ITFT-Pricing stratigies

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Pricing Strategies

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ITFT-Pricing stratigies

  1. 1. Pricing Strategies 4/28/2014 ITFT College, Chandigarh 1
  2. 2. Price Determination: An Overview 4/28/2014 2ITFT College, Chandigarh
  3. 3. Demand Curves P Q D Quantity Price 4/28/2014 3ITFT College, Chandigarh
  4. 4. Price Elasticity of Demand % Change in quantity demanded Price Elasticity of Demand = % Change in price • Elastic Demand • Inelastic Demand • Cross Elasticity of Demand 4/28/2014 4ITFT College, Chandigarh
  5. 5. Costs, Volume, and Profits • Fixed Costs (FC) • Variable Costs (VC) • Total Costs (TC) • Marginal Cost MC) • Marginal Revenue (MR) • Total Revenue (TR) TC = (VC X Q) + FC Total Revenue = Price X Quantity Profits = TR - TC 4/28/2014 5ITFT College, Chandigarh
  6. 6. Price Determination Methods • Markup Pricing Price = Unit Cost + Markup Price = Unit Cost/(1-k)* *k = desired % markup or 4/28/2014 6ITFT College, Chandigarh
  7. 7. Price Determination Methods Break-Even Analysis Total Revenue Total Cost Fixed Cost BEP $ Quantity (units) Loss Profit 4/28/2014 7ITFT College, Chandigarh
  8. 8. Price Determination Methods • Target-Return Pricing (Desired return X Invested capital) Price = Unit Cost + Expected Unit Sales 4/28/2014 8ITFT College, Chandigarh
  9. 9. Price Determination Methods • Target-Cost Pricing 1. Define market segments for new product. 2. Product is designed based on competitive advantages and disadvantages. 3. Position product in context of overall company strategy. 4. Fine-tune product based on customer’s preferences, perceived value and willingness to pay. 5. Estimate various price-responsiveness with simulations. 6. Estimate target costs between optimal price and desired margin. 4/28/2014 9ITFT College, Chandigarh
  10. 10. Price Determination Methods • Income-Based Pricing • Real Estate • Marketable Securities • Businesses 4/28/2014 10ITFT College, Chandigarh
  11. 11. Prices and Customer Value 4/28/2014 11ITFT College, Chandigarh
  12. 12. Pricing Strategies Differential Pricing Second-market discounting Periodic discounting Competitive Pricing Penetration pricing Price signaling Going-rate pricing Psychological Pricing Odd-even pricing Customary pricing One-sided claims Product Line Pricing Bundling Premium pricing Partitional pricing 4/28/2014 12ITFT College, Chandigarh
  13. 13. B2B Pricing Strategies • New Product Pricing • Price Skimming • Penetration Pricing • Experience Curve Pricing • Competitive Pricing • Leader Pricing • Parity Pricing • Low-Price Supplier • Price Line Pricing • Complementary Product Pricing • Price Bundling • Customer Value Pricing • Cost-based Pricing • Cost-plus Pricing 4/28/2014 13ITFT College, Chandigarh
  14. 14. Adapting Prices: Decreases and Increases • Price Reduction Traps: 1. Low-quality trap 2. Fragile market share trap 3. Shallow pockets trap • Acceptable Price Range: • Prices the buyer is willing to pay. 4/28/2014 14ITFT College, Chandigarh
  15. 15. Adapting Prices: Reacting to Competitive Price Changes • Temporary retail price reductions substantially increase store traffic and sales. • Large-market-share brands are hurt less by price changes from smaller competitors. • Frequent price dealing lowers consumers’ reference prices, which may hurt brand equity. • Price changes for high-quality brands affect weaker brands and private-label brands disproportionately. 4/28/2014 15ITFT College, Chandigarh
  16. 16. Adapting Prices: Price Discounts and Allowances • Cash Discounts • Trade Sales Promotion Allowances • Quantity Discounts 4/28/2014 16ITFT College, Chandigarh
  17. 17. Adapting Prices: Geographical Pricing FOB Origin Pricing Uniform Delivered Price Zone Pricing Freight Absorption Pricing 4/28/2014 17ITFT College, Chandigarh
  18. 18. Competitive Bidding and Negotiated Pricing • Sealed-bid Pricing • Reverse Auctions 4/28/2014 18ITFT College, Chandigarh
  19. 19. Pricing Services Price is influenced by the nature of the service involved. The larger the market share, the higher the price that can be charged. Managing off-peak demand makes pricing services difficult. Bundling services into a single package and price is a common strategy. 4/28/2014 19ITFT College, Chandigarh

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