Adaptive+Pricing

8/3/2019 Adaptive+Pricing

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PRICING STRATEGIES Part 2

Presentation By:

Rohit KeswaniUtkarsh Yadav

Syed Waheeduddin

Marketing : Pricing Strategies 1


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Six Steps of Setting the Price

1. Selecting the Pricing Objective

2. Determining Demand

3. Estimating Costs

4. Analyzing Competitors Prices

5. Selecting a pricing method and

6. Selecting the Final Price

Next, Adaptingthe Price..

2Marketing : Pricing Strategies


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The Price is Right!



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Technology Pillows By Reliance!!



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Sisters or Competitors? Or Both?



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Price Can Range!



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Image Pricing!!



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Adapting the Price

Companies do NOT set a single price, but rather a

pricing structure that reflects a variance in

geographical demands and costs, market-segment

requirements, purchase timings, order levels andfrequency, guarantees, service contracts and other

factors



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Price Adaptation Strategies

1. Geographical pricing

2. Price Discounts and Allowances

3. Promotional Pricing and

4. Differentiated Pricing



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Geographical Pricing

Involves Deciding how to price the products to

different customers in different locations and

countries.

Should we charge higher to distant customers?

How to get paid?



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Is it always CASH?

Many buyers want to offer other items in

payment. This practice is known as

COUNTERTRADE and accounts for 15-25% of

the world trade. Forms of countertrade:

Barter

Compensation Deal

Buyback Arrangement

Offset



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Barter

Direct Exchange of goods

No Money and No Third Party involved

E.g. Eminence S.A



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Compensation Deal

Some Percentage in Cash and the rest in

Products

E.g. A British Aircraft Manufacturer sold

planes to Brazil for 70 percent cash and the

rest in COFFEE



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Buyback Arrangement

The seller sells a plant, equipment or

technology to another country and agrees to

accept as partial payment products

manufactured with the supplied equipment



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Offset

The seller receives full payment in Cash BUT

agrees to spend a substantial amount of

money in that country within a stated time

period. E.g.



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Price Discounts and Allowances



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Price Discounts and Allowances

Most companies will adjust their list price and

give discounts and allowances for :

Early Payments

Volume Purchases

Off-Season Buying, etc.

Advantages:

Economy of scale

Clearing Old Stocks

Attracting More Customers



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Types of Discounts:

Cash Discount - Price Reduction to buyers who pay

bills promptly.

Quantity Discount Price reduction on buying large

volumes Functional Discount Offered to trade-channel

members

Seasonal Discount Price reduction to those whobuy out of season



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Is Discounting Always Good?

Some Product categories tend to self-destruct by always being

on sale

Discounting undermines the value perceptions of the

company offerings.

Only 15-35 percent of buyers in most categories are price-

sensitive

May end up losing long-run profits in an effort to meet the

short-run volume loads.

Net Price Analysis should be conducted to arrive at the real

price of the offering.



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Promotional Pricing



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Promotional Pricing

Loss Leader Pricing A loss leader is a popular product sold at a low

price (at cost or below cost)

Loss Lead describes the concept that an itemoffered for sale at a reduced price and is intended

to leadto the subsequent sale of other items

Retailers drop prices on well-known brands

Brand image is diluted

Complaints from other retailers



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PromotionalPricing

Special Event Pricing On festive occasions like Diwali, Id or Christmas

Cash Rebates To stimulate demand within specified periods

To clear inventories

Discounts by Auto industry during the month ofDecember



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Promotional Pricing

Low Interest Financing To attract more customers

Example - Auto industry

Longer Payment Terms

Loans over longer periods

Lower EMI

Consumer more concerned with affordable EMIs

than interest rate

Example Home Loans27Marketing : Pricing Strategies


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Promotional Pricing

Warranties and Service Contracts Adding free or low-cost warranty or service

contracts

Psychological Discounting

Setting of artificially high price and then offering

subsequent discounts

Such illegitimate tactics are opposed by

appropriate regulatory authorities in different

countries



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Promotional Pricing

SumUp Zero-sum game

If it works, then competitors can also employ

similar tactics

If not, wastage of resources both in terms of time

and money



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Differentiated Pricing

Price Discrimination occurs when a company sells a

product or service at two or more prices that do not

reflect a proportional difference in costs.

Degrees of price discrimination

FirstSellers charges are based on intensity of

customer demand

SecondSellers charges are based on volumepurchase of customer

Third Seller charges different amounts to different

classes of customers30Marketing : Pricing Strategies


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Third Degree of Discrimination Customer-Segment Pricing

Example- Railways offer discount to senior citizens

and offer free service to children below 5 years.

Product-form Pricing

Different pricing based on style and level of quality

of same product.

Image Pricing

Product brings satisfaction to the user in creating

prestige and esteem31Marketing : Pricing Strategies


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Channel Pricing

Example Different prices of soft drinks at

different places like restaurants, normal retailers,

multiplexes, etc.

Location Pricing

Different pricing at different locations even thoughthe cost of offering it is same.



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Necessary Conditions

1) Market must be segmentable.

2) Members in low price segment must not be able to resell the

product to higher price segment.

3) Competitors must not be able to undersell the firm in higherprice segment.

4) Cost of segmenting and policing the market must not exceed

the extra revenue derived from price discrimination.

5) It must not breed customer resentment6) It must not be illegal



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The Other Side

If a seller offers different prices to different people

within same group, then it is illegal.

Predatory pricing selling below cost with an

intention of destroying competition - is unlawful Even if legal, some price discrimination may receive

hostile reaction. Example Coca Cola using

wireless technology to initiate a price increase at

their soda vending machine during hot days and

lowering it during cold days.



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Initiating and Responding to Price

Changes

Initiating Price Cuts

Initiating Price Increases

Reactions to price changes

Responding to Competitors Price Changes



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Initiating Price Cuts

Low Quality Trap

Consumers assume quality is low

Fragile Market-share Trap

No loyal customer base

Shallow Pocket Trap

Big companies have higher cash reserves to stay in market

Price War Trap



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Initiating Price Increases

How price increase raise profits.

Before After

Price 10 10.1 (1% increase)

Units Sold 100 100

Revenue 1000 1010

Costs -970 -970

Profit 30 40 (33% increase)



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Circumstances Provoking Price

Increase

Cost Inflation

Rising costs unmatched by productivity gains.

Anticipatory Pricing

In anticipation of further inflation or governmentprice controls.

Overdemand

When a company cannot supply all its customers.



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How can the price be increased?

Delayed Quotation Prices

Final Price is not set until the product is delivered.

Escalator Clauses

Customers are asked to pay part of any inflation

increase.

Unbundling

More elements added or removed as a part of

former offer.



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Reduction of discounts

Company stops offering quantity discounts.



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Company should decide how to increase its price.

One-time.

In small amounts several times.

They should not appear as price gouger.

Customer memories are long and they can turn

against the company who appears as a price gouger.

Eg.



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Reaction to Price Changes

Any price change can evoke response from

customers

competitors

suppliers

distributors

government



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Customer Reactions

Customers often question the motivation behind

price change.

A price cut can be interpreted as

A new model will replace the existing one.

Item is faulty and not selling well.

Firm is in financial trouble.

Price increase which deter sales may carry somepositive meaning.



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Competitor Reaction

Most likely to react when no. of firms are few,

product is homogenous, buyers are highly informed.

Market share objective It is likely to match the

price change. Profit-Maximization objective

Increase the advertising budget

Improve product quality A competitor can put different interpretations on

price cut.


d


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Responding to competitors price

change

Homogenous product markets

Non-homogenous product markets



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Brand leaders reaction

Maintain Price

It would lose too much profit otherwise

It would not lose much market share

It could regain market share

But the disadvantage is that the competitor gets

more confident

Maintain Price and add value It can improve its product, services and

communications.



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Reduce Price

It costs fall with volume

Market is price sensitive

It would be hard to rebuild market share

Increase Price and improve profitability

It might raise its price and introduce new brands.

Launch a low-price fighter line

It might add lower priced item to the line



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Price Reaction Program for meeting a customers

price cut

Has the competitor cut his

price?

Hold our price at current level ;

continue to watch competitors

price

Is the price likely to

significantly hurt our

sales?

Is it likely to be a

permanent price cut?

By 2-4 %

Drop price by half of

competitors price cut

By less than 2%

Include a cents-offcoupon for next

purchase

How much has hisprice been cut?

By more than 4%

Drop price to

competitors price



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Best Response

Varies with situation

Products stage in the life cycle

Its importance in companys portfolio

Competitors intention and resources

Markets price and quality sensitivity

Behavior of costs with volume



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References:

Marketing Management Philip Kotler



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Thank You!!

Adaptive+Pricing

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