Business marketing -module_5


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Business marketing -module_5

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Business marketing -module_5

  1. 1. Pricing Strategies in Business Marketing
  2. 2. What is Meaning of the Price? Price is the overall perception of value or the benefits that will vary in degrees of importance to the different individuals within the buying committee (buying Centre) of the buying firm. However there is no agreed formula on the importance to be given to various benefits(or attributes), different individuals in the buying centre will have different perception.
  3. 3. Factors influencing Pricing decision A business marketing firm has to consider many factors in its pricing decisions and they are: 1) Pricing objectives 2) Demand analysis 3) Cost analysis 4) Competitive analysis 5) Government regulations
  4. 4. Pricing Objectives It is derived from the corporate and marketing objectives. 1. Survival 2. Maximum short term profits 3. Maximum short term sales 4. Maximum marketing skimming 5. Product-quality leadership 6. Other pricing objectives
  5. 5. Demand Analysis Conditions determining price elasticity of demand: the demand is likely to be less elastic ( or inelastic) under the following conditions. • There are few competitors • No availability of substitutes • The high prices
  6. 6. Cost-Benefit Analysis Categorized in two benefits and they are: 1. Hard benefits, refers to physical attribute of the product such as production rate of a machine, rejection of a component, and price/performance ratio. 2. Soft benefits includes company reputation, customer service, warranty period, customer training and more difficult to assess.
  7. 7. Cost Analysis Company costs set the lowest point on the price range. Hence forth pricing strategy or decisions must consider the cost involved. The industrial marketer must identify and classify costs. And they are classified as Fixed costs, Variable costs, Total Costs, Semi variable costs, Direct costs, Indirect Costs and allocated costs The industrial marketer must understand and they are…..
  8. 8. Cost Analysis • Production costs • Accumulated experience helps in reduction of costs • The effect of break-even analysis on costs & sales volume
  9. 9. Production Costs Fixed, Variable, Semi Variable, Indirect and Direct costs TFC C o s t s AFC Production Total Fixed Costs & Average Fixed Costs
  10. 10. Total Variable Cost TC TVC FC TFC Total Cost
  11. 11. Production Costs Sl Number Cost Elements 1 Executive salary 2 Marketing Persons salary 3 Tax & Insurance 4 Depreciation 5 Interest on Capital Total Total Fixed cost per unit Sl Number Cost Elements 1 Direct Labour 2 Direct Materials 3 Factory Supplies 4 Inventory carrying Total Total Variable cost per unit Average Average cost Prof. Raghavendran.V per unit FIXED COSTS VARIABLE COSTS
  12. 12. Accumulated Experience Is also called as learning curve or Experience Curve. This concept costs ( particularly variable costs) decline as cumulative volume of production increases. In other words, the average unit total cost of a product declines over a period with accumulated experience of production and sales. Avg Cost Per Unit Accumulated Production
  13. 13. Break Even Analysis It is technique which is used by the marketer to consider different prices and their possible effects on sales volumes and profits. Sales Revenue @ 30 @ 25 @ 20 Total Cost FIXED COST
  14. 14. Competitor Analysis Competitive-level pricing as most important pricing strategy. An industrial Firm should get the information on not only competitor’s level prices and costs but also competitors product quality, technical expertise and delivery performance.
  15. 15. Government Regulations: BM should be aware of the effect of government regulations on pricing decisions. Though we free market economy, there are some necessary restrictions that must be placed on business to ensure fair play and to protect consumers and smaller companies. • Price discrimination • Predatory Pricing
  16. 16. Pricing Methods There are different methods or approaches to determine the price of the product. BM should be aware of those to implement it and they are as follows:  Cost Based Pricing  Value Based Pricing  Customer Determined Pricing  Competition Based Pricing
  17. 17. Pricing Strategies 1. Competitive Bidding & negotiation 2. Pricing New products 3. Pricing across the product-life cycle Competitive Bidding & negotiation: Strategy for competitive bidding, this is known as probabilistic bidding, this strategy make 2 assumptions and the pricing objective is profit maximization and buying organization will decide the order on the lowest bidder.
  18. 18. Three variables are used in this technique: Amount or price of the bid Expected profit, if the bid price is accepted and The probability of acceptance of this bid price. E(A)= P(A) * T(A) A= bid in Rs E(A)=Expected profit at bid price A P(A)=Probability of acceptance of the bid price A T(A)= Profit, if the bid price A is accepted
  19. 19. Pricing New Products: • Skimming (High Initial Price) • Low Penetration ( Low Initial Price) Pricing Across Product Life-Cycle • Growth stage Pricing Strategy • Maturity Stage • Decline Stage
  20. 20. Pricing Policies Key Terms Associated with pricing Discounts List Price Trade Discounts Quantity Discounts Cash Discounts Geographical pricing Ex-factory FOR & FOB destination Taxes and Levies
  21. 21. Leasing It is an alternative to selling capital goods is a common thing in business marketing. Basically it is arrangement between the leasing company (lessor) and the user (lessee) The lessee has to pay in form of rentals and lessor remains the owner of the equipment during the specified period. There are 4 types of leases viz, Operating Lease Financial Lease Sale and lease back transaction Leveraged lease
  22. 22. Cost Behavior at Different Production Levels – Economies of Scale Cost / Unit (in rupees) 300 200 100 0 100 200 240 300 Quantity Produced / Year (in thousand)
  23. 23. The Pricing Strategies Competitive bidding in competitive markets Probabilistic bidding Pricing new products Skimming strategy Penetration strategy Pricing across the product life-cycle Growth stage pricing Maturity stage pricing Decline stage pricing