts for a larger order.
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Promotional Allowances
Promotional allowances are cash
payments or extra amount of free goodsawarded sellers in the channel of
distribution for undertaking certain
advertising or selling activities to promote
a product.
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Uniform Delivered Pricing
Uniform delivered pricing is the price
the seller quotes includes all
transportation costs.
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Price Discrimination
Prices for rail travel differ for the samejourney at different times of the day
Charging a differentprice for the samegood/service in
different markets Requires each market
to be impenetrable
Requires different
price elasticity ofdemand in eachmarket
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Predatory Pricing
Predatory pricing is the practice of
charging a very low price for a productwith the intent of driving competitors
out of business.
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Ten ways to increase prices
without increasing price - Winkler Revise the discount structure
Change the minimum order size
Charge for delivery and special services
Invoice for repairs on serviced equipment
Charge for engineering, installation
Charge for overtime on rushed orders
Collect interest on overdue accounts
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Conclusion
Hence pricing practices should be done
very carefully as it affects the whole
organization, customers and its reputation. Pricing practices also responsible for
positioning of the business.
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Thank you!