SLIDES Prism 110-Pricing Policies & Procedures

Pricing of“Prizm 110” MotorbikebyWALTON

Abu Mohammad Zamilur Rahman

Roll. 177

Critical factors in the pricing decision of “Prizm 110”

Customer valuation: Rather than compete on price alone, marketers must think in terms of total value as perceived by the customer, or the combination of features and experiences that create a total customer perception of value.

What a customer will pay for a product depends on physical features, complementary features and symbolic features.


• Physical features of Prizm 110 include-

Engine Type(Single Cylinder, 4-stroke Air-cooling)Ignition System(CDI)

Engine Displacement(107cc)Battery Voltage(12 v)

Starting Method(Remote Control / Electric & Kick start)Transmission(4 gears)

Tyre Size(2.75-17/3.00-17)

• Complementary features of Prizm 110 include delivery, technical support, guarantee etc.

• Symbolic features of Prizm 110 include low cost, patriotism and to some extent prestige.


Market targets: For Prizm 110, Walton targets people who earn a medium amount.

Competitive dynamics: Prizm 110 fights with its competitors using low price. The competitor’s (Bazaz CT-100) reaction in pricing of Prizm 110 is very important. Sometime Walton provides discounts. Then Bazaz tries to reduce their price through discounts.

Pricing strategies: Walton uses cost based pricing for Prizm 110. In viewing price from the standpoint of cost means management concerns itself solely with covering costs, plus a return on investment.

Price structure of “Prizm 110”

A price structure is defined as a series of the price levels that represent how a product will be priced. These price levels allow flexibility in pricing by providing variations in price.

Walton does not sell Prizm 110 directly to the customers. They sell it to the distributor’s outlets adding a certain margin with the cost of producing Prizm 110. The distributors then sell directly to the customer. Walton gives 6% discount to the distributors. Distributors, sometimes, give 1% or 2% discount to the customers. The list price of Prizm 110 is BDT 1, 10,000.

Price structure of “Prizm 110”

List price BDT 1, 10,000Less 6% discount 6,600

Price level (Distributors) 1, 03,400

List price BDT 1, 10,000Less 2% discount 2,200

Price level (Customers) 1, 07,800

So, profit of the outlet is (1, 07,800 – 1, 03,400) = BDT 4,400.

Ethics in pricing of ”Prizm 110”

Walton imports engine and tyres of Prizm 110 from other countries. So, failure of engine or tyre can cost customers more. There is a disproportionately high price for replacing these parts.

Price of “Prizm 110” as part of the marketing mix

In using a marketing mix, the emphasis is on the fit of the elements or, in other words, the relationship of the elements with one another as they impact the total marketing program.

These interactions or interrelationships can be thought of in terms of

Consistency

Integration

Leverage

Price of “Prizm 110” as part of the marketing mix

Consistency is the logical and useful fit between elements. Prizm 110 is a medium quality product with a low price and mass distribution.

Integration is the active, harmonious interaction among the elements of the marketing mix. Prizm 110 does not use extensive advertising because of low selling price. Walton sometimes use promotional pricing for Prizm 110 by combining lower price with advertising.

Leverage in the marketing mix is obtained by using each element to the best advantage in support of the total mix. For Prizm 110, promotion pricing in form of rebates is more effective at building market share than either heavy advertising or improved distribution.

S.M. Zahidur Rahman

Roll. 45

Price of “Prizm 110” as purchasing information

Whether or not price provides information to the purchaser depends upon the inferred relationship between price and the product, and also the reliability of the relationship.

Reliability of price/quality relationship

Strength of price/quality relationship

HIGH

HIGHLOW

LOWSTAPLES

SHOPPING GOODS

POSITIONAL GOODS( Prism 110)

How consumer interprets price of “Prizm 110”

Consumers interprets price of Prizm 110 based on two factors –

Time Implications: Products that are readily available will often command a premium price as a trade-off with time costs. Prizm 110 is a readily available product. As the price of Prizm 110 is lower compared to other similar products in the market, customers perceive it as a low quality product.

Psychological Implications: Consumers rely on price in differentiating between products and forming impressions of product quality.

Price-quality relationship

If it is possible to measure quality, then quality differences can be compared to price differences.

To do this, we should know the meaning of value. Value can be determined by deducting price/cost of obtaining the product from features/benefits.

Comparative value can be determined using the following formula –

Cv =(QH - QL)/QL

(PH – PL)/PL


CV is the comparative value or the relative difference in value between a higher-priced product (H) and a lower-priced product (L).

Now we will find out the comparative values for comparisons between “Prizm 110” and “Bazaz CT-100”.

BRAND

Prism 110

Bazaz CT-100

QUALITY RATING

67

63

LIST PRICE (TK)

110000

120000


The comparative value for “Prizm 110” and “Bazaz CT-100” is computed as follows:

Cv =

=

=

(67-63)/63

(110000-120000)/120000

0.063492

-0.083333

-0.761908247

The comparative value -0.76 means that for every additional taka that is spent in buying “Prizm 110” rather than “Bazaz CT-100”, the comparative value decrease is BDT 0.76.

Reference prices used by Walton in “Prizm 110”

Walton use the reference price to invite comparisons with the current discounted price.

110000With 6% discount

NOW

103400

Odd-even pricing is not mandatory

Walton does not believe in odd pricing. They price their products on the basis of the cost of producing the product and a certain percentage of margin.

Md. Mihrab Anjum

Roll. 73

Cost Structure Pricing-“Prizm 110”

Allocation of Costs:

Allocation of costs for the purpose of pricing is not a simple task. Basically firms follow 2 types of cost allocation method. These are summarized below:

Allocation of costs based on activities of the firm: The theory behind such a system is that virtually all exist to support the production and delivery of today’s products.

Cost allocation on the basis of key determinants of competitive advantage: Based on the competitive advantages provided to the customers like features, quality, speed of delivery and convenience.

Cost Structure Pricing-“Prizm 110”

WALTON allocates the cost of production basing their activities related to the total production and distribution. Their cost allocation activities include: Import cost and duties, Local factory and labor costs, assembling costs, distribution to the retailers and outlets costs and taxes & vat.

Forecasting costs:Past costs are less important than current costs, and current costs are less important than what costs will be in the future. The challenge in making a pricing decision is to anticipate those categories of the cost structure that are more likely to change in the future. Walton Prizm 110 also emphasize in future costs, they also emphasize on customer demand and want to satisfy customer as much as they can.

Cost concepts related to “Prizm 110”

Fixed costs and variable costs:Fixed costs are the cost of being in business for a period of time and only vary from a time period to time period. Variable cost has a direct relationship to the level of activity. This kind of cost can be called unit cost. Walton does have this kind of costs but they do not want to disclose this kind of information to the public.

Incremental costs:Incremental cost can be increase because of change in managerial decision making. Walton also contains these kinds of cost because time to time they change the managerial decision.

Structural factors influencing costs of “Prizm 110”

Economies associated with volume:

In looking at the effect of volume on costs, it is necessary to consider the concepts of capacity, scale, and experience.

There are several reasons why utilization of capacity impacts product costs:

1.The variable costs accompanying increasing volume are relatively small or inconsequential in comparison with fixed cost.2.The savings from purchasing needed materials, supplies, and service in quantity.3.The savings from utilization of unproductive time, for example manufacturing machinery will have less down time.4.More efficient utilization of manpower in all areas of the firm.

Structural factors influencing costs of “Prizm 110”

Economies of scope:Economies of scope bring efficiencies based on variety rather than volume. Economies of scope exist where the same price of machinery can produce multiple products more cheaply in combination than separately. Walton is also doing this type of activity.

Outsourcing and balancing:Normally a business will retain longer production runs and shift by outsourcing and balancing shorter production runs. It is not uncommon for the larger firm to provide the machinery and equipment to be used by the smaller firm.

Md. Arif Al Hasan

Roll. 173

Pricing Approach of “Prizm 110”

Cost oriented pricing is used by Walton Company for Prizm 110.Walton always emphasizes on supreme priority to achieve customer satisfaction. To achieve this they always try to price their bike Prizm low. Their main target is local market. Local customer is very much price sensitive. But they also have to survive. So they first consider their cost and adding certain markup to cover cost and make profit.

Cost oriented pricing of Prizm 110 :

The lower cost of Prizm gives Walton a competitive advantage. Walton price Prizm bike based on total cost considering fixed and variable cost. Walton imports the engine and main parts of the bike from abroad at a low vat. They built some other additional parts and physical structure here in their factory.

Cost oriented pricing of Prizm 110 :

Then they assemble all the parts and built the final product ready to use. Before pricing the final product they consider all the costs.

Prizm price= Total cost + 10% profit on investment (Mark up)

Walton uses cost oriented pricing not only to earn immediate profit but also attract customer. As Walton is a new company and it’s products are also new, it use market penetration strategy.

Weakness of Prizm pricng strategy

• It ignores other marketing environment like as Walton price is low it can be viewed as not up to level product. Because this is a automobile product, price portrays it’s quality.

• Sometime Walton can not fulfill its desired volume.

• It’s low cost or pricing technique based on cost can not consider competitor’s product price like Bazaz, Hero Honda and Walton’s brand image is not so good so it will give a poor image to Walton.

How important is cost for Prizm Pricing

Cost is very important for Walton pricing for its bike.Because as competitive automobile market in Bangladesh where Indian bike position is very better .so as new Bangladeshi company Walton has to consider it’s cost and also has to make sure that it can survive in the market. As Bangladeshi customer is price sensitive so for Walton costs are very important. Through flexible cost oriented pricing over it all products Walton can achieve success in market competition and changes in customer behaviour.

Avijit Ghosh Dastidar

Roll. 97

The pricing environment

Pricing and segmentation strategy: It has been said earlier that Walton is following cost oriented pricing in their pricing strategy.

Walton segments the market according to the income class of the customers. Basically they target the middle class customers. The main motto of the Walton is to provide a quality bike within the income range of the customer. They offer the model prizm110 at 110000 where the others bikes in the market with same features costs at least 160000tk. As a result the middle class customers choose the model instead of others.

The pricing environment

Pricing objectives: Overall company objectives can be guided to pricing objectives. The pricing for the model prizm110 has some objectives. The common objectives of pricing should be like:

•Achieve a specific target return on investment or on net sales.•Maintain or enhance a market share•Meet or prevent competition•Maximize profits•Stabilize prices

Pricing strategy

The Walton mainly focuses on maintaining or enhancing a market share for the model prizm110. They set a lower price than competitors as they can grab the market of the middle class customers. They also do profits but their main focus remains in their market share. They are trying to attract the customers with their low pricing policy. Mainly there are many pricing strategies. Like:

•Skimming pricing•Prestige pricing•Penetration pricing•Expansionistic pricing•Preemptive pricing•Extinction pricing

Pricing strategy

Walton uses penetration pricing for the model prizm110. Penetration is a low price strategy designed to infiltrate markets and achieve a large market share for the firm. They set a low price for the model as their production cost is lower than their competitors. They offer a same quality in contrast with the competitors. Walton set the price below the competitor’s price as they can attract the middle class customers. This is possible only because Walton can produce the bike in a very low cost then the competitors. In Bangladesh the other companies mainly import bikes from foreign companies. But Walton import only some engines and parts. As a result they have to give little duty on that and they can sell the bike in a very low price. They are using penetration pricing in this way.

Discounts and allowances

Walton use discount and allowances in different steps in the selling. Walton sells the bike to the dealers or distributors. They give discounts and allowances to them to boost up the sales. The dealers give discounts to the final customer according to their profit plan. Walton makes profit by selling bike to the dealers and dealers make it profitable by selling to the customers. Walton sometimes gives discounts to the customers through their outlets.


There are many types of discounts and allowances offered by the dealers or manufacturers. Like:

•Quantity discounts•Noncumulative quantity discounts•Cumulative quantity discounts•Trade discounts•Seasonal discounts•Promotional discounts•Cash discounts


Walton offers quantity discounts to their dealers. A quantity discount is a reduction from the list or suggested price that is granted to encourage volume purchases. Walton offers quantity discounts to the dealers in different ways. Sometimes it is in percentage of sales and sometimes on dollar volumes. Walton gives promotional discounts to their dealers. Sometimes it is in the form of cash or in the form of a sweepstakes. Walton offers a free bike with their orders. Sometimes give cash volume with the total sales volume.


Cash discount is offered by the dealers to the customers. In Hatirpul outlet; they offer 2200tk cash discount to the customers in every purchase of the model 110 with a brand new Walton pressure cooker.

Outlet in Narayanganj offers 6% discount with every purchase of the model. In different outlets, dealers offer different type of discounts to the customers.

Fasiul Hoque Fahim

Roll. 29

“Prizm 110” in the international market

Most of the firms want to do business in international markets. The chance of gaining profit is huge in the international market. The most compelling reasons for entering the global market place are the sheer size of the market place and the limitless opportunities present. One of these opportunities is the leveraging of R&D investment.

“Prizm 110” in the international market

Walton BD does business with many of their products. Their main market is in the Middle East. But still now Walton does not export motorcycles to the foreign markets. So there is no chance to do business with the model prizm110. Walton only does business with the product in the domestic market.

Regulatory and political environments faced by the Walton “prizm 110”

The legal and political environment in every country in which a firm hopes to do business will impact significantly the pricing decisions. The most obvious are tariffs and duties. As Walton import parts and engines for producing motorcycles; they have to give tariffs or duties. This tariffs and duties create impact on the pricing decisions.

Other trade barriers like boycott, quota, blocked currency, exchange permits are not faced by Walton.

Regulatory and political environments faced by the Walton “prizm 110”

Tariffs and duties:

As Walton has to import only tyres and engines of prizm110, they have to give tariffs on it. The rate of tariff or duty is about 3 or 4%. Because of this low rate of duties, the Walton can offer prizm110 in a very low price.

Subassemblies and parts

Walton purchases most of the parts and materials locally and avoids import duties completely.

Inflation and price control

Walton has to face the problems of inflation in their pricing strategies. As Bangladesh is facing inflation often in their monetary environment, Walton has to face this. Because of the fluctuation of the inflation rate their profit margin change in frequent times.

As Walton does not export prizm 110 in the international market, they don’t have to face the terms like

• Monopoly pricing• Different pricing alternatives• Transfer pricing and others

SLIDES Prism 110-Pricing Policies & Procedures

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