PRESENTED BY :

AFRIN SHAHNAZAIDA ANN ISSACNEERAJA N JNIMMY MERIN MATHEW

INTRODUCTION Price: the amount of money that has to be paid to acquire a product.

They act as the indicators of the strength of demand of different products and enable producers respond accordingly.

The right pricing strategy is important to maintain the equilibrium.

There are 3 main functions of pricing:

First, prices determine what goods are to be produced in what quantities.

Second, they determine how goods are to be produced. Third, they determine who will get the goods.

The price system provides a simple scale by which competing demand may be weighed by every customer or producer.

CONT… Pricing is also a key variable in microeconomics.

Price is the only revenue generating element amongst the four Ps.

The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product.

Thus, pricing is the most important concept in the field of marketing, it is used as a tactical decision in response to comparing market situation.

PRICING STRATEGIES Premium pricing: It establishes a price higher than the

competitors. Especially when there is something unique about their product.

Penetration strategy: Setting the price low with the goals of attracting customers and gaining market share.

Economy pricing: Here companies take a very basic, low cost approach to marketing. Eg : wall mart.

Psycological pricing: Its commonly used by marketers in the prices they establish for their products. Eg: Rs 99 is “less” in mind of customers than Rs100.

PERFECT COMPETETION

MONOPOLISTIC COMPETETION

OLIGOPOLY MONOPOLY

LARGE NUMBER OF SELLERS

MANY SELLERS FEW SELLERS SINGLE SELLER FOR A PRODUCT

HOMOGENEOUS PRODUCT

DIFFERENTIATED PRODUCT

HOMOGENEOUS OR DIFFERENTIATED

NO SUBSTITUTES

FREE ENTRY AND EXIT

RELATIVELY FREE ENTRY AND EXIT

DIFFICULT ENTRY AND EXIT

ENTRY AND EXIT ARE NOT POSSIBLE AT ALL

MARKET

STRUCTURE

PRICE CONTOLS

Price Floors and Price Ceilings are Price Controls, intervention of government in the free market which changes the market equilibrium.

Government imposes a price ceiling to control the maximum prices that can be charged by suppliers for the commodity. This is done to make commodities affordable to the general public. However, prolonged application of a price ceiling can lead to situations like black marketing

Let's consider the house-rent market. Here in the given graph, a price of Rs. 3 has been determined as the equilibrium price with the quantity at 30 homes.

Now, the government determines a price ceiling of Rs. 2. At this rate there is a shortage (demand for 40 houses, but supply is for only 20 houses).

In the long run, the extra 20 people will try to get a house on rent, which will eventually give rise to black market and higher rents.

CONT… A price floor is a government imposed price

control or limit on how low a price can be charged for a product . A price floor must be higher than the equilibrium price in order to be effective.

Here the price floor is set below the market equilibrium . In this case the floor has no practical effect. The government mandated a minimum price , but the market already bears a higher price.

In this graph, the dashed green line represents a price floor set above the free-market price. In this case, the price floor has a measurable impact on the market. It ensures prices stay high so that product can continue to be made. [Government stores the surplus.]

PRICE WAR…………..  Its "commercial competition characterized by

the repeated cutting of prices below those of competitors".

 One competitor will lower its price, then others will lower their prices to match. If one of them reduces their price again, a new round of reductions starts.

In the short term, price wars are good for buyers, who can take advantage of lower prices. Often they are not good for the companies involved because the lower prices reduce profit margins and can threaten their survival.

CONT… In the medium to long term, price wars can be good

for the dominant firms in the industry.

Typically, the smaller, more marginal, firms cannot compete and must close. The remaining firms absorb the market share of those that have closed.

The real losers then, are the marginal firms and their investors. In the long term, the consumer may lose too.

With fewer firms in the industry, prices tend to increase, sometimes higher than before the price war started.

MAIN REASONS THAT PRICE WARS OCCUR ARE:

Product differentiation: Some products are, or at least are seen as, commodities. Because there is little to choose between brands, price is the main competing factor.

Penetration pricing: If a merchant is trying to enter an established market, it may offer lower prices than existing brands.

Oligopoly: If the industry structure is oligopolistic (that is, has few major competitors), the players will closely monitor each other's prices and be prepared to respond to any price cuts.

Process optimization: merchants may incline to lower prices rather than shut down or reduce output if they wish to maintain the economy of scale. Similarly, new processes may make it cheaper to make the same product.

CONT…

Bankruptcy: Companies near bankruptcy  may be forced to reduce their prices to increase sales volume and thereby provide enough liquidity to survive.

Predatory pricing by competitors : A merchant with a healthy bank balance may deliberately price new or existing products low in an attempt to topple existing merchants in that market.

PRICE STICKINESS

In oligopoly markets prices can become 'sticky' because if the price rises, competitors will not follow the rise. So the merchant will lose its market share to its competitors on lower prices.

But if the price falls, other players may also tend to change . At some point, merchants find that they can not gain profit if they cut the price further— so the sticky price remains.

Price stickiness is extremely common among large supermarket chains and prices especially for commodities, tend not to vary much between them.

INDIAN TELECOM INDUSTRY AT A GLANCE 1002 million mobile subscribers.

Monthly growth rate is 3.78%.

Tele density is 74.55% .

13 Major players (AirTel, Rcom, Vodafone, BSNL, Idea Cellular, Tata Teleservices, Aircel, MTNL, MTS India, Loop Mobile, Uninor, HFCL Infotel and S Tel).

Lowest call charge in the world --- 50 paisa per second.

WHY TELECOM INDUSTRY????

Gives us an insight of how external environment as well as the competitive environment can affect the industry.

The problems faced by the Indian telecom industry during price war situations.

How difficult it is for a company to survive in the market with a continuous change in tariff with changes in technology, in the pricing structure, in the legal policies or in terms of customer preferences.

CONT… At present telecom sector is in a boom, everyday

there are new changes happening in the industry.

Telecom market is having a very high entry as well as exit barriers due to the increased number of players and strong rivalry among existing players.

It is a key to the rapid economic and social development of the country.

Major part of the GDP of the country would be contributed by this sector.

CONT… The process of deregulation began in India in 1980’s

with the restructuring of telecom department to stimulate growth and introduce new technologies.

When cellular mobiles were first introduced it was duopoly.

Its initial response was encouraging because of the attractiveness of the Indian market in terms of teledensity, high latent demand and the increase in middle class.

CONT… TRAI (Telecom Regulatory Authority of India) was formed

in 1997 to provide an effective regulatory framework and adequate safeguards to ensure fair competition and protection of consumers interest.

Telecom proved to be a powerful attraction of foreign investment.

The cumulative FDI inflow into telecom since 1993 has exceeded Rs 43,000 million.

Within Telecom, cellular industry has attracted most of the foreign investment since 1993 (50% of the FDI inflow)

CONT… The concept of cellular services had been

established to target only to business class people.

But after the revolutions happened in this industry, the technology enhanced and the competition has made the tariffs cheaper and it is used by everyone.

The advertising is in full fledge and this has lead the cellular services so popular.

CONT… The cellular operators biggest threat ever is by the

CDMA (Code Division Multiple Access).

Due to cheaper rates, better technology and latest innovations, the cellular operators are coming with new schemes and decreased tariffs to retain the customers so that they do not switch.

With the introduction of CDMA and GSM (Global System for Mobile communication) services, the regulation is continuously changing.

CONT…

Considering the great potential for the growth of telephone demand with the accelerated growth of economic activities, the Government of India announced the National Telecom Policy in 1994 and the New Telecom Policy in 1999.

The NTP-1994 provides for private sector participation. Also it provided a big opportunity for private and foreign investors.

More policy initiatives were included to NTP-1999.

India today has one of the lowest tariffs in the world. And because of the various measures and initiatives taken by the government, India is now fast emerging as one of the leading telecom nation.

GROWTH OF MOBILE SUBSCRIBER BASE FROM 1999 TO 2015 (IN MILLIONS)

March 2015 India had 1002 million subscribers, it is 44 times higher than 1999.

During this period, call charges reduced to 56 times compared to 1999’s Rs 16.80 per minute.

IMPACT OF LPG ON CELLULAR SERVICE INDUSTRY

Liberalization : Relaxation of government restrictions in areas of economic policies.

No meaningful liberalization of the telecom sector is possible unless there is an effective and strong regulatory authority.

In the course of liberalization, licenses were granted for providing cellular mobile services in the metro cities.

CONT…

To avoid overlaps the NTP stated that not more than two cellular providers could operate in a given telecom circle.

The service providers are now free to provide all types of mobile services – voice and non voice messages and data services.

CONT…

Bharti, a part of Bharti Enterprises, was the first to launch its cellular services on July 7th 1995. Its brand name was “AirTel”.

The post paid service was launched under the brand name “AirTel” whereas its prepaid services were launched under the brand name “Magic”.

CONT…

Privatization: Transfer of service functions from public to private ownership.

Privatization and competition alone have led to big improvements in service quality in many areas.

Private participation is permitted in all segments of services – international long distance, domestic long distance, basic, cellular, internet.

CONT…

For instance the TRAI, it follows an open house route to policy making, but doesn’t entertain the increasing number of individual complaints.

However it is now planning to set up a telecom ombudsman to interface with the customers.

CONT…

Globalization: Increasing economic

interdependence of national economies across the world.

With ever increase in globalization and expanding businesses, cell phone became a necessity for business activities.

CONT…

Soon younger generation began to use the cell phone as a status symbol.

Thus cell phones were being used not only as a tool of communication but also as a source of entertainment.

MARKET SHARES OF VARIOUS SERVICE PROVIDERS

PRICE WAR – HOW IT HAPPENS

Reliance Communication (Rcom) was the first company to start price war in Indian telecom industry.

On October 5, 2009 they launched a new “Simply Reliance” Plan, which offers 50 paisa per minute across the country with no hidden charges.

(Finally Anil Ambani fulfilled Dhirubai Ambani’s dream to make a phone call cheaper than a post card)

CONT…

50 paisa per minute applies to all local and STD calls as well as any mobile, land line, CDMA or GSM from anywhere in India.

This plan expected to bring an average 46% savings in consumers monthly bills.

CONT… In 2009, Japanese telecom giant NTT DOCOMO

entered Indian market with the help of Tata Teleservices strategic alliance.

Tata DoCoMo is the first company who offered a call charge of 1 paisa per second. And then all other companies followed them for surviving.

Indian telecom market might be growing fast, but surviving in this highly competitive market is not easy for telecom companies

SCHEMES THAT FUELED TARIFF WAR IN INDIA

Chotta Recharge:

• Vodafone launched Chotta Recharge voucher at Rs. 10 when the lowest recharge card available was Rs. 50.

Non-stop Mobile:

• There was a problem with prepaid mobiles i.e., with a recharge of Rs. 200 only you will get a validity of one month. Which means at least Rs. 2000 per year has to be spent just to receive the incoming calls.

CONT… Tata Indicom launched Non-stop mobile, a scheme

where you do not have to recharge for two years but still get free incoming calls. Soon other players came up with “Lifetime validity”.

Get Paid for Incoming:

Virgin mobile jumped into the competitive Indian mobile telecom market with a scheme “Get Paid For Incoming Calls” ; for every minute of incoming call you get 10 paisa free .

CONT… After “Simply Reliance” :

• The competitive intensity in Indian telecom industry was very high with the “Simply Reliance” plan by Rcom and the “paisa per second” plan by Tata DoCoMO.

• With this the average revenue per minute(RPM) dipped further. Thus slowing down the revenue growth and leading to margin pressures.

CONT…

• Bharti AirTel has also responded in its own way, launching the “AirTelAdvantage Plan” where both long distance and local calls from Airtel-to-Airtel will be charged at 50 paisa per minute.

• All major operators then started following TTSL’s “pay per second” plan across various circles.

CONT… RCOM slashes SMS rates:

RCOM took the price-war in the Indian telecom sector to another level; slashing SMS rates to increase the SMS volumes and thus attracting more customers especially youth and young professionals.

Two new SMS tariff plans: 1 paisa per SMS and unlimited SMS at Re. 1 per day.

Uninor Price Plan:

They were the first among the “new entrants” to enter the price-war.

Scheme: Talkmore @ 29 paisa: offers local

calls at 29 paisa per minute and STD calls at 49 paisa per minute.

The company does not plan to offer per-second billing plan like all major companies.

CONT…

Daily telephone allowance:

RCom launched its GSM service in Mumbai offering Rs. 10 talktime everyday for the first 90 days.

That’s free talk time worth Rs. 900!!!!

CONT…

MTS offers:

Price-war in India became fiercer with the introduction of MCard by MTS.

A plan of 10lakh minutes free or simply lifetime free outgoing (of course conditions apply).

Minimum of Rs. 200 top-up over a period of 6 months is mandatory. Free call limit is 150 minute per day and is applicable only on local calls from MTS to MTS.

WHAT HAPPENS AFTER PRICE WAR?

The real price war started by two companies – Rcom and Tata DoCoMo (Tata Teleservices), then others followed them for surviving in the market.

After price war both company’s market price went down higher than other company.

Rcom’s market price nearly down by 45% and Tata Teleservice’s down by 30.6%.

CONT…

Due to high competition in this sector with the launch of new operators led to a major price-war.

Leading to fears of major pressures on average revenue per user (ARPUs), slow in sales growth, margin pressures and falling earning for telcos going forward.

CONT…

To overcome those challenges TTSL in participation with Japanese telecom major NTT DoCoMo launched GSM services, pricing voice call on per second basis opposed to the per-minute pulse.

In response all major operators including market leader Bharti AirTel launched per-second billing plans.

CONT…

TTSL and Rcom also cut SMS rates, while Bharti slashed roaming charges, followed by other operators.

Affect on stock market: It under performed the BSE Sensex during the quarter. Stock of Rcom crashed by 44%, followed by Tata

communications which shed 31%, Idea Cellular 23%, Bharti AirTel 21%.

CONT… All players equally being affected by this price-

war.

Rcom and Tata teleservices are so aggressively launching low tariff schemes that is bringing down their revenue more than any other.

Indicating more customers doesn’t help in generating revenue and also its not good for the company’s health.

HOW TO FIGHT PRICE WAR?...

In the battle to capture the customer, companies use a wide range of tactics to ward off competitors.

Increasingly, price is the weapon of choice—and frequently the arguments degenerates into a price war.

Price wars can create economically devastating and psychologically weakening situations that take an extraordinary toll on an individual, a company, and industry’s profitability.

CONT…

No matter who wins, the combatants all seem to end up worse off than before they joined the battle.

Virtually every competitive move is based on price, and every countermeasure is a repay to price cut.

Most managers will be involved in a price war at some point in their careers. Every price cut is potentially the first salvo, and some discounts routinely lead to repaying price cuts that then escalate into a full-blown price war.

CONT… That’s why it’s a good idea to consider other

options before starting a price war or responding to an aggressive price move with a similar one.

Generally in long run the effect of price war is a price hike.

So, when the competitors tend to slash down the prices its advisable not to change suddenly, rather study the market and customer response.

CONT… Slashing down prices generally tend to attract the

larger, middle and lower class, so before cutting down the prices its necessary to identify our target market and Re-target if needed.

Re-targeting your market is how you position your products to appeal a particular market segment.

(the only time low price appeals to all 3 segments is in case of FMCGs)

CONT… Differentiate your offering: This is all about

branding. A brand is a differentiated product/service. This is a conscious effort to establish a perceived

meaning in minds of target market. So to win a price war differentiate your product

from your competitors. Sell benefits not features: Emphasize the results the target market wants and

deliver them and hence make your product unique.

CONT… Now people buy products/services for what it does

and not how much it costs.

Offer money back guarantee:

When money back guarantee is offered customers will have a belief on the product .

THANK YOU