Power of Pricing and Pricing Waterfall Disruptive Pricing and Price Elasticity

Power of Pricing and Pricing
Waterfall
Disruptive Pricing and Price
Elasticity
Perception becomes real when something is parted with
money (Price)
- Gopal.V
Team 2
1/15/16
Pricing is more transparent today than ever

before because of the ease of information
availability.
Price by itself wont persuade a consumer to
buy, it has to be amalgamated with
IMS
Integrated Market Strategy (IMS)
Product
Price
Promotion
Place
1/15/16
Elements of Pricing
Price value is more of a perception.
Price has to more to do with value creation
Value created for a price today may be
different tomorrow Price is function of
Time
Pleasure of purchase > Pain of purchase
Ease of transaction Credit card transactions
are easier than traditional cash based
transaction
1/15/16
Three Levels of Pricing

Industry Level accepted price across the
industry
Product Level eg: Price of Chai is similar
across India, variation in pricing is low
Transaction Level Pricing done for one
transaction.
Eg: train
ticket booking
in IRCTC
The
first two pricing
methodology
follows
a
Fixed pricing. Businesses may not know why
consumer leave their offering when prices are
fixed
1/15/16
Point of Inflection
A point at which can be a result of action
taken by a company, or through actions
taken by another entity, that has a direct
impact on the company.
Caused by regulatory changes, technology
advancements, political (fall of the Berlin
Wall or the fall of communism in Poland and
other Eastern Bloc countries)
Fixed pricing for powerful supplier
1/15/16
Measuring Brand Equity

Product
Brand
Corporat
e brand
Consumer choose a brand irrespective of price,

thats were power of brand comes in picture
- Gopal.V
Companies with fixed pricing irrespective of
brand and make these suppliers for redundancy
when there is operational shortage of inventory
1/15/16
Pocket Pricing
Shows how much revenue companies really

keep from each of their transactions which
helps them diagnose and capture
opportunities in transaction pricing
Pricing issues usually are diverse, intricate,
and linked to many aspects of a business
Eg: Companies using invoice price as a
reporting measure, would find the differences
between invoice and actual transaction price
reductions hit their bottom line profit
1/15/16
Pocket Price Waterfall

Companies fail to manage the full range of
components that contribute to the final
transaction price - revenue leakages
Ogranizations that depend on intermediaries like
retailers, dealers and sub-traders the invoice
price does not reflect the exact transaction
amount
Eg: Prompt payment discount, volume buying
incentives and advertising allowances.
1/15/16
Pocket Price Waterfall
1/15/16
Pocket Pricing
Essentially captures all the (direct & indirect) discounts & (direct &
indirect) costs
Pocket Pricing Band
The range of pocket price for various customer segments.
For ex: Similar to contribution margin in costing, this helps the CEO
have good insights on the actual pricing structure.
1/15/16
10
Price Elasticity
Perfectly elasticwhere any very small change in price results in a
very large change in the quantity demanded.
Relatively elasticwhere small changes in price cause large changes
in quantity demanded (the result of the formula is greater than 1).
Unit elasticwhere any change in price is matched by an equal
change in quantity (where the number is equal to 1).
1/15/16
11
Price Elasticity
Relatively inelasticwhere large changes in price cause small
changes in demand (the number is less than 1). Eg: Petrol and Disel,
cigarette price as most people need it, so even when prices go up,
demand doesnt change greatly.
Perfectly inelasticwhere the quantity demanded does not change

when the price changes. Products in this category are things
consumers absolutely need and there are no other options from
which to obtain them.
1/15/16
12
Principles of Price Elasticity

Make the switching more difficult
Initially position the product and price it based on
value it creates to consumer
Adjust cost based on competition and elasticity
Use fixed cost for larger price product
1/15/16
13
Principles of Price Elasticity

Choose penetration pricing when span of the
product is longer
Disruptive pricing ( Blue Ocean Approach)
Completely removing competitors Eg: Uber
revenue model Commission and run time
Find out factors which constitute to price
elasticity like price range, product segmentation
1/15/16
14
Price Elasticity - Four Economic

Factors
Amount of money involved in price change
Amount of price change that the customer will

actually pay
Increase in switching
Customers switching costcost reduces price
elasticity
Customers search cost
1/15/16
15
Which Pricing Model to Choose?

Penetration pricing works on cost
Initially position the product and price it based on
value it creates to consumer
Adjust cost based on competition and elasticity
1/15/16
16
Disruptive Pricing Disrupt or be

disrupted
Did Android OS disrupt the smart phone
market?.
YES!
Blackberry OS and Symbian OS were made
irrelevant platform for smart phones.
1/15/16
17
Disruptive Pricing Disrupt or be

disrupted
The world and the consumers are moving much
faster than product evolutions eg: Blackberry
philosophy to stick with their proprietary OS
Grundfos can not follow CRI pumps; else they
should compromise on cost and price and loose
their market position as a leader
1/15/16
18
Three Competitive Stance

Competitive Stance - lasting distinctiveness,
low cross elasticity and perishable
distinctiveness
Cooperative - competitors in the same market
collude, either explicitly or implicitly, to
coordinate on prices Eg: Tyre Industry
Aggressive seasonal pricing with intention to
capture market share
1/15/16
19

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Power of Pricing and Pricing

Pricing is more transparent today than ever

Three Levels of Pricing

Measuring Brand Equity

Consumer choose a brand irrespective of price,

Shows how much revenue companies really

Pocket Price Waterfall

Pocket Price Waterfall

Perfectly inelasticwhere the quantity demanded does not change

Principles of Price Elasticity

Principles of Price Elasticity

Price Elasticity - Four Economic

Amount of price change that the customer will

Which Pricing Model to Choose?

Disruptive Pricing Disrupt or be

Disruptive Pricing Disrupt or be

Three Competitive Stance

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