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PRICING STRATEGY-
APPLICATION
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Strategic Pricing Question
Which combination of products to beoffered, when, where, and at what price
range, in order to realize the full profitpotential?
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PRICING METHODSMEASURING CUSTOMER REACTIONS TO PRICES
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Price Techniques
Absolute Methods : Response to brands price is obtainedin isolation and no other brand is compared Direct methods : price of brand is overtly mentioned before taking
response of customers). Example
Psychological price test Price sensitivity meter (PSM)
Indirect methods Randomized sequence of prices
Comparative methods : Response to brands price isobtained in comparison to other brands Brand Price Trade off (BPTO) Dekho or Puchho
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Psychological Price Test :DS - Gutkha(10 gm)
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Price Image
Price Image % of good value formoney
% Expensive
Brand A 20 56
Brand B 48 39
Brand C 68 16
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Price Sensitivity Meter (PSM) Developed by Van Westendorp in the mid 1970s
Respondent is shown a card with a wide price range eg 31 price points at5% intervals!with current/proposed price in the middle
The four questions: At which of these prices does the product become cheap ( or a good bargain) At which price does it become expensive !so expensive that you will no longer consider buying !so cheap that you will be concerned about its quality
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Monadic Pricing Studies
Single cell pricing research where respondentsare asked a single question about a product If a Coke can is priced at Rs 55, how likely are you to buy it?
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General issues with price survey techniques 3 flaws
Customers may deliberately understate their willingnessto pay
Customers may say a price that reflects how they wantthe person conducting the survey to view them, but doesnot reflect their actual willingness to pay.
Customers may simply be unsure about their willingnessto pay.
Source :MIT Open Source Pricing Course
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Brand Price Trade Off :Comparative Method
Bi-attribute modeling Brand and Price
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BPTO Process
Define the market for (test) brand and competition orconsideration set of respondents
Decide price range to be tested in line with actual price youintend
Respondents exposed to all prices starting form the lowestprice range
Suppose you were to visit your usual shop and find these brandsof!!!!..(mention product) at the price shown on this card,which of these brands would you be most likely to buy ?
Price of (first) chosen brand is increased and other brand pricesremain constant
Again the price of (second) chosen brand price is increasedirrespective of whether the second chosen brand is same as(first) earlier or not
This continues till brand reaches its highest price and isremoved from choice and process continues
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Brand Starting Price (Rs)
Pepsodent 47 48 49 50
ColgateStrong Teeth
37 38 39 40
Colgate Total 45 46 47 48
Close Up 44 45 46 47
Brand Starting Price (Rs)
Pepsodent 11 12 15 16
ColgateStrong Teeth 1 2 3 9
Colgate Total 4 5 6 7
Close Up 8 10 13 14
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Dekho aur Puccho - Observation Research
Low price unit self medication- throat lozenges (Halls,Strepsils etc.) or Vicks, Anacin etc.
Cost increased and wanted to increase the price from Rs.1.00 to 1.50 that is increase 50%
BPTO test was doneBrand A (TestBrand)
Brand B Brand C Brand D Brand E
1.00 0.50 0.75 0.50 0.75
1.25 0.75 1.00 0.75 1.00
1.50 1.00 1.25 1.00 1.25
2.00 1.25 1.50 1.25 1.50
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Dekho aur Puccho True to life
Test brand volume would fall by 62%, gainer would beBrand B (by 50%) and C (by 25%). Still, price wasincreased.
Results - No effect, six months later Brand B increasedthe price by Rs 0.50
Is technique faulty No Product category is the answer Questions to be answered:
Purchaser decide before or after reaching retail outlet Price awareness level of purchaser and competition level (least) Purchaser does comparison (No) Retailer influence (least) Brand value over brand price (High)
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Experimental approaches
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Proportion who bought at simulated shop
1923
Base price Base price + 12%
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VALUE (BENEFIT) PRICINGSTRATEGY - EVCEconomic value to customers Functional (Product)Benefit B2B
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Economic Value to ConsumersExample Heavy equipment manufacturer
Reference
Competitivealternative
for thiscustomer =Rs. 72,500
Addl warrantycost = -1050
Increased revenuefrom higher uptime
rental svc = 2350
Invoice processing& consistency
savings = 1500
Parts inventorypgrm savings =
1250Total offering
economic value$79,950
Differentiation value
=Rs. 7,450
Referencevalue
=Rs.72,500
Improvedresidual value
= 1200
Fuel economysavings = 2200
Source :MIT Open Source Pricing Course