MFS9PRICING

8/7/2019 MFS9PRICING

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PRICING

Role of pricing in the FS MM

Complexities in pricing of FSApproaches & methods of setting price


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Role & Characteristics of prices

1. As a yardstick to compare competing options

2. Means by which value is assessed

3. Used as an indicator of product or SQ4. Represents cost of good or service

5. Influence on frequency of purchase or

quantum of an individual purchase


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Explicit or Overt Pricing

Clarity in pricing-annual fee for credit card/ATM

Advantage of being vey clear to consumer/supp.

Easier to predict likely revenue/ service costsAllows SP to signal costs of diff. services & use

price as a means of influencing consumer

behavior(switching from high cost branchbased transactions to ATM)


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Implicit/Covert Pricing

Unclear/invisible system of pricing-appears unpaid. bankoffering free bankingno interest. Orgn. Providing a regularsavings product may not explicitly charge for the product,but will take a share of initial payments to cover cost &contribute to profit

Ad of being simple, low administering cost

Disad: price paid by customer/rev paid by bank varies withinterest rate or amount that consumers wish to save/invest

No incentive for consumers to move to lower-cost services

because all services offered appear to be free Creates potential for cross-subsidization-customer with

high credit balance pays price for given service thancustomer with low credit balance


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Price determination

2 C M

1. Cost based

2. Competitive3. Market Oriented


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Cost Based Approach

Full cost pricing

Mark Up

Target ReturnMarginal Cost


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Market Oriented Approach

1. Marketing Strategy

2. Price-Q relationships

3. Product line pricing

4. Negotiating margins

5. Political factors

6. Costs

7. Effect on distributors & retailers

8. Competition9. Explicability

10. Value to customer


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Marketing Strategy

Term Insurance

Amount of sum assured($50,000/=)

Tenure( 5 yrs)

Age ( 25)

Gender( male)

Smoker/non-smoker( NS)

Health status( good)

Occupation ( sales rep Met Life)

Leisure pursuits( Tennis, travelling)


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MS (Cont)

Price-Q relationship:high Q personalized service

Product line pricing:> personalized portfolio mgt

Negotiating margins: ( B2B)

Costs: organization who view pricing as marketing responsibilitybenefits by having mktg executives with solid grasp of costs/profit

Effect on distributors & retailers: direct/indirect.

Ability to make sound judgment calls in respect of setting a price thatoptimizes distribution margin & customer attraction is a crucialmarketing competence

Competition: by product/purchase simplicity, consumer knowledge &

confidence, low perceived risk from buying lowest cost option,limited product differentation, ease of switching ( eg motorinsurance vs critical illness insurance)


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Explicability

Under conditions of consumer ignorance &

perceived riskiness, price higher than norm may

seem to imply Q & instil consumer confidence

More difficult to achieve the closer mktconditions approx. to perfect competition

Marketing Implication: Those seeking to acheive

premium price position must invest inappropriate level of product/service

differentiation justifying price premium


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Value to customer

Loan

Value of sum borrowed

Duration of loan Incidence of default

Cross-sale/purchase of other products

Interest margin


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Price Differentiation & Discrimination

Volume lower costs associated with purchase

Costs that vary with geographical variation inlabour costs & rents

Buyer- people with poor credit rating indicate a >propensity to default on loans & hence pay interest rate

Off peak capacity utilization

Demographic factors

( preffered lives approach )


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Price determination

Step1 Decide upon pricing objectives

Step2 Assess influence of 10 pricing factors

Step3 Propose indicative pricing approaches

Step4 Model price/demand relationships

Step5 Assess impact on pricing objectives

Step6 Assess responses expected from competitors &distributors

Step7 Consult relevant internal departments & gain

agreement to pricesStep8 Set up information project

Step9 Launch price


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Step1 Decide upon pricing objectives

Financial

Sales value

margin Profit

Return-on-capital

Non Financial

Sales volume

Market share Market position

Customer value


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Step3 Other aspects of price indication

Status reqts.- e.g no claim bonuses on motorinsurance, occupation, financial history,track

Vol related factors: ROI for value loans

Allied charges-e.g penalty fees on overduepayments, unauthorized OD charges

customer contributions-level of excess

payments on general insurance contracts, &early settlement penalties on say fixed-ratemortgage loans


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RTGS Technology

Real Time Gross Settlement system

New tech based using which outstation chequescan also be cleared on the same day & fund

transfers b/w different banks can be doneinstantaneously

This result in evaporation of float money to invest inovernight markets

Banks now charge a ceretain fee for entirespectrum of cash mgt. servecis as new tech helpstransfer funds in real time

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MFS9PRICING