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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