1) The document analyzes pricing for a new electric butter knife product. Research methods including Van Westendorp and Gabor Granger were used to determine acceptable price points. 2) The research suggested an acceptable price range of Rs. 125 to Rs. 400, with an optimal price point of Rs. 200-300 based on customer surveys. 3) A cost analysis estimated the cost to produce the electric butter knife would be Rs. 123 per unit. Factoring in margins, a recommended retail price of Rs. 290 was determined to maximize revenue and market share.

1. PRICING AN ELECTRIC BUTTER KNIFE
PROJECT REPORT ON PRICING A NEW TO THE WORLD PRODUCT
Submitted by:
Sahil Chopra (46)
Saurabh Chhabra (50)
Udit Dobhal(63)
Vivek Sharma (65)

2. Table of Contents
Introduction....................................................................................................................................................... 2
Industry Analysis.............................................................................................................................................. 3
Firm and Firm Objective ...................................................................................................................................3
Target Segment................................................................................................................................................ 3
Product............................................................................................................................................................ 4
Pricing ................................................................................................................................................................ 4
Pricing Objective.............................................................................................................................................. 4
Pricing Strategy................................................................................................................................................ 5
Research Approach............................................................................................................................................. 5
Van Westendorp.............................................................................................................................................. 5
Gabor Granger................................................................................................................................................. 6
Analysis & Discussion......................................................................................................................................... 7
Cost Structure .................................................................................................................................................. 7
Price Points from Research Methods................................................................................................................. 8
Psychological Pricing........................................................................................................................................ 8
Recommendation ............................................................................................................................................... 8
Introduction

3. Industry Analysis
Industry Type
We are operating in the Indian “Kitchen Accessories” industry/market.
Industry Trends
The kitchen accessories market is part of the larger kitchen cookware market in India which is currently pegged at US $
320-360 million. The industry is currently experiencing high growth rates and is slated to grow at around 21% in the next
5 years. The industry is currently dominated by unorganized sector and only 35-40% is under the organized sector which
is dominated by Prestige, USHA, Hawkins etc. These companies primarily focus on the utensils category such as Pans
and Tawa and have a relatively low focus on accessories category. High growth rates and focus on traditional cookware
utensils present an attractive opportunity for new start-up companies with focus on innovative kitchen accessories and
gadgets to carve a niche for themselves in this sector.
Changing Consumer Behaviour
Increase in average income owing to the economic growth and changes in psychographic variables have caused a
significant shift in the consumer behaviour. No longer are the daily kitchen chores a domain of stay-at-home mothers.
Increasingly, people from different walks of life such as young working professionals, university students and young
fathers working from home are spending time in multitude of kitchen activities such as peeling, slicing, chopping, cooking
less time-consuming dishes etc.
Firm and Firm Objective
Name of the Firm: KITCHEN NEXT PVT. LTD.
Firm Mission
To develop innovative, easy to use and “light on pocket” products that help our consumers save time and effort while
attempting time consuming and often messy kitchen chores.
Firm Vision
To be a leader in the innovative “kitchen accessories” market by providing quality and cost-effective kitchen accessories
products to consumers in India.
Competitive Edge
“Kitchen Next” with its focus on developing innovative kitchen accessories which can increase the functionality of
existing mundane and archaic kitchen accessories as well as bring in new revolutionary kitchen accessories products
possesses a competitive advantage vi-a-vis larger players in the organized cookware sector which have focused on the
traditional kitchen utensils or electrical appliances. Products such as citrus sprayer, in-sink kitchen garbage disposer,
dish drainer or boil over safeguard have neither been introduced in India nor have high customer awareness. In addition,
products manufactured by the unorganized sector lack the quality and hence do not appeal to the urbane customers
the company plans to target.
Target Segment
The customer segmentation was done on geographic, demographic and psychographic parameters. The company has
identified the following target segments (and relevant customer profiles) for its upcoming innovative kitchen products:

4. UrbanHomemakers:- Rita, a mother of 2 lives in New Delhi. She loves to cook and experiment with different
western cuisines. After she has finished the morning household chores, she spends time indulging in her various hobbies
such as painting, writing a cooking blog, or on Saturday’s, hanging out with her lady’s club friends.
Young professionals: - Sumit and Veena both work in MNC’s in Mumbai. They have been married for the last
2 years. Sumit hails from Nagpur and Veena from Kanpur. They spend almost equal time in the kitc hen and make sure
to eat their breakfast together before venturing out into their corporate lives. Hectic work schedules are a norm and
hence both hate spending too much time in the kitchen.
Work from Home Warriors: – Jay is a work from home Dad who works in a well-known American
technology company in Bangalore. His wife works in an advertising agency and travels frequently. During the day, Jay
tries to balance between looking after his kids and completing his work tasks. Jay is always on the lookout for ut ility
gadgets which can help him save time in doing day to day household chores.
Product
“Kitchen Next” has identified a need in the market and has planned to launch an innovative Electric Butter Knife to
foray into the Innovative Kitchen Accessories market.
The "electric butter knife" is a revolutionary new kitchen product that will help you spread frozen butter on a slice of
bread quickly. Rechargeable lithium-ion batteries help heat the blade of the knife in a matter of seconds. The pre-heated
blade can then easily cut through frozen butter and apply the butter on a slice of bread in a smooth and even fashion.
The electric butter knife consists of a heat proof knife handle and its batteries can be recharged easily using any available
android mobile charger. The electric butter knife can apply butter on 100 loaves of bread on one full charge of battery.
Please refer the below representative image of the product:
Pricing
Pricing Objective
Revenue Maximization has been decided upon as the Pricing Objective. We seek to set a price that could help the
company maximize revenues by gaining rapid market share and establish a long-term customer base from the sale of
the product without focussing too much on profit in the short term.
Reasons for the same are:

5. 1. New company and hence, Low Brand Awareness.
2. New Product: This is a New to the world product and needs to be diffused in the society.
3. Long term goals: We are looking to establish a growing market share and a long-term customer base. This
would help our upcoming innovative products.
4. Expected Retaliation: The product employs the use of a technology that is easier to imitate, especially by
established players.
5. Price Sensitive Segment: The Kitchen Accessories buyers tend to be a bit price sensitive.
6. Low Entry Barriers: The entry barriers to the Innovative Kitchen Accessories market are low and hence the
primary aim is to maximize the customer base.
Pricing Strategy
Since the objective of the firm is to maximise revenue by rapidly establishing and growing its market share, the most
appropriate strategy to achieve the same is “Penetration Pricing”. Penetration pricing is used to enter a new market
by pricing the product aggressively. The primary objective for employing penetration pricing is to attract and grow market
share which would have a positive impact on the top-line. Here, penetration pricing would help establish a large customer
base which could be leveraged for upcoming products. The price would be high enough to cover for the variable costs
yet lower than what the firm believes is a good price for the product to maximise profits.
Research Approach
Considering that we are trying to formulate the price of a “new to the world” product, a mix of Gabon Granger and Van
Westendorp price research methods were used to triangulate an approximate price point at which the customers would
be willing to buy the product. Below are the details of the research methods used and the surveys employed:
Van Westendorp
The van Westendorp Price Sensitivity Meter (PSM) determines a range of acceptable prices and an optimal price point
based on an analysis of price/value ratings obtained from consumers. Key data analysed is from responses to questions
about what prices for a product or service are considered too high or too low. Plotting this information onto Price Maps
shows high/low price thresholds as well as the price point considered optimal.
A survey was conducted in-campus using google forms. After briefly describing the product including a representative
image of the product, the following 4 questions were asked to the respondents:
a) At what price would you consider the product to be so expensive that you would not consider buying it? (Too
expensive)
b) At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very
good? (Too cheap)
c) At what price would you consider the product starting to get expensive, so that it is not out of the question, but
you would have to give some thought to buying it? (Expensive/High Side)
d) At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)
The entire survey and the responses received can be accessed by clicking on the below link:
https://docs.google.com/forms/d/1iUJLVjPjFdNoOoIJmmA66ljfNIdfO0HPJxqdj3n_mOA/edit
A total of 93 responses were received. The data was further cleansed to remove outliers. For example, some of the
respondents quoted price of 50000 under the cheap category. In addition, data where too cheap, cheap, expensive
and too expensive was not in ascending order and hence not valid, was discarded. The remaining data set was
analysed using PSM (XLSTAT excel plugin was used to conduct PSA analysis). The following were the results of
the survey:
Indifference price point: 300; Optimal Price Point: 200; Point of Marginal Cheapness: 125; Point of Marginal
Expensiveness: 400

6. Based on the above, the acceptable price range was set at ₹ 125 to ₹ 400. The PSM graph has been included for
reference:
Please refer the below excel (PSM_Results.xlsx) for detailed PSM analysis and survey data.
PSM_Results.xlsx
Gabor Granger
The Gabor-Granger pricing method determines the price elasticity of products and services. It is particularly useful when
estimating the willingness to pay for a particular product and to find the revenue optimising points.
A survey was conducted in-campus using google forms. After briefly describing the product including a representative
image of the product, the following questions in a sequential nomadic order were asked to the respondents:
a) Would you buy product at ₹ 300?
b) Would you buy the product at ₹ 400?
c) Would you buy the product at ₹ 500?
d) Would you buy the product at ₹ 700?
e) Would you buy the product at ₹ 1000?
The entire survey and the responses received can be accessed by clicking on the below link:
https://docs.google.com/forms/d/18akmlbJcenxtiz38PPQRcsKlBar1CdDp3Qti5JLMaW0/edit?usp=sharing
The following were the results from the survey:
IDP=300
OPP=200
Acceptable price range
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0 200 400 600 800 1000 1200 1400 1600
CUMULATIVE%
PRICE
Price Sensitivity Meter (n=72)
Cheap / Expensive Not cheap / Not expensive Too cheap / Too expensive

7. As can be inferred from the above graph, maximum number of respondents were willing to pay the product at a
price point of ₹ 300 and this is the price point where the revenue is being maximized.
Please refer the below excel (GG_Results.xlsx) for detailed PSM analysis and survey data.
GG_Results.xlsx
Analysis & Discussion
Cost Structure
Cost structure plays an important role in deciding the price. Since, the product will be sold through retail outlets, it is
important to do analysis of the following components: -
1. Cost/unit to company
2. Distributor Margin
3. Retail Margin
63.16%
32.89%
10.53%
3.95%
1.32%0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
0 200 400 600 800 1000 1200
%ofcustomerswillingtopay
Price
Price Elasticity
14,400
10,000
4,000
2,100
1,000
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0 200 400 600 800 1000 1200
PredictedRevenue
Price
PredictedRevenuevs Price Level

8. 4. Technology Cost/unit in case of electric knife
5. Insulated Handle Cost/unit in case of electric knife
Assumptions made and Rationale Employed:
1. Average Price/unit of a normal butter knife in the market –150 ₹.
2. Average Price/unit of battery/technology in the electric butter knife –50 ₹.
3. Average Price/unit of insulated handle in the electric butter knife –10 ₹.
4. Distributor and Retail Margin both have been assumed to be 25% (Industry Standard).
5. Profit Margin of 25% for the traditional knife manufacturer has been assumed.
6. From the average MRP of a normal butter knife, we have made our way upwards to calculate the cost of a knife
by subtracting the Retailer and Distributor Margin. This comes out to be ₹ 63.
7. The average cost/unit of a normal butter knife has been used to estimate costs of the electric butter knife by
adding the cost of batteries and insulated handle. The cost (by factoring in assumptions comes out to be ₹
123).
8. By factoring in the costs present in the distribution chain and assuming a 25% margin for the manufacturer,
the MRP of electric knife comes out to be ₹ 292.
Please refer to the excel attached for the calculations and formula employed.
Cost Structure.xlsx
Price Points fromResearchMethods
The PSM research method gives us the range of 125 to 400 (lower to upper bound) with an indifference price point of ₹
300 and the optimum price point of ₹ 200. Indifference price point is the price point which would normally be expected
the proportion of respondents who think the product is a bargain matches those that believe it is expensive. The IPP
can be considered the "normal" price for this service. The Optimum Price Point (OPP) represents the amount at which
an equal number of respondents see product as too expensive and too cheap. This represents the "ideal" price for this
service
Gabor Granger tells us that ₹ 300 is the price at which the revenue is maximized, and maximum number of respondents
would buy the product at this price.
From the research methods, considering that the objective of the firm is to gain market share and maximise revenue, a
price of ₹ 300 would be suitable.
Psychological Pricing
Psychological Pricing is a pricing strategy that suggests that certain prices have a psychological impact on the customer.
Because customers are not perfectly rational and purchase decisions of products like ours are not usually taken in
isolation, carefully deciding the price points could generate more demand than what the survey models suggest.
From the above survey data, Indifference Price Point (IPP) and Optimum Price Point (OPP) has come out to be ₹ 300
and ₹ 200 respectively. As mentioned above, IPP is the normal price that could be charged.
The average price of traditional butter knife is ₹ 150. Although ~63% of our target customers have shown interest in
purchasing the product at ₹ 300, this feels like a significant increase. This happens because 150 is perceived as ‘100
something’ whereas 300 is perceived as ’300 something’. Hence, pricing the product at slightly less than ₹ 300 (to create
a ‘200 something’ perception) could have a positive psychological effect, pushing our sales up a bit without dampening
the revenue.
Recommendation

9. Based on the above-mentioned analysis, we believe that a launch price of ₹ 290 would be suitable for the electric butter
knife. ₹ 290 is very close to the indifference price point and to revenue maximising price (as calculated using the Gabor
Granger Method). In addition, the psychological effect of pricing it just below the barrier of ₹ 300 would have a positive
impact on product quantity sold in the market. The price is in line with the objective of the firm to maximise revenue by
rapidly gaining market share.