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Agenda
By B Dr. Nripendra Singh
Pricing Policy
Negotiation Tactics & Pricing Setting Procedures
Value Communication
Communication, Value Selling Tools
Price Structure
Metrics, Fences, Controls
Value Creation
Economic Value, Offering Design, Segmentation
Price Level
Setting the Right Price for Sustainable Profit Cos. Ste. Goals and Cost structure; Customers p preferences and actual needs; Competitors pricing ; p p g and ste. Intent. Pricing P i i as a d i driver of profitability must h f fit bilit t have coordination between sales, mktg, fin & op. Due to complexity involved in pricing, Cos take short cuts short-cuts (reduce prices) for growth and send a wrong signal to customer. (Eg. Pharma Co.)
Set baseline prices based on type of value assessment and initial differential value capture rate
Key Questions: How much of the differential value should be captured for each segment? How much time and effort should I invest in assessing the value of my products? How should I adjust segment prices to account for different price sensitivities?
Refine preliminary prices with iterative process balancing tradeoffs between price, cost, and market response
Key Questions: What tradeoffs should I make between long-term strategic objectives and short-term market h tt k t responses to price changes? What types of analytical techniques are best suited to my product and market conditions? How can I estimate customer response to potential price changes?
Price Optimization
Profitability Analysis E ti ti C t Estimating Customer Response R
Key q y question: How much differential value should be captured in each segment?
The answer to this question can differ substantially across segments based on strategic considerations and differences in price sensitivity
OPTIONS/ PARAMETERS
PLC
EVE with External Data EVE with Internal Data Willingness-topay (Mgrl Est) Current P i C t Prices
Time Available for Price Setting New Prod with time in hand New Prod with time in hand When No time for EVE When No time to launch prod
Exp. Goods p (advertising) Exp. Exp Goods (Pharma) Search Goods Search S Goods
Sizeable with Prod. diff. Sizeable with Prod. diff. Small with little prod diff Small with S little prod diff
EVE with Decline/ Internal Data Mature WillingnessWillingness to-pay (Mgrl Est) Current C Prices Growth
Growth G
COSTS
COMPETITION
PENETRATION
High CMs Hi h CM High volumes Changes in volume drive profitability Small BE Sales Changes
NEUTRAL
Costs i il to C t similar t competitors Sufficient CM to finance adv, etc. p y Little excess capacity Incremental capacity is expensive
COSTS
CUSTOMERS
Low Price Sensitivity -Reference Price Effect -Price Quality Effect -Difficult Comparison Effect Eff t
High p g price sensitivity y -Total Expend Effect -Large Part of EndBenefit Little differentiation
COMPETITION
Limited threat of i opportunism Limited opportunity for scale economies Sustainable differentiation Low threat brands
Sustainable cost & d resource advantage Competitors not willing to retaliate Financial strength Aggressive small gg share brands
Avoid threat of retaliation li i Large share brands with a lot to lose Sustainable mktg mix g advantages Oligopolies
PRICE OPTIMIZATION
After prices are set, it needs to be optimized, based on potential customer response to new prices and the economics of price-volume trade-offs. 3 steps: 1) Select price points within the preliminary price range to begin testing. 2) Start the optimization process to evaluate the trade-off between cust response to new prices and the lost or gained margin margin. 3) Set final prices in order to begin implementation efforts with customers and the organisation. ff ih d h i i
Trans sactions
Num mber of
Profitability Analysis
It will depend upon the pricing environment i.e. No. of transactions Vs frequency of price changes 1) Incremental Break Even Analysis: appropriate for markets/cos. Where there are many transactions and prices change infrequently, can be implemented on a spreadsheet and easily combined with b th d t and managerial j d d il bi d ith both data d i l judgments t to make price adjustments that improve profitability. 2) Simulations: expand on a breakeven analysis by estimating the RISK of loosing cust and competitive response to a price change. The key issue is that whether demanding a higher price will RISK loosing the entire deal and a significant piece of business.
90%
-28% 28% -22% -14% -5% 0% 6% 20% 38% 64%
% Chang in Price ge P
What factors would affect your price sensitivity in making that decision? How would those same factors affect the p price sensitivity of some p y personal computer buyers differently?
THANK YOU