...SUMMER 2007 V O L . 4 8 N O. 4 Arvind Sahay How to Reap Higher Profits With Dynamic Pricing Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published. REPRINT NUMBER 48415 pricing How to Reap Higher Profits With Dynamic Pricing S un Microsystems Inc. chairman Scott McNealy forecast that “With recent advances in wireless and information technology, even our cars could … call for bids whenever the fuel tank runs low, displaying a list of results from nearby gas stations right on the dashboard.”1 It sounds far-fetched. But dynamic pricing — where prices respond to supply and demand pressures in real time or near-real time — is making inroads in many different sectors, including apparel, automobiles, consumer electronics, personal services (such as haircuts), telecommunications and second-hand goods. The advent of the Internet led to cost transparency, decreased search costs and ease of price comparison. Some observers concluded that as a result, prices would decrease and equalize across different channels, and that fixed prices would continue to be the norm.2 However, price dispersion continues to be widespread and dynamic pricing is entering new sectors. EBay Inc. used auctions to sell more than $20 billion worth of goods in 2005. Ford Motor Co. sold more than $50 billion worth of automobiles in North America with demand-based DP in 2003...
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...decisions a firm has to make relates to pricing its products or services. If consumers or organizational buyers perceive a price to be too high, they may purchase competitive brands or substitute products, leading to a loss of sales and profits for the firm. If the price is too low, sales might increase, but profitability may suffer. Thus, pricing decisions must be given careful consideration when a firm is introducing a new product or planning a short or long- term price change. Price and Pricing defined Price is the money, good or service exchanged for the ownership or use of a good or service. Examples of various names of price are tuition for education, rent for use of asset, interest for use of money and fare for use of taxi or a bus ride. Pricing may be defined as those activities involved in the determination of the price at which products that will be offered for sale considering the various objectives of the firm. Demand Influences on Pricing Decisions Demand influences on pricing decisions concern primarily the nature of the target market and expected reactions of consumers to a given price or change in price. Three primary considerations are demographic factors, psychological factors and price elasticity. 1. Demographic Factors In the initial selection of the target market that a firm intends to serve, a number of demographic factors are usually considered. Demographic factors that are particularly important for pricing decisions include the following: ...
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...service is a luxury exclusive service and pricing it high will help imprint that style image into the consumers mind. Many people believe you get what you pay for. A market research team will verify this willingness to pay a high price and thus support the demand curve. In the interest of being practical, variable and fixed costs need to be carefully calculated. A products price must cover cost plus yield a fair profit. In these figures, distribution and promotion decisions must be weighed. DirecTV should anticipate that the demand curve for a technological savy luxury electronic item will be inelastic. Maximizing profit margin should be DirecTV’s goal and realizing that the higher price may drive some consumers out of the market. The high price will still signal high quality and again will feed into the luxury positioning. For new luxury products with a select target group of households with abundant disposable income a good practice to maximize profit margin with skim pricing. This is especially effective when demand is expected to be relatively inelastic. Our target market, technologically savy upper class with disposable income, does not tend to be price sensitive. The plan is to skim the cream off the top. As the product life cycle progresses, there will be likely be changes in the demand curve and cost. At this time, the pricing policy will be re-evaluated. Although skimming is the basic component of the pricing strategy, there are...
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...and Perceived Quality Measuring customer value * Company This stresses on the alignment of marketing strategy with pricing strategy Price In arriving at price, the following factors were considered. * Price sensitivity of target segment: Notably within our target segment, they are not price sensitive given the differentiated product and service. * Price flexibility of target segment: In saying that however, the price sensitivity is wide since they are willing to pay high prices as well as low prices. In that sense the price band width is large within the targeted segment. * Importance of price: Price is relatively unimportant as other attributes such as health concerns and quality were ranked higher than price during the concept testing stage. Cost Price is assumed to be greater than variable cost since we are profit making enterprise * Variable cost: Costs are not that high given that supplies are bought in bulk and the buyer’s purchasing power is not that big given the frequency of deliveries. Brand Positioning: Given that The Bread Break positions itself as a premium product (refer to above) Pricing objective Has to be aligned with company and brand strategy The Bread Break is confident of capturing most of customers’ market value hence premium pricing is adopted Pricing tactics Used to enhance demand * Complimentary Pricing: This was done because since our survey has shown that our target segment would take to this as it would give them more...
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...Pricing is one of the four important elements of marketing mix. Pricing of the handheld scanner is based on production, advertising, and labor, after all these things are looked into a percentage is then considered to make a profit. For the handheld scanner to be successful a pricing strategy needs to be set into place and finding a price point. Setting a price for the new handheld scanner must follow several steps: With these steps incorporated the proper pricing strategy that will be appropriate for the handheld scanner is, Product Life Cycle Pricing. This type of pricing is for unique products like the handheld scanner. Products have life spans, and go through cycles, the introduction, growth, maturity, and decline stages (Richards, 2012). The introduction cycle when the handheld scanner is introduced to such business as Wal-Mart and other retail stores, and this is when consumers and business become aware of the benefits of the handheld scanner. The growth cycle, is the cycle when the sales of the handheld scanner will be booming and the pricing of the scanner will be higher. The handheld scanner is a new technology and soon will be in high demand because of its capabilities, at this time setting the price higher will be the appropriate action. The maturity cycle, when profits are high, sales increase at a slow pace. Advertising expenses decrease because the handheld scanner is well known and both businesses and consumers have a strong awareness of the handheld...
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...beverages and not be affected to the customers’ purchasing power by any problem. From 2015, F&N had announced their soft drinks with 500ML price are just RM1 for each one. This pricing strategy are helpful for the company and giving customers many benefits. When we are feeling thirsty, we can go any convenience stores to find these soft drinks and solve our thirsty problems. For customers can buy more with the cheap price and focus on this products and also not looking for any expensive soft drinks in thirsty situation. The one of famous soft drink is 100Plus. As this products that can able to let patient to drink exactly the needs of the customers. Not only that, F&N also doing one of the similar pricing strategy for the customers. This means customers need to buy RM6+22oz F&N drink in a single receipt to get a soft drink. This pricing strategy able to sell more the slow-moving products and their goods to the customers and raise the sales. Even that, this pricing strategy also can let the customers become more loyal because the customers’ needs are satisfied by providing this. Another one pricing strategy is the multiple-unit pricing strategy has been deployed by F&N long time ago. Customers purchase the same products and can get a lower price than buying one. This pricing strategy not only able to get more sales, this also can attractive to the customers by this way. For example, F&N Orange is priced RM2 and if buy 2 of them so will only cost at RM3...
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...Pricing Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization. The remaining 3p’s are the variable cost for the organization. It costs to produce and design a product , it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organization. Pricing should take into account the following factors: 1. Fixed and variable costs. 2. Competition 3. Consumers To price this product we are going to use the cost based pricing method. The procedure of this method is that the product cost should be calculated first. To calculate the product cost we need to include the cost of operating the business, which includes raw materials, advertising, wages, rents, and other indirect cost incurred on the product. Once the product cost is calculated, then add the profit level to the product cost to get the selling price. We are using the market penetration pricing strategy to achieve high volumes of sales and deep market penetration of our new product. Calculation of selling price of our product Direct material cost Rs: 10.00 Direct labor cost Rs : 08.00 Variable production overhead Rs: 15.00 Fixed production overheads Rs : 10.00 Total cost ...
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...PRICING AND PRICING POLICIES PRICING Pricing is the process whereby a business sets the price at which it will sell its products or services. It is a method adopted by a firm to set its selling price. It usually depends on the firm's average costs, and on the customer's perceived value of the product in comparison to his or her perceived value of the competing products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation. See also pricing strategy. PRICING POLICIES Pricing policy refers how a company sets the prices of its products and services based on costs, value, demand, and competition Pricing Policies provide the framework and consistency needed by the firm to make reasonable, practicable, and effective pricing decisions. Although policies in any area of management are difficult to develop, firms with a well-established set of pricing policies usually make consistently better pricing decisions than firms without such policies. STEPS IN SETTING A PRICING POLICY 1.) Selecting the Pricing Objective – it is where the company wants to position its product a. Survival b. Maximum Current Profit - estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment. c. Maximize Market Share/ Market Penetration – low price d. Maximum Product Skimming...
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...Developing Pricing Strategies and Programs Price is the one element of the marketing mix that produces revenue; the other elements produce costs. Prices are perhaps the easiest element of the marketing program to adjust; product features, channels, and even communications take more time. Price also communicates to the market the company’s intended value positioning of its product or brand. A well-designed and marketed product can command a price premium and reap big profits. But new economic realities have caused many consumers to pinch pennies, and many companies have had to carefully review their pricing strategies as a result. For its entire century-and-a-half history, Tiffany’s name has connoted diamonds and luxury. Tiffany designed a pitcher for Abraham Lincoln’s inaugural, made swords for the Civil War, introduced sterling silver to the United States, and designed the “E Pluribus Unum” insignia that adorns $1 bills as well as the Super Bowl and NASCAR trophies. A cultural icon—its Tiffany Blue color is even trademarked—Tiffany has survived the economy’s numerous ups and downs through the years. With the emergence in the late 1990s of the notion of “affordable luxuries,” Tiffany seized the moment by creating a line of cheaper silver jewelry. Its “Return to Tiffany” silver bracelet became a must-have item for teens of a certain set. Earnings skyrocketed for the next five years, but the affordable jewelry brought both an image and a pricing crisis for the company: What...
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...Pricing Strategy Sabrina Morgan Strategic Market Pricing Dr. Green February 2, 2012 Pricing Strategy I have fond childhood memories. Some of them are centered around Saturday afternoons at Ollie’s. Ollie’s was the restaurant that my uncle Oliver opened when I was about eight years old. The restaurant was a charming neighborhood favorite known for its burgers and homemade shakes. I shared many meals there with my family. I had birthday parties there and worked for my uncle when I was in high school. The restaurant nestled in a residential area and near several local businesses thrived for many years through the patronage of neighbors and regulars within the community. My uncle retired and closed the restaurant closed the restaurant two years ago. Recently I inherited Ollie’s. I am now faced with the task of how to reopen the restaurant and which direction to take. My choices guide the success of my business . There are many factors to consider when venturing to open a new restaurant. The building isn’t new but my concept will be. My uncle’s concept was basically a full service family style restaurant with menus items for breakfast, lunch and dinner. When I think the kind of restaurant to...
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...the Pricing Predicament This case is about a bid from Scott at Standard Machine to Occidental Aerospace, their largest and most loyal account. Scott placed a bid for $429K. Joann is the purchasing agent at Occidental Aerospace. Joann notified Scott she had received lower bids and offered him a chance to change his bid to $22k less than his original bid. Joann also reminded him they would be building two more plants which could be more potential business. Standard Machine uses a fixed policy for bids. It appears that Occidental Aerospace wants to continue doing business with Standard Machine which is why they are giving them a chance to submit a new bid. I believe the main reason Standard Machine is in this difficult situation is because they are sticking to a fixed pricing policy. In order to beat the competition and keep the relationship with Occidental Aerospace, they need to figure out a different pricing strategy. Another reason they may be in this situation is the fact Occidental Aerospace is giving information out regarding bids by other competitors. This could be considered a violation of ethics. Standard Machine also does not know if this “inside” information is accurate or not. Joann could just be giving false information to get a lower bid and still keep the relationship between them and Standard Machine. As far as what has changed in the business relationship between Standard Machine and Occidental Aerospace, competition has increased and better pricing. In...
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...www.elsevier.com/locate/ejor Production, Manufacturing and Logistics Pricing decisions for complementary products with firms’ different market powers Jie Wei a,⇑, Jing Zhao b, Yongjian Li c a General Courses Department, Military Transportation University, Tianjin 300161, PR China School of Science, Tianjin Polytechnic University, Tianjin 300160, PR China c Business School, Nankai University, Tianjin 300071, PR China b a r t i c l e i n f o Article history: Received 25 July 2011 Accepted 5 September 2012 Available online 11 September 2012 Keywords: Pricing Complementary products Market power Stackelberg game a b s t r a c t This article reports the results of a study that explores the pricing problems with regard to two complementary products in a supply chain with two manufacturers and one common retailer. The authors establish five pricing models under decentralized decision cases, including the MS-Bertrand, MS-Stackelberg, RS-Bertrand, RS-Stackelberg, and NG models, with consideration of different market power structures among channel members. By applying a game-theoretical approach, corresponding analytic solutions are obtained. Then, by comparing the maximum profits and optimal pricing decisions obtained in different decision cases, interesting and valuable managerial insights are established. Ó 2012 Elsevier B.V. All rights reserved. 1. Introduction Pricing policy has long been recognized as a significant tool for use in the profit...
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... Avinash J. | PGP/18/000 | Comparative Pricing and associated consumer behaviour Project on Pricing Comparative Pricing and associated consumer behaviour Project on Pricing Contents Executive Summary 2 Introduction 3 Comparative Pricing 3 Objective 4 Research Methodology 4 Literature Review 4 Case Study: Apple’s Pricing Strategy 5 Executive Summary This paper is an attempt to study the correlation between consumer behavior and consumer decision making cycle with pricing of a product or a service. Studies are made on comparative pricing through existing secondary sources. In order to understand the relative variations in consumer behavior across different variety of consumers primary research has been done. The findings have been interesting and the implications of findings have been found. Literature review has been done to identify the gaps in the existing literature. Learnings from literature review has also been incorporated. Case study of apple and the strategies used by them have been elaborately discussed. This insights from our study can be used for further scope of research in this domain. Introduction Pricing is an integral part of the Marketing Mix (4 P’s). Whereas all the other P’s (Product, Place & Promotion) affect the cost aspect of the mix, pricing is the only one which generates the needed revenue and hence forms one of the most powerful tools in the hands of the marketer. Pricing, therefore, becomes a very competitive factor...
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...PRICING OF A PRODUCT (COCA COLA) Third Semester- Project 1 Submitted by: BACHELOR OF BUSINESS ADMINISTRATION (Working Professional) Department of Business Administration January 2015 Acknowledgement I feel deeply indebted towards people who have guided me in this project. It would have not been possible to make such an extensive report without the help, guidance and inputs from them. Most of my information has been from the net by reading a lot about Pricing of a product in marketing & how Coca Cola Company maintains their market through an appropriate pricing strategy and also from professional books of marketing. I also would like to thank Mr. Sunil for giving us such a nice opportunity and freedom to choose a topic we like and to work in it. Abstract The basic objective of my research was to analyze the awareness among customers about the price of a product all over the world. Price even describes the standard a company maintains in its product quality and how they work towards achieving their customer’s satisfaction. As I specially concentrated on Coca Cola Company, the findings reveal that people know a lot about the company’s products, its price & they are completely satisfied with the quality they maintain in soft drinks market. In the highly competitive world of the soft drink industry, the Coca Cola Company stands out as one of the top competitors Table of Contents S. No. | Topic | Pg.No. | 1. | Introduction | | 2. | Factors...
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...How to Price Spare Parts More Profitably: panies take full advantage of the opportunity spare part pricing offers. In fact, they deal with the complexity of pricing thousands of parts by resorting to standardized and undifferentiated “rule of thumb” customer complaints. This article was written by Richard Zinoecker, who is a Director at Simon-Kucher & Partners. He can be reached by e-mail at richard.zinoecker@simon-kucher.com. T he importance of after-sales business has increased steadily over the last few years. Market leaders such as Caterpillar have built a crucial competitive advantage for their business with new machinery. Additionally, they have demonstrated that it is possible to create a successful business model in the after-sales business. While the German premium carmakers Mercedes and BMW have faced harsh competition selling cars and are no longer immune to granting substantial discounts and incentives in their primary business, they have so far managed to cling to their competitive advantage in the after-sales business, an area that is much harder for new challengers to emulate. Spare parts make up the backbone of the after-sales business. Roughly two-thirds of the after-sales revenues of European engineering companies is generated with spare parts. In comparison to labor-intensive parts of the service portfolio, such as service contracts, training or refitting, spare parts have lower fixed costs because the workload is stable. Spare parts have the potential to generate...
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