New Product Development & Pricing Strategies.

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Presentation given by Muneeb Iqbal, Adnan, Dr Owais, Shahid Naved ,Ali Shah & Haris Vakeel on "New Product Development & Pricing Strategies" (of Marketing Mix/4 P's) to Sir.Nouman Ashraf in the course of "Principles of Marketing" at Hamdar University City Campus (HIMS).
References:
Principles of Marketing, 12 th edition, Phillip Kotler & Gary Armstrong.

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New Product Development & Pricing Strategies.

  1. 1. Hamdard UniversityHamdard UniversityHamdard UniversityHamdard University .. 2007 - 2010 1Hamdard University Students
  2. 2. Muneeb IqbalMuneeb Iqbal AdnanAdnan Dr OwaisDr Owais Shahid NavedShahid NavedShahid NavedShahid Naved Ali ShahAli Shah Haris VakeelHaris Vakeel 2007 - 2010 2Hamdard University Students
  3. 3. NewNew ProductProduct DevelopmentDevelopment &&&& Pricing strategiesPricing strategies 2007 - 2010 3Hamdard University Students
  4. 4. NewNew ProductProduct DevelopmentDevelopmentDevelopmentDevelopment 2007 - 2010 4Hamdard University Students
  5. 5. DefinitionDefinition Development of original products, product improvements, product modification, and new brandsmodification, and new brands through the firms own R&D efforts. 2007 - 2010 5Hamdard University Students
  6. 6. New Product DevelopmentNew Product Development New Products can be obtained viaNew Products can be obtained via acquisition or developmentacquisition or development New products suffer from high failureNew products suffer from high failureNew products suffer from high failureNew products suffer from high failure ratesrates Several reasons account for failureSeveral reasons account for failure 2007 - 2010 6Hamdard University Students
  7. 7. New Product DevelopmentNew Product Development ImprovingImproving andand updatingupdating productproduct lineslines isis crucialcrucial forfor thethe successsuccess forfor anyany organizationorganization..successsuccess forfor anyany organizationorganization.. SWOTSWOT AnalysisAnalysis.. 2007 - 2010 7Hamdard University Students
  8. 8. New Product DevelopmentNew Product Development FailureFailure forfor anan organizationorganization toto changechange couldcould resultresult inin aa declinedecline inin salessales andand withwithdeclinedecline inin salessales andand withwith competitorscompetitors racingracing aheadahead.. 2007 - 2010 8Hamdard University Students
  9. 9. New Product DevelopmentNew Product Development ProductsProducts gogo throughthrough thethe stagesstages ofof theirtheir lifecyclelifecyclestagesstages ofof theirtheir lifecyclelifecycle andand willwill eventuallyeventually havehave toto bebe replacedreplaced.. 2007 - 2010 9Hamdard University Students
  10. 10. New Product DevelopmentNew Product Development TheThe EIGHTEIGHTTheThe EIGHTEIGHT StagesStages 2007 - 2010 10Hamdard University Students
  11. 11. New Product DevelopmentNew Product Development Idea generationIdea generation Idea ScreeningIdea Screening ConceptConcept Development andDevelopment and Business AnalysisBusiness Analysis Product DevelopmentProduct Development Test MarketingTest Marketing CommercializationCommercializationDevelopment andDevelopment and TestingTesting Marketing StrategyMarketing Strategy and Developmentand Development CommercializationCommercialization 2007 - 2010 11Hamdard University Students
  12. 12. Stage 1Stage 1..Idea generationIdea generation NewNew productproduct ideasideas havehaveNewNew productproduct ideasideas havehave toto comecome fromfrom somewheresomewhere.. ButBut wherewhere dodo organizationsorganizations getget theirtheir ideasideas forfor NPD?NPD? 2007 - 2010 12Hamdard University Students
  13. 13. Idea generation sourcesIdea generation sources Intelligence & Creativity.Intelligence & Creativity. Within the company i.e. employees.Within the company i.e. employees.Within the company i.e. employees.Within the company i.e. employees. Competitors.Competitors. Customers.Customers. Distributors, Suppliers and others.Distributors, Suppliers and others. 2007 - 2010 13Hamdard University Students
  14. 14. Stage 2.Stage 2.Idea ScreeningIdea Screening ThisThis processprocess involvesinvolves shiftingshifting throughthrough thethe ideasideas generatedgenerated aboveabove andandgeneratedgenerated aboveabove andand selectingselecting onesones whichwhich areare feasiblefeasible andand workableworkable toto developdevelop..2007 - 2010 14Hamdard University Students
  15. 15. Stage 3Stage 3..Concept Development andConcept Development and TestingTesting TheThe organizationorganization maymay havehave comecome acrossacross whatwhat theythey believebelievecomecome acrossacross whatwhat theythey believebelieve toto bebe aa feasiblefeasible idea,idea, however,however, thethe ideaidea needsneeds toto bebe takentaken toto thethe targettarget audienceaudience.. 2007 - 2010 15Hamdard University Students
  16. 16. Concept Development andConcept Development and TestingTesting What do they think about the idea?What do they think about the idea? Will it be practical and feasible?Will it be practical and feasible?Will it be practical and feasible?Will it be practical and feasible? Will it offer the benefit that theWill it offer the benefit that the organization hopes it will?organization hopes it will? Have they overlooked certainHave they overlooked certain issues?issues? 2007 - 2010 16Hamdard University Students
  17. 17. Stage 4Stage 4..Marketing Strategy andMarketing Strategy and DevelopmentDevelopment AA proposedproposed marketingmarketing strategystrategy willwill bebe writtenwritten layinglaying outout thethe marketingmarketingbebe writtenwritten layinglaying outout thethe marketingmarketing mixmix strategystrategy ofof thethe product,product, thethe segmentation,segmentation, targetingtargeting andand positioningpositioning strategystrategy salessales andand profitsprofits thatthat areare expectedexpected.. 2007 - 2010 17Hamdard University Students
  18. 18. Stage 5Stage 5..Business AnalysisBusiness Analysis TheThe businessbusiness analysisanalysis stagestage lookslooks moremore deeplydeeply intointo thethe cashcash flowflow thethe productproductdeeplydeeply intointo thethe cashcash flowflow thethe productproduct couldcould generate,generate, whatwhat thethe costcost willwill be,be, howhow muchmuch marketmarket sharesshares thethe productproduct maymay achieveachieve andand thethe expectedexpected lifelife ofof thethe productproduct.. 2007 - 2010 18Hamdard University Students
  19. 19. Stage 6Stage 6..Product DevelopmentProduct Development ThisThis stagestage isis aa prototypeprototype finallyfinally producedproduced.. TheThe prototypeprototype willwill clearlyclearlyproducedproduced.. TheThe prototypeprototype willwill clearlyclearly runrun throughthrough allall thethe desireddesired tests,tests, andand bebe presentedpresented toto thethe targettarget audienceaudience toto seesee ifif changeschanges needneed toto bebe mademade.. 2007 - 2010 19Hamdard University Students
  20. 20. Stage 7Stage 7..Test MarketingTest Marketing TestTest marketingmarketing meansmeans testingtesting thethe productproduct withinwithin aa specificspecific areaarea.. TheThe productproduct willwill bebe launchedlaunched withinwithin aaproductproduct willwill bebe launchedlaunched withinwithin aa particularparticular regionregion soso thethe marketingmarketing mixmix strategystrategy cancan bebe monitoredmonitored andand ifif needed,needed, bebe modifiedmodified beforebefore nationalnational launchlaunch.. 2007 - 2010 20Hamdard University Students
  21. 21. Stage 8Stage 8..CommercializationCommercialization ThereThere areare certaincertain factorsfactors thatthat needneed toto bebe takentaken intointo considerationconsiderationtoto bebe takentaken intointo considerationconsideration beforebefore aa productproduct isis launchedlaunched nationallynationally.. 2007 - 2010 21Hamdard University Students
  22. 22. CommercializationCommercialization TheThe factorsfactors areare timing,timing, howhow thethe productproduct willwill bebe launched,launched, wherewhereproductproduct willwill bebe launched,launched, wherewhere thethe productproduct willwill bebe launched,launched, willwill therethere bebe aa nationalnational rollroll outout oror willwill itit bebe regionregion byby region?region? 2007 - 2010 22Hamdard University Students
  23. 23. PricingPricingPricingPricingStrategiesStrategies 2007 - 2010 23Hamdard University Students
  24. 24. Pricing StrategiesPricing Strategies 2007 - 2010 24Hamdard University Students
  25. 25. Penetration PricingPenetration Pricing 2007 - 2010 25Hamdard University Students
  26. 26. Penetration PricingPenetration Pricing Price set to ‘penetrate the market’Price set to ‘penetrate the market’ ‘Low’ price to secure high volumes‘Low’ price to secure high volumes Typical in mass market productsTypical in mass market products –– chocolatechocolate bars, food stuffs, household goods, etc.bars, food stuffs, household goods, etc.bars, food stuffs, household goods, etc.bars, food stuffs, household goods, etc. Suitable for products with long anticipated lifeSuitable for products with long anticipated life cyclescycles May be useful if launching into a new marketMay be useful if launching into a new market 2007 - 2010 26Hamdard University Students
  27. 27. Market SkimmingMarket Skimming 2007 - 2010 27Hamdard University Students
  28. 28. Market SkimmingMarket Skimming High price, Low volumesHigh price, Low volumes Skim the profit from theSkim the profit from the marketmarket Suitable for products thatSuitable for products that have short life cycles orhave short life cycles orhave short life cycles orhave short life cycles or which will face competitionwhich will face competition at some point in the futureat some point in the future (e.g. after a patent runs out)(e.g. after a patent runs out) Examples include:Examples include: Playstation, jewellery, digitalPlaystation, jewellery, digital technology, new DVDs, etc.technology, new DVDs, etc. Plasma screens: Currently at high prices but for how long? 2007 - 2010 28Hamdard University Students
  29. 29. Product mixProduct mix PricingPricing Strategy for setting a product’s price changesStrategy for setting a product’s price changes when the product is a part of product mixwhen the product is a part of product mix Five product mix pricing situationsFive product mix pricing situations 1.1. Product line pricingProduct line pricing 2.2. Optional product pricingOptional product pricing 3.3. Captive product pricingCaptive product pricing 4.4. ByBy--product pricingproduct pricing 5.5. Product bundle pricingProduct bundle pricing 2007 - 2010 29Hamdard University Students
  30. 30. Product LineProduct Line PricingPricing Companies usually develop product linesCompanies usually develop product lines rather than single productrather than single product It is setting price steps between productIt is setting price steps between product line itemsline itemsline itemsline items For example Sony offers not just one typeFor example Sony offers not just one type of television but several lines of televisionsof television but several lines of televisions each containing many modelseach containing many models Thus men’s clothing stores might carryThus men’s clothing stores might carry men’s suits at three price levelsmen’s suits at three price levels 2007 - 2010 30Hamdard University Students
  31. 31. Optional ProductOptional Product PricingPricing Offering to sell optional or accessoryOffering to sell optional or accessory products along with their main productproducts along with their main product For example a car buyer may choose toFor example a car buyer may choose toFor example a car buyer may choose toFor example a car buyer may choose to order power windows cruise control, and aorder power windows cruise control, and a CD changer.CD changer. 2007 - 2010 31Hamdard University Students
  32. 32. Captive ProductCaptive Product PricingPricing Companies that make product that must be usedCompanies that make product that must be used along with the main product are using Captivealong with the main product are using Captive Product Pricing.Product Pricing. For Example: HFor Example: H--P makes very low margin on itsP makes very low margin on its printers but very high margin on printer cartridgesprinters but very high margin on printer cartridgesprinters but very high margin on printer cartridgesprinters but very high margin on printer cartridges and other supplies.and other supplies. In case of services this strategy is called twoIn case of services this strategy is called two--partpart pricing. the price of the service is broken into a fixedpricing. the price of the service is broken into a fixed fee plus a variable usage rate.fee plus a variable usage rate. Thus a telephone company charges a monthly rateThus a telephone company charges a monthly rate (the fixed fee) plus charges for calls beyond some(the fixed fee) plus charges for calls beyond some minimum numbersminimum numbers 2007 - 2010 32Hamdard University Students
  33. 33. ByBy--ProductProduct PricingPricing Setting a price for By Products in order toSetting a price for By Products in order to make the main product price moremake the main product price more competitive.competitive.competitive.competitive. 2007 - 2010 33Hamdard University Students
  34. 34. 2007 - 2010 34Hamdard University Students
  35. 35. Product BundleProduct Bundle PricingPricing Sellers often combines several of theirSellers often combines several of their products and offer the bundle at a reducedproducts and offer the bundle at a reduced price.price. Price bundling can promote the sale ofPrice bundling can promote the sale ofPrice bundling can promote the sale ofPrice bundling can promote the sale of products consumers might not otherwise buy,products consumers might not otherwise buy, but the combine price may be low enough tobut the combine price may be low enough to get them to buy the bundle.get them to buy the bundle. Thus theatres and sports teams sell seasonThus theatres and sports teams sell season tickets at less than the cost of single tickets.tickets at less than the cost of single tickets. 2007 - 2010 35Hamdard University Students
  36. 36. Value PricingValue Pricing 2007 - 2010 36Hamdard University Students
  37. 37. Value PricingValue Pricing Price set in accordancePrice set in accordance with customerwith customer perceptions about theperceptions about the value of thevalue of the product/serviceproduct/serviceproduct/serviceproduct/service Examples include statusExamples include status products/exclusiveproducts/exclusive productsproducts Companies may be able to set prices according to perceived value. 2007 - 2010 37Hamdard University Students
  38. 38. Price AdjustmentPrice Adjustment Segmented PricingSegmented Pricing Geographic PricingGeographic Pricing International PricingInternational Pricing Psycological PricingPsycological PricingPsycological PricingPsycological Pricing Promotional PricingPromotional Pricing Discount PricingDiscount Pricing AllowanceAllowance 2007 - 2010 38Hamdard University Students
  39. 39. Segmented PricingSegmented Pricing In segmented pricing, the company sells aIn segmented pricing, the company sells a product or service at two ore more prices evenproduct or service at two ore more prices even though the difference in prices is not basedthough the difference in prices is not based on difference in cost.on difference in cost. 1.1. Customer Segment Pricing.Customer Segment Pricing. 2.2. Product Form Pricing.Product Form Pricing. 3.3. Location Pricing.Location Pricing. 4.4. Time Pricing.Time Pricing. 2007 - 2010 39Hamdard University Students
  40. 40. Customer Segment Pricing :Customer Segment Pricing : Different customers pay different prices for the sameDifferent customers pay different prices for the same product or services.product or services. For Example: Museums charge different fee forFor Example: Museums charge different fee for students and senior citizens.students and senior citizens. Product Form Pricing :Product Form Pricing :Product Form Pricing :Product Form Pricing : Different version of the products are pricedDifferent version of the products are priced differently but not according to difference in theirdifferently but not according to difference in their costs.costs. For Instance, Black & Decker prices its mostFor Instance, Black & Decker prices its most expensive iron at $54.98 which is $12 more than theexpensive iron at $54.98 which is $12 more than the price of its next most expensive iron.price of its next most expensive iron. 2007 - 2010 40Hamdard University Students
  41. 41. Location Pricing :Location Pricing : Company charges different prices for differentCompany charges different prices for different locations even though the cost of offering eachlocations even though the cost of offering each location is the same.location is the same. For Instance Theatres varies their seat prices becauseFor Instance Theatres varies their seat prices because of audience preferences for certain locations.of audience preferences for certain locations. Time Pricing :Time Pricing : A firm varies its price by the season, the month, the day, andA firm varies its price by the season, the month, the day, and even the hour. Public utilities vary their prices to commercialeven the hour. Public utilities vary their prices to commercial users by time of day and weekend versus weekdays.users by time of day and weekend versus weekdays. For Instance: the telephone company offers lower offFor Instance: the telephone company offers lower off--peakpeak charges, and resorts give seasonal discounts.charges, and resorts give seasonal discounts. 2007 - 2010 41Hamdard University Students
  42. 42. Geographic PricingGeographic Pricing FOB PricingFOB Pricing Uniform Delivery PricingUniform Delivery Pricing Zone PricingZone Pricing Reference Base PricingReference Base PricingReference Base PricingReference Base Pricing Freight Absorption PricingFreight Absorption Pricing 2007 - 2010 42Hamdard University Students
  43. 43. International PricingInternational Pricing Uniform PricingUniform Pricing Pricing according to market objectivePricing according to market objective 2007 - 2010 43Hamdard University Students
  44. 44. Psycological PricingPsycological Pricing SaleSale Price Ending in 9Price Ending in 9 Sign posting/Loss LadderSign posting/Loss Ladder Price Matched GuaranteePrice Matched GuaranteePrice Matched GuaranteePrice Matched Guarantee 2007 - 2010 44Hamdard University Students
  45. 45. Psychological PricingPsychological Pricing 2007 - 2010 45Hamdard University Students
  46. 46. Psychological PricingPsychological Pricing Used to play on consumer perceptionsUsed to play on consumer perceptions Classic exampleClassic example -- £9.99 instead of £10.99!£9.99 instead of £10.99! Links with value pricingLinks with value pricing –– high value goodshigh value goods priced according to what consumers THINKpriced according to what consumers THINKpriced according to what consumers THINKpriced according to what consumers THINK should be the priceshould be the price 2007 - 2010 46Hamdard University Students
  47. 47. Loss LeaderLoss Leader 2007 - 2010 47Hamdard University Students
  48. 48. Loss LeaderLoss Leader Goods/services deliberately sold below cost toGoods/services deliberately sold below cost to encourage sales elsewhereencourage sales elsewhere Typical in supermarkets, e.g. at Ramadan, sellingTypical in supermarkets, e.g. at Ramadan, selling bottles Pepesi of 2 liter at Rs. 20 in the hope thatbottles Pepesi of 2 liter at Rs. 20 in the hope thatbottles Pepesi of 2 liter at Rs. 20 in the hope thatbottles Pepesi of 2 liter at Rs. 20 in the hope that people will be attracted to the store and buypeople will be attracted to the store and buy other thingsother things Purchases of other items more than covers ‘loss’Purchases of other items more than covers ‘loss’ on item soldon item sold e.g. ‘Free’ mobile phone when taking one.g. ‘Free’ mobile phone when taking on contract packagecontract package2007 - 2010 48Hamdard University Students
  49. 49. Promotional PricingPromotional Pricing Special event PricingSpecial event Pricing Cash rebateCash rebate Low intrest FinancingLow intrest Financing Long Warranty/Free MaintanceLong Warranty/Free MaintanceLong Warranty/Free MaintanceLong Warranty/Free Maintance DiscountDiscount 2007 - 2010 49Hamdard University Students
  50. 50. DicountDicount Cash DiscountCash Discount Quantity DiscountQuantity Discount Trade/ Functional discountTrade/ Functional discount Seasonal DiscountSeasonal DiscountSeasonal DiscountSeasonal Discount 2007 - 2010 50Hamdard University Students
  51. 51. AllowanceAllowance Trade in AllowanceTrade in AllowanceTrade in AllowanceTrade in Allowance 2007 - 2010 51Hamdard University Students
  52. 52. Going Rate (Price Leadership)Going Rate (Price Leadership) 2007 - 2010 52Hamdard University Students
  53. 53. Going Rate (Price Leadership)Going Rate (Price Leadership) In case of price leader, rivals haveIn case of price leader, rivals have difficulty in competing on pricedifficulty in competing on price –– too hightoo high and they lose market share, too low andand they lose market share, too low and the price leader would match price andthe price leader would match price and force smaller rival out of marketforce smaller rival out of market May follow pricing leads of rivals especiallyMay follow pricing leads of rivals especiallyMay follow pricing leads of rivals especiallyMay follow pricing leads of rivals especially where those rivals have a clear dominancewhere those rivals have a clear dominance of market shareof market share Where competition is limited, ‘going rate’Where competition is limited, ‘going rate’ pricing may be applicablepricing may be applicable –– banks, petrol,banks, petrol, supermarkets, electrical goodssupermarkets, electrical goods –– find veryfind very similar prices in all outletssimilar prices in all outlets 2007 - 2010 53Hamdard University Students
  54. 54. Tender PricingTender Pricing 2007 - 2010 54Hamdard University Students
  55. 55. Tender PricingTender Pricing Many contracts awardedMany contracts awarded on a tender basison a tender basis Firm (or firms) submitFirm (or firms) submit their price for carryingtheir price for carrying A European consortium led by Airbus recently won a contract to supply refuelling services to the RAF – priced at £13 billion! their price for carryingtheir price for carrying out the workout the work Purchaser then choosesPurchaser then chooses which represents bestwhich represents best valuevalue Mostly done in secretMostly done in secret 2007 - 2010 55Hamdard University Students
  56. 56. Price DiscriminationPrice Discrimination 2007 - 2010 56Hamdard University Students
  57. 57. Price DiscriminationPrice Discrimination Charging a differentCharging a different price for the sameprice for the same good/service in differentgood/service in different marketsmarkets Prices for rail travel differ for the same journey at different times of the day Requires each market toRequires each market to be impenetrablebe impenetrable Requires different priceRequires different price elasticity of demand inelasticity of demand in each marketeach market 2007 - 2010 57Hamdard University Students
  58. 58. Destroyer Pricing/PredatoryDestroyer Pricing/Predatory PricingPricing 2007 - 2010 58Hamdard University Students
  59. 59. Destroyer Pricing/PredatoryDestroyer Pricing/Predatory PricingPricing Deliberate price cuttingDeliberate price cutting or offer of ‘freeor offer of ‘free gifts/products’ to forcegifts/products’ to force rivals (normally smallerrivals (normally smaller and weaker) out ofand weaker) out of Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market. and weaker) out ofand weaker) out of business or prevent newbusiness or prevent new entrantsentrants AntiAnti--competitive andcompetitive and illegal if it can be provedillegal if it can be proved 2007 - 2010 59Hamdard University Students
  60. 60. Absorption/Full Cost PricingAbsorption/Full Cost Pricing 2007 - 2010 60Hamdard University Students
  61. 61. Full Cost PricingFull Cost Pricing –– attempting to set price toattempting to set price to cover both fixed and variable costscover both fixed and variable costs Absorption Cost PricingAbsorption Cost Pricing –– Price set to ‘absorb’Price set to ‘absorb’ some of the fixed costs of productionsome of the fixed costs of production Absorption/Full Cost PricingAbsorption/Full Cost Pricing some of the fixed costs of productionsome of the fixed costs of production 2007 - 2010 61Hamdard University Students
  62. 62. Marginal Cost PricingMarginal Cost Pricing 2007 - 2010 62Hamdard University Students
  63. 63. Marginal costMarginal cost –– the cost of producing ONEthe cost of producing ONE extra or ONE fewer item of productionextra or ONE fewer item of production MC pricingMC pricing –– allows flexibilityallows flexibility Particularly relevant in transport where fixedParticularly relevant in transport where fixed costs may be relatively highcosts may be relatively high Marginal Cost PricingMarginal Cost Pricing costs may be relatively highcosts may be relatively high Allows variable pricing structureAllows variable pricing structure –– e.g. on ae.g. on a flight from London to New Yorkflight from London to New York –– providingproviding the cost of the extra passenger is covered, thethe cost of the extra passenger is covered, the price could be varied a good deal to attractprice could be varied a good deal to attract customers and fill the aircraftcustomers and fill the aircraft 2007 - 2010 63Hamdard University Students
  64. 64. Marginal Cost PricingMarginal Cost Pricing •Example: Aircraft flying from Bristol to EdinburghAircraft flying from Bristol to Edinburgh –– Total Cost (including normalTotal Cost (including normal profit) = £15,000 of which £13,000 is fixed cost*profit) = £15,000 of which £13,000 is fixed cost* Number of seats = 160, average price = £93.75Number of seats = 160, average price = £93.75 MC of each passenger = 2000/160 = £12.50MC of each passenger = 2000/160 = £12.50 If flight not full, better to offer passengers chance of flying at £12.50 and fillIf flight not full, better to offer passengers chance of flying at £12.50 and fill the seat than not fill it at all!the seat than not fill it at all! *All figures are estimates only*All figures are estimates only 2007 - 2010 64Hamdard University Students
  65. 65. Contribution PricingContribution Pricing 2007 - 2010 65Hamdard University Students
  66. 66. Contribution = Selling PriceContribution = Selling Price –– VariableVariable (direct costs)(direct costs) Prices set to ensure coverage of variablePrices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costscosts and a ‘contribution’ to the fixed costs Contribution PricingContribution Pricing costs and a ‘contribution’ to the fixed costscosts and a ‘contribution’ to the fixed costs Similar in principle to marginal cost pricingSimilar in principle to marginal cost pricing BreakBreak--even analysis might be useful in sucheven analysis might be useful in such circumstancescircumstances 2007 - 2010 66Hamdard University Students
  67. 67. Target PricingTarget Pricing 2007 - 2010 67Hamdard University Students
  68. 68. Setting price to ‘target’ a specified profit levelSetting price to ‘target’ a specified profit level Estimates of the cost and potential revenue atEstimates of the cost and potential revenue at different prices, and thus the breakdifferent prices, and thus the break--even have toeven have to be made, to determine the markbe made, to determine the mark--upup Target PricingTarget Pricing be made, to determine the markbe made, to determine the mark--upup MarkMark--up = Profit/Cost x 100up = Profit/Cost x 100 2007 - 2010 68Hamdard University Students
  69. 69. CostCost--Plus PricingPlus Pricing 2007 - 2010 69Hamdard University Students
  70. 70. Calculation of the average cost (AC) plus a markCalculation of the average cost (AC) plus a mark upup AC = Total Cost/OutputAC = Total Cost/Output CostCost--Plus PricingPlus Pricing 2007 - 2010 70Hamdard University Students
  71. 71. Influence of ElasticityInfluence of Elasticity 2007 - 2010 71Hamdard University Students
  72. 72. Any pricing decision must be mindful ofAny pricing decision must be mindful of the impact of price elasticitythe impact of price elasticity The degree of price elasticity impacts onThe degree of price elasticity impacts on the level of sales and hence revenuethe level of sales and hence revenue Influence of ElasticityInfluence of Elasticity the level of sales and hence revenuethe level of sales and hence revenue Elasticity focuses on proportionateElasticity focuses on proportionate (percentage) changes(percentage) changes PED = % Change in QuantityPED = % Change in Quantity demanded/% Change in Pricedemanded/% Change in Price 2007 - 2010 72Hamdard University Students
  73. 73. Price Inelastic:Price Inelastic: % change in Q < % change in P% change in Q < % change in P e.g.e.g. a 5% increase in price would be met by aa 5% increase in price would be met by a fall in sales of something less than 5%fall in sales of something less than 5% Influence of ElasticityInfluence of Elasticity fall in sales of something less than 5%fall in sales of something less than 5% Revenue would riseRevenue would rise A 7% reduction in price would lead to a rise inA 7% reduction in price would lead to a rise in sales of something less than 7%sales of something less than 7% Revenue would fallRevenue would fall 2007 - 2010 73Hamdard University Students
  74. 74. Price Elastic:Price Elastic: % change in quantity demanded > % change in% change in quantity demanded > % change in priceprice e.g.e.g. A 4% rise in price would lead to sales fallingA 4% rise in price would lead to sales falling Influence of ElasticityInfluence of Elasticity e.g.e.g. A 4% rise in price would lead to sales fallingA 4% rise in price would lead to sales falling by something more than 4%by something more than 4% Revenue would fallRevenue would fall A 9% fall in price would lead to a rise in sales ofA 9% fall in price would lead to a rise in sales of something more than 9%something more than 9% Revenue would riseRevenue would rise 2007 - 2010 74Hamdard University Students
  75. 75. 2007 - 2010 75Hamdard University Students

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