Nagle proposition of pricingBY-RAHUL RANJAN -097CHAITANYA MADHAV- 093PRABINA MEHER- 095RAJAT LAKHOTIA- 098PUNIT AGGARWAL- 096PAVAN KUMAR HK- 094RAVI KUMAR POLA -099

What is price really ?Price is that which is given in return for a product in commercial exchange Buyers’ View – Price refers to what must be given up to obtain benefits Sellers’ View – price reflects the revenue generated for each product sold

Value based pricing• It sets prices primarily, but not exclusively, on the value, perceived or estimated,

to the customer rather than on the cost of the product or historical prices

• Cost-plus pricing is based on the amount of money it takes to produce the product

• Companies that offer unique or highly valuable features or services are better positioned to take advantage of value-based pricing.

• A company that sells basic, white, 100% cotton athletic socks would probably use cost-plus pricing, because its product does not have any special features

• A company that sold sweat-wicking, extra-padded athletic socks could use value-based pricing

Cost based pricing v/s Value based pricing

Aligning Price with Value

The 5 C’s of Value based marketing

Cost based Pricing

Eggs

Value based pricing

iPhone 6sArmani Suits

Proprietary JetFuse air-moving technology for cushioning and flexibility.

CRTek high-abrasion outsole rubber in key wear areas for targeted durability

Price : 12,999

Reebok Zjet Soul

Pricing Sensitivity Drivers

1) Price Framing Effect• Customers are more aware, or price sensitive, when they consider the

price as a loss instead of a worthwhile gain. • They have greater price sensitivity when the price is paid separately rather than

as part of a bundle

People evaluate price relative to initial level

Surcharge v/s Discount

Odd pricing

2) Reference price Effect• When a customer can directly compare the price of a

product with a competitor, price sensitivity increases.

• Perceived alternatives can vary by buyer segment, by occasion, and other factors

Memories of past pricesEx: Stores like Metro, D-Mart

Health Care services

Related Products

Ex: Comparison between Train and Flight fares

Prices set by Market LeaderEx: In soft drinks prices are compared to Coca-

Cola

Ethnic drinks prices are compared with soft drinks

3) Switching Cost Effect

The higher the product-specific investment a buyer must make to switch suppliers, the less price sensitive that buyer is when choosing between alternatives

MICROSOFT WINDOWS

People have to learn the new operating system if they are switching to another

BANK ACCOUNT

Other services like debit card, credit card, net banking account, Demat account etc. attached to bank account

E-MAIL ID & Social networking site

Shifting from one e-mail ID to another will be headache as many other accounts are linked to it. Same is true with Facebook.

FURNITURES

Furniture are bought in such a way that it matches interior of house

QWERTY KEYPAD

Other efficient keyboard layouts exist yet people prefer QWERTY pattern

4) Perceived Risk Effect• Buyers are less sensitive to the price when it is

difficult to compare it to potential alternativesHow difficult is it for buyers to compare the offers

of different suppliers?Are the prices of different suppliers easily

comparable?

TESLA ROADSTER

Since there are no competitors at present, it is difficult for customer to compare with other products.

INSURANCE FOR AIR TRAVEL

Even though air travel is one of the safest mode of transport, people buy insurance along with ticket

INSTANT COFFEE

Nestle introduced Nescafe in 1990 in India Housewives avoided it because anyone who buys it was perceived

by society as a poor planner and lazy

Online purchase from untrusted supplier

It is perceived that after sales service is very difficult for online purchases.

So people avoid it even when products are available at lesser price

RETAIL STORES

People are shifting to online grocery delivery as buying groceries from retail store consumes time.

So, customers will be willing to shell out more money in order to save time

5) Size of Expenditure EffectBuyers are more price sensitive when the

expense, accounts for a large percentage of buyers’ available income or budget

How important is the expenditure (portion of income or monetary terms) for the buyer? 

Bajaj Avenger 220Price : 93000

Honda CBR 250Price : 195000

Patanjali Kesh KantiPrice : 130 (100 ml)

Ayush Bhringamalakadi TailamPrice : 599 (100 ml)

Bata Formal ShoesPrice : Rs. 499 onwards

Louis Philippe formal shoesPrice : Rs. 3999 onwards

MI PADPrice : 12999

I PadPrice : 20999

Fast TrackPrice : 599 onwards

TitanPrice : 1599 onwards

6) Price-Quality Effect• Buyers are less sensitive to price the more that

higher prices signal higher quality.

• Products for which this effect is particularly relevant include: image products, exclusive products, and products with minimal cues for quality.

DIAMONDS

PREMIUM HOUSING LOCATIONS

PREMIUM ALCOHOL

CARS

Laptops

7) Shared Cost Effect The smaller the portion of the purchase price buyers must pay for themselves, the less price sensitive they will be.

Does the buyer pay the full cost of the product?

GROUP OF FRIENDS HAVING DINNER

CAB RENTALS

Mobiles- EMI

8) End benefit Effect

• Economically or psychologically important of the end-benefit from the product.

• Two Parts: • Derived Demand• Price Proportion cost

End benefit Effect Customers look at the overall big picture of their purchase: the end benefit.

Derived Demand

The more price sensitive the buyer is about a cheesecake the more price sensitive to the cost of cream cheese

Derived Demand

Price Proportion cost The smaller the share in total cost, the less sensitive the customer

will be to price differences.

Price Proportion cost

End Benefit – psychology

End benefit is also depend on psychological phenomenon how a buyer perceives the absolute price, or price difference, in proportion to the total cost.

Less price Sensitive

More price Sensitive

9) Perceived fairness Effect

Buyers are more sensitive to the price of a product when the price is outside the range they perceive as “fair” or “reasonable” given the purchase context.

omega deville watch

Harley Davidson

Lack of alternatives

Cost of puff in Raipur is Rs. 10 - 15Cost of puff in canteen of IIM Raipur is Rs. 20

Cost of one bottle of water at home Cost of one bottle of water at water scarce

town Cost of one bottle of water in desert area

Thank You