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Pricing Decision (Part-III (Pricing of Services-Key Issues (In certain…

- - - - Plant and machinery can be prevented from deterioration though idleness
      - The business would be ready to take advantage of improved business conditions later
      - The firm can continue to produce and use the services of skilled employees who are well trained and will be difficult to re-employ later if discharged
      - This avoids the competition of securing the business of the firm
  - - - Where stocks have been accumulated in large quantities and the market prices have fallen. This will save the carrying cost of stocks
      - To popularise a new product
      - Where materials are of perishable nature
      - Where such reduction enables the firm to boost the sales of other products having larger profit margin
  - - - Going Rate Pricing
      - Sealed-Bid Pricing
    - - Perceived Value
      - Marketing Strategies for Value Creation
        
        After identification and development, it designs a promotion program to convey the value of the products to the customers
        
        It chooses the right distribution channel through which its product will reach to the customers
        
        First it develops a product that satisfy the wants and needs of the customers
        
        At last, it has to design a pricing strategy that creates incentive to purchaser to buy the product and to seller to sell the product
      - Objective Value or True Economic Value (TEV)
        
        TEV = Cost of Next Best Alternative + Performance Differential
    - - Limitations
        
        The allocation of interdepartmental is based on arbitary basis; and
        
        The allocation overheads will require estimation of normal output which often cannot be done be precisely
- - - - Evolutionary Product
      - Me-too Product
      - Revolutionary Product
    - - Skimming Pricing_Reasons for adoptation
        
        The change of high price in the initial periods serves to skim the cream of the market that is relatively insensitive to price. The gradual reduction in price in the later year will tend to increase the sales
        
        This method is preferred in the beginning because in the initial periods when the demand for the product is not known the price covers the initial cost of production
        
        The demand is likely to be inelastic in the earlier stages till the product is established in the market
        
        High initial capital outlays, needed for manufacture, results in high cost of production
      - Penetration Pricing_Reasons for adoptation
        
        When there are substantial savings on large scale production.
        
        When there is threat of competition
        
        When demand of the product is elastic to price.
  - - - Reduce price to penetrate market future
    - - Price to match or beat competitor
      - Retain higher prices in some market segments
    - - Skimming Policy with high prices, but low profit margin due to high fixed costs
      - Penetration Policy to enter the market and gain a high share quickly or to prevent competitors from entering
    - - Cut price if not respositioning
      - Some increases in prices may occur in the late decline stage
  - - - Exchange rate fluctuation
      - Changes in market prices
      - Market Demand
    - - Initial outlay, R & D
      - Production cost
      - Marketing cost
      - Introduction dates
      - Product prices
- - - - Strategies
        
        Limit Pricing Strategy
        
        Collusion with rivals
        
        Predatory Pricing
        
        Cost-Plus Pricing
      - Non-Price Competition Examples
        
        Spending on Advertising, Sponsorship, and Product Placement
        
        Sales Promotion
        
        Trying to improve Quality and After Sales Servicing, such as offering extended guarantees
        
        Loyalty Schemes
- - - - Based on Customer's Past Behaviour
      - Based on Demographics
      - Based on Product Line
      - Based on Time Differential
    - - End-Benefit Effect
      - Shared Cost Effect
      - Total Expenditure Effect
      - Sunk Investment Effect
      - Difficult Comparison Effect
      - Price Quality Effect
      - Substitute Awareness Effect
      - Inventory Effect
      - Unique Value Effect
  - - - Conditions required for Price Discrimination
        
        The customers should not be able to resell the product of the segment paying higher price; and
        
        The chance of competitors' underselling in the segment of higher prices should not be possible
        
        The maker must be capable of being segmented for price discrimination
  - - - Avoid adverse effects on the rest of the economy
      - Encourage optimum utilisation of resources
      - Work towards better balance between demand and supply
      - Promote export
      - Provide an incentive for adopting improved technology and maximising production