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8/7/2019 Pricing & Tendering - Group I(100803)
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AGENDA:
WHAT IS PRICING & ITS IMPORTANCE
INDUSTRIAL PRICING
TYPES OF PRICING
TENDERING (e-TENDERING)
CASE STUDY: SCHNEIDER ELECTRIC
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Profit = Price x Volume - Cost
Lets start understanding the equation
There Are Only Three Profit Drivers
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(*) excluding any fix cost impact of volume growth
Price is definitely the strongest profit driver
A 10% improvementin
Profit
driver
Profit
Price
leads to a profit increaseof
100%
60%
40% (*)
30%
Old NewNewOld
$10M $16M$54$60
$10M $14M1.1M1M
$10M $20M$110$100
$10M $13M$27M$30M
Variable
unit cost
Sales
volume
Fixed
costs
Why is Price the most Important leverAssumptions: Fixed Costs = 30% of Sales, Variable Costs = 60% of Sales,
Profit = 10 % of Sales, Sales = 1 M items
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Optimizing the Price
The psychological Perception is what the Customer is ready to pay for a perceived
value of the offer.
Price
Perceived
Offer
Value
Customer Marketer
Overall
Values
Product
Values
Service
Values
Brand
Values
Cost
Values
4 types of related
Market Values
Price is a realization of what value customer puts to associated services, brand apart from product itself
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A broad perspective needed in examining the costs a particularalternative may present for the buyer.
Rather than making a decision on the basis of price alone, organizationalbuyers emphasize the total cost in use of a particular product or service.
Customer Cost-In-Use Components
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AGENDA:
WHAT IS PRICING & ITS IMPORTANCE
INDUSTRIAL PRICING
TYPES OF PRICING
TENDERING (e-TENDERING)
CASE STUDY: SCHNEIDER ELECTRIC
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Fig. 15.2
There is no easyformula for pricing an
industrial product orservice.The decision ismultidimensional.
The each interactivevariable assumessignificance.
Key Components Industrial Pricing
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Price Objectives
The pricing decision must be based on objectivescongruent with marketing and overall corporateobjectives.
The marketer starts with principal objectives and addscollateral pricing goals:
1. Achieving a target return on investment,2. Achieving a market-share goal,
3. Meeting competition.
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Price Elasticity of Demand
The rate of percentage change in quantity demandedattributable to the percentage change in price.
Factors of price elasticity,
The ease with which customers can compare alternatives.
The importance of the product in the cost structure.
The value that the product represents to a customer.
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The Life cycle of the product range
All product ranges follow a life curve, which reflects the different phases of anoffers life cycle.
For each phase, there are different prices and discounts.
High Price Penetration
Price
Market Price High Price
Introductionto Market
Market Sharetakeover
Maturity Decline
No DiscountDiscount
by quantity
Discount
by type of customer No Discount
Volume
Time
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Price Strategy
Price
Low High
Market Share
Low
High
A Price strategy is adopted depending on the following metric. A key action
related to price is taken based on where we lie in terms of market share vis a visPrice
Protection
Aim is to maintain high
market share by using low
prices as a barrier.
Discrimination
A high price will not prevent
you from gaining market
share.
PenetrationA low price is used to gain
quickly market share.
SkimmingA niche approach covering
a part of the overall market
using a high price policy.
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Sources of the Experience Effect
Learning by doing.
Technological improvements.
Economies of scale.
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Pricing Objectives
Some of the common objectives of pricing could be
Current profit maximization Seeks to maximize current profit taking into accountrevenue and cost, it can not be a good objective if it leads to lower long term profits.
Current revenue maximization Seeks to maximize current revenue with noregards to profit margins. The underlying objective is to maximize long term profits bygaining market share and lowering costs by economies of scale.
Quality leadership- Use price to signal high quality in an attempt to position theproduct as high quality.
Partial cost recovery An organization that has other sources of revenue may optfor partial cost recovery.
Survival In a situation like market decline and over capacity, the goal may be torecover the costs and remain in business.
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Pricing Methods
To set specific price levels to achieve pricing objective following methodscan be used.
Cost Plus Pricing- Set the price at production costs plus a certain margin
Market Based Pricing- See what the market is willing to offer for theproducts and adjust your margin structure accordingly
Value Based Pricing- Base the price on effective value of the productrelative to alternate products
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Break-Even PointCost-volume-profit (at a price) analysis
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AGENDA:
WHAT IS PRICING & ITS IMPORTANCE
INDUSTRIAL PRICING
TYPES OF PRICING
TENDERING (e-TENDERING)
CASE STUDY: SCHNEIDER ELECTRIC
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Types of Pricing
Penetration Pricing
Market Skimming
Value Pricing
Loss Leader
Psychological Pricing
Going Rate (Price Leader)
DISCOUNTING STRATEGIES:
TENDER PRICING:
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Penetration Pricing
price set to penetrate the market
Low price for high volumes
"Dumping"?
typical in mass market products
chocolate bars, food stuffs,household good, etc.
suitable for products with long lifecycles
useful for launching in new market
problem to raise price subsequently
Price
Quantity
Penetration Pricing
Whole
market price
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Market Skimming
High price, low volumes
Suitable for products with short lifecycles or soon facing competition(e.g. after a patent runs out)
e.g. Harry Potter hard-back,Playstation, digital technology, newDVDs, etc.
LCD and Plasma screens: Why are high prices falling?
Skim the cream (profit) off the topfirst pricing
high price for those willing to paythen aim at more price-sensitive
consumers.
Price
Quantity
Initialskimmingprice
Secondprice
Finalprice
Skimming Pricing
Sell at highprice beforereducing tonext price leveland repeat
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Value Pricing
Price set according to perceptionsabout the value of the product/service
e.g. status products/exclusiveproducts
Loss Leader
At International Supermarkets, e.g. milk, 5 gin at Christmas (people attractedto the store & buy other things)
Purchases of other items more than covers loss on item sold
e.g. Free mobile phone when taking on contract package
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Psychological Pricing
Play on consumer perceptions e.g. Rs. 995& not Rs. 1040 !
Links with value pricing high value goodspriced according to what consumers THINK
should be the price
Going Rate (Price Leadership)
Where there is a price leader, rivals can't compete on price too high & lose market share
too low & price leader matches price & forces smaller rival out of market
So follow pricing leads of rivals with dominant market share
Where competition is limited, going rate pricing may apply banks, petrol,supermarkets, electrical goods similar prices all outlets
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Discount Pricing
Trade
Quantity Seasonal
DiscountPricing
Sale Cash
Normally quoted price to end users is known as list price. Price is usually
discounted for distribution channel members and end users.
There can be several kinds of discounts some of them listed below.
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Tender Pricing
Many governmentcontracts awarded via atender
Firm (or firms) submittheir price for carrying outthe work
Purchaser then chooseswhich offers best value
Mostly done in secret
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Destroyer Pricing/Predatory Pricing
Deliberate price cutting or offer of free gifts/products to
force rivals (normally smaller & weaker) out & prevent
new entrants
Anti-competitive & illegal if proved
Absorption/Full Cost Pricing
Full Cost Pricing set price to cover both fixed & variable costsFull Cost Pricing set price to cover both fixed & variable costs Absorption Cost Pricing Price set to absorb some fixed costs of productionAbsorption Cost Pricing Price set to absorb some fixed costs of production
Price of some products in a portfolio therefore need not be full costPrice of some products in a portfolio therefore need not be full cost
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Contribution Pricing
Contribution = Selling Price Variable (direct costs)Contribution = Selling Price Variable (direct costs)
From break even analysisFrom break even analysis
Set price to cover variable costs+ a contribution to the fixed costsSet price to cover variable costs+ a contribution to the fixed costs
Similar to marginal cost pricingSimilar to marginal cost pricing
Cost-Plus Pricing
Calculate the average cost (AC) and add a mark upCalculate the average cost (AC) and add a mark up
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AGENDA:
WHAT IS PRICING & ITS IMPORTANCE
INDUSTRIAL PRICING
TYPES OF PRICING
TENDERING (e-TENDERING)
CASE STUDY: SCHNEIDER ELECTRIC
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Tendering
Tenders are Issued by PSUs (generally) for complying with GovernmentRegulations for buying products.
TYPES OF TENDERS:1.OPEN TENDERS: Tenders where multiple (empanelled or open)
Vendors are invited to bid for supply of Products or Services.
2.CLOSED / NOMINATION TENDERS: Tenders where nominated /Selected vendor are invited to bid for supply of Products or Services.Usually done for Monopolistic Products and where purchaser doesnthave much option.
(eg.: Microsoft, Essel ProPack, Oil PSUs, etc.)
3.INTERNATIONAL TENDERS: Tenders where companies or countrieswant to buy products and invite international vendors / Govt.s withrelevant experience.
(eg.: Telecom, Infrastructure Tenders).
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Tendering Process Details:
Tendering Process Involves:RFI (Request for Information): Optional process in Tendering
- Interested Parties to provide details to Tendering Organisationon how best they need to implement the technology orspecifications for the Tender.
RFQ (Request for Quotation) Once Company has decided onwhat to buy, they send out a RFQ (to parties who are
empanelled or to Open parties) for the products / services thatthey want to buy.
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TENDER CONTAINS:INTRO LETTER: Company Brief Description, Project
Description
GENERAL COMPLIANCE: Qualification Criterias, etc.
TECHNICAL COMPLIANCE: Technical Details of Products,Compliance & Deviation Documents.
PRICE BID: Commercial Proposal for Products / Services.
COMMERCIAL FORMAT: Format of Commercial Bid.
TERMS AND CONDITIONS: Payment Terms, LDs, Penalties,etc.
SPECIAL TERMS AND CONDITIONS: IPR, DocumentFormats, Industrial Norms, etc.
Tendering Process Details:
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Pricing in Tendering
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What is e-Tendering / e-Procurement?
E Tendering is a process of carrying out entire Tendering Cycle Onlineincluding submission of Price Bid such that Efficiency, Economy, Speedof Internet can be harnessed.
E Tendering Cycle can be broken in Key Modules
1) Tender Notice Creation 7) Tender Storage & Opening
2) Tender Promotion 8) Tender Evaluation
3) Tender Document 9) Negotiation
4) Pre Bid Meeting 10) Tender Award
5) Bid Submission 11) Vendor Registration & Rating
6) Payment Gateway 12) Tender Audit & Storage
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Benefits of e-Tendering / e-Procurement
Completely Automated Process
Shortens Procurement Cycle
Economical and Environment Friendly
Greater TransparencyImprovement in work culture in the departments
System aided Evaluation process
On the fly reports/comparatives statement
Minimize Human errorsMinimal Storage Spaces
Change in Perception Progressive Organization
Lesser hassle of communication and administration
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Benefits to Suppliers/Contractors
Anytime & Anywhere Bidding
Fair, Free and Fearless participation for vendors.
No dependence on Newspaper, Courier, Banks,
Zero Administrative hasslesCan carry out all activities from any computer
Economical saving on Traveling cost
Reduces efforts & cost of bidding
No tenders can be missed because of distanceCan submit bid on last minute
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Manual v/s E Tendering System
Manual Tendering System
Longer Procurement Cycle
Expensive
Paper Based Procurement
Restricted MobilityNo work on Holidays
Prone to Human errors
Content not sharable
Physical Security
Wastage of space to store bids
Not retrievable
Ideal till 2003
E - Tendering System
Shorter Procurement Cycle
Economical Fixed Cost
Environmentally Friendly
Anytime Anywhere Bidding
Bidding possible on Holidays
Automated & Accurate process
Shareable Content
Foolproof SecurityLifelong storage on CD
One click access to bids
For year 2004 & Beyond
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Is e-Tendering Secure?
E Tendering Challenges
Detecting whether document is Tampered or not
Identifying a person in the faceless world of Internet
Non RepudiationDocument Secrecy
Bidding should not be allowed after due date and time
Bids cannot be opened before due date and time
Bids can only be opened by authorized officers
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Digital Certificate
Public KeyPrivate Key
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Digital Certificate
Digital Certificate is your InternetPassport
Digital Certificate come with 1 / 2Years validity
Can be procured easily, in less
than 8 HoursList of licensed Certifying Agency(CA)
TCSN Code (GNFC)
SafescryptMTNLNIC
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AGENDA:
WHAT IS PRICING & ITS IMPORTANCE
INDUSTRIAL PRICING
TYPES OF PRICING
TENDERING (e-TENDERING)
CASE STUDY: SCHNEIDER ELECTRIC
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SEI
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The global specialist inenergy management
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Offering integratedsolutions for segmentslike Electrical Energy Water & waste water Oil & Gas
Marine Mining, Mineral, MetalsData centresOfficesHospitals HotelsRetailNuclearMachines
From plant to plug, helping customersmake the most of their energy5 end markets
Energy and infrastructure
Industry
Data centres & networks
Buildings
Residential72%part of the worldwideenergy consumption ofthese five markets
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A long presence in India
Steady Progress
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Our Key Pricing Practices & Process
Product Prices are calibrated twice ayear based on market conditions.
Discount control is done via
commercial validation process.
Rate contracts with customers arenegotiated every year.
Commercial policy (std discounts) arealso calibrated every year.
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Our offer is divided into these three categories and prices are determined using the
following principle:Pricing Products classified A (Window) to be competitive.
Increase price, without bothering the competitiveness, the prices of products
classified B and/or C (Shadow - Blind).
The Offer Classification
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Segmentation access channel
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Questions & Comments:
THANK YOU