This document discusses pricing strategies and considerations. It covers: 1) Assessing customer value perceptions and price sensitivities using methods like economic value analysis and conjoint analysis. 2) Identifying optimal pricing structures like quantity discounts, bundle pricing, and mixed bundling. 3) Considering competitive reactions and using techniques like price signaling, asymmetric pricing, and game theory. 4) Monitoring transaction prices and assessing customer emotional responses to pricing like reference prices and perceptions of fairness.

1. Pricing Presented by: Dewasish GhoShal PGDM(A ) NAARM,Hyderabad

2. Pricing Playing Field Economic Value Variable Costs Company Policies, Goals Competition Customer Company Competition Collaborators Price Sensitivity Fairness Goals Situation * Market Share * Costs Situation *Market Share *Costs Cooperation Differentiation Distribution Channels

3. Managing a price decrease: P&G and EDLP Price reduction Value pricing Strategy Customer Competitor Costs Demand for greater value Promotions: Switching excuse Customer confusion Superior quality Value price Rationalize product line Rise of the discounter Prisoner’s Dilemma Private labels Rise of EDLP High cost of promotions Channel inefficiency Strain on manufacturing Brand image through advertising

7. Profit Growth, Volume Growth, or Both? Manager’s Dream Tradeoff Zone Manager’s Nightmare Tradeoff Zone Quadrant I Quadrant II Quadrant III Quadrant IV Volume growth negative Volume growth positive Profit growth positive Profit growth negative

8. Pricing Goal Matrix Volume growth negative Volume growth positive Profit growth positive Profit growth negative Profit Volume Profit Volume Profit Volume Profit Volume Reduction of too high price Increase of too low price Increase of price beyond optimum Decrease of price below optimum

15. Analysis for Below-Ground Irrigation (/100ft) Crop Loss Reduction $0.40 - $0.48 Labor Savings $3.00 - $3.60 Replacement Savings: $0.31-$0.39 Cost of Substitute $6.50 Differentiation Value Reference Value Total Economic Value $10.21-$10.97 Cost of Substitute=$6.50 Failure Rate from 8 to 3% Value=6.5*1.08/1.03=6.81 Failure Rate from 7 to 1% Value=6.5*1.07/1.01=6.89 Added Value=$0.31-$0.39 Labor cost of pipe replace- ment=$60. Failure rate drops 5-6%, Savings=$3.00 to $3.60 Crop damage cost = $0-40 Probability of $40 = 0.2 Failure rate drops 5-6% Savings=40*0.2*0.05=0.40 =40*0.2*0.06=0.48

16. Analysis for Pipe Extruders (per pound) Added Value to Extruder’s Product $0.228-$0.275 Cost of Substitute $0.280 Positive Differentiation Value Reference Value Sales Decline -$0.01 Risk -$0.020 Higher Sales Expense -$0.080 Negative Differentiation Value Total Economic Value $0.398-$0.445 Cost of cheapest resin = $0.28 / lb. # lbs. per 100 feet of pipe = 16.25 Value of 100 feet = $10.21 (min.) Added value / lb = (10.21-6.5)/16.25=$0.228 Sales decline due to lower replacement Risk due to single supplier (DuPont)

25. Price Response Estimate for a PC at Vobis

26. Purchase Intentions for Instant Cameras Kodak’s analysis of a next-generation instant camera - purchase intent on a 7-point scale

27. Price Response Curve for Instant Cameras

28. b) Conjoint analysis What would you prefer? Type a number from the scale below to indicate your preference 4-cup Capacity 9-minute Brewing Time $18 8-cup Capacity 3-minute Brewing Time $28 OR Strongly Prefer Left Strongly Prefer Right 1 5 9 2 8 7 6 4 3

30. Price Experiment for Mobile Phone 3 month period before experiment = 24%

32. Price Response Estimate Based on Historical Data Price DM 0.60 0.63 0.65 0.68 0.70 0.73 6 7 8 9 10 11 12 100 110 120 Profit Sales Volume Profit Index Volume (million units)

33. Evaluation of Different Methods

34. Empirical Estimates of Price Elasticities

37. Bundling Example: Mobile Phone Operator

38. Optimal Pure Components Pricing Pv = 8 Ph=8.5 Group 4 Group 3 Group 2 Group 1 Price for Voice Mail Price for Hot Line

39. Optimal Pure Bundling Price Group 4 Group 3 Group 2 Group 1 Price for Voice Mail Price for Hot Line

40. Optimal Mixed Bundling Price Group 4 Group 3 Group 2 Group 1 Price for Hot Line Ph=9 Pv=9 Pv+h=13 Price for Voice Mail

48. Prospect Theory Reference Price Reference Price - Actual Price Actual Price - Reference Price Utility Disutility

52. The Pricing Audit Our pricing process High/Med/Low Current Performance Poor Excellent (Qualities) Relevance 1 2 3 4 5 1. Complements Marketing Strategy 2. Co-ordinated & Holistic (Steps) 1. Assess value to customers 2. Consider variation in value 3. Assess price sensitivity 4. Optimal pricing structure 5. Consider competitive reactions 6. Monitors on transaction level 7. Customer emotional response 8. Analyze revenue Vs. cost to serve Added Comments