Initiating and Responding to Price Changes

Ankeita MallS.G.S.I.T.S.

When should a company initiate a price change?

Companies often need to cut or raise prices

Initiating Price Cuts

Reasons for Price Cuts

• Excess Plant Capacity• To dominate the market

through lower costs• To increase market

share

A Price Cutting Strategy may lead to

1.Low Quality Trap

2. Fragile Markey Share Trap(Low price doesn’t buy

market loyalty.Customers may shift to other brands)

3. Price War Trap

Respond to Low Cost Rival by

1. Maintaining Price and adding Value2. Reducing Price3. Increasing Price and Improving

Quality4. Launching a low price fighter line

Initiating Price Increase

Increasing PriceIn

creasi

ng P

rofitA successful

price increase can raise profits considerably

Ways of Increasing Price

Delayed Quotation Price- Setting Price at

later stages even after delivery

Escalator Clauses- Customers pay

current price as well as part of inflation that may take place before delivery

Unbundling- Companies price separately one or more

elements that were part of former offer

Reduction of Discounts-Companies instructs its sales not to offer its normal cash and quantity discounts

RECAP• Reasons of Price Cuts• Affects of Price Cuts1. Low Quality Trap2. Fragile market share Trap3. Price War Trap

• Ways to Respond to low cost Rival• Ways of Increasing Prices1. Delayed quotation pricing2. Escalator Clauses3. Unbundling4. Reduction of discounts

Created by ANKEITA MALL, S.G.S.I.T.S. , during an internship by Prof. Sameer Mathur, IIM Lucknow. www.IIMInternship.com