Pricing Strategy

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RESEARCH ON PRICING OF ACTIVE VISION TERMINAL
Submitted by Rakshit Kaul Marketing and Product development, Mumbai 400063 India

AGENDA


PRICING OF ACTIVE VISION TERMINAL WITH vWPSM. UNDERSTANDING DEMAND , ELASTICITY AND FORECAST OF AVG. REVENUE/MONTH. ANALYSIS OF FACTORS AFFECTING VALUE OF PRODUCT OFFERING. COMPETETIVE ADVANTAGES OF PRODUCTS.







Background
“Theory of Reasonable Prices,” which assumes buyers can
examine an item and formulate a rough notion of what they would expect the item to cost or at least the range into which they would expect it to fall.

“Price Signaling Quality,” which assumes that some prices are
“too low,” and that buyers will avoid products that are in this category, fearing poor quality.

Van Westendorp Price Sensivity Meter



At what price would it be so cheap that quality is doubted? At what price would you consider this product to be a bargain – a great value for the money? At what price would it start getting expensive, but still worth considering? At what price is it so expensive that it would not be considered at all?





Following were the responses collected from the survey...

RESPONSE OF DEALERS.
PRICE POINTS 3000 3200 3400 3600 3800 4000 4200 4400 4600 4800 5000 5200 5400 5600 5800 6000 DEALER PRICE R1 C C C C B B B R2 C C C B G V V V V V V V V R3 C C C C C C C C C R4 C C C C C B B B B R5 C C C C R6 C C C C C B B B B R7 C R8 C C C C C B B R9 C C B B B G R10 C C C C C C C C R11 C

LEGENDS C-CHEAP
B

B

B B G G V V V V

B-BARGAIN G-GETTING EXPENSIVE V--VERY EXPENSIVE
V

G B G V V V

G G G V V

G G G B G V

G

G G G V

G G G V

V V V

V

V

3500 3000 4000 4000 3300 2500 3300 3200 3500

4000 2500

OUTPUTS FROM THE vWPSM
van Westendorp Indifference Price Point (IPP)
vW Indifference Price Point = Point at which the number of respondents consider the product a bargain= number of respondents who consider it to be getting expensive,but still worth considering. The Indifference Price Point (IPP) tends to show the average price for the product in a market or, if there is a market leader with a predominant share,it can show the average price that manufacture is charging.

van Westendorp OPP and Range of Competitve Prices
The Optimum Price Point (OPP) is a point where you lose the fewest number of purchasers because it is either perceived to be too expensive or too cheap. The Range of Competitive Prices helps show the full range of viable pricing strategies. At the high end of the range, producers will begin to lose market share, but reap higher-than-normal profits. At the low end of the range, producers will gain share through a low-cost strategy

OUTPUTS FROM THE vWPSM
van Westendorp Optimum Price Point
vW Optimum Price Point = Point at which the number of respondents who reject the productas too expensive = number who reject it for being too cheap. Some consider this to be the Ideal Price for this product.

van Westendorp Range of Competitive Prices
This calculation finds the range between two marginal equilibrium points Point of Marginal Cheapness = Point at which the percent of respondents who find the price too cheap = the percentage of people who find the product a bargain.

Point of Marginal Expensiveness = Point at which the percent of respondents who find the price too expensive = the percentage of people who find the product expensive but still worth considering.

VAN WESTENDORP MODEL
100 90 80 70 60 CHEAP % 50 40 30 20 10 0 3000 3200 3400 3600 3800 4000 4200 4400 4600 4800 5000 5200 5400 5600 5800 6000 BARGAIN % EXPENSIVE % VERY EXP %

CUMULATIVE PERCENTAGES

PMC IPP OPP

PME

PRICE POINTS

Range of competitive prices

OBSERVATIONS FROM THE vWPSM FOR ACTIVE VISION TERMINAL


Optimal price point : INR 4500. Indifference price point : INR 4700. Range of competitive prices : INR 3900 - 5500
Looking at the graph if we move on the left handside of PMC ,percentage of people who think that the product is cheap increases and percentage of people who think it is a bargain decreases so we should move on right handside. Agan if we move on right handside of the PME , percentage of people thinking that it is getting very expensive increases and who think it is just getting expensive decreases . Therefore we should ideally stay between PMC and PME .





UNIQUE TARGET PRICE AND DEALER PRICE

“Unique Target Point = Mid-point between the individual’s bargain price and his or her point of “getting expensive ” UTP=[(C+V)/2+(B+G)/2]/2

Consumers have a tendency to buy maximum at the unique target price. Therefor UTP for all the responses have been calculated and knowing the dealer prices , we can calculate dealer margin , avg dealer price and avg unique target price .

UNIQUE TARGET PRICE AND DEALER PRICE

R1 DEALER PRICE UNIQUE TARGET PRICE

R2

R3

R4

R5

R6

R7

R8

R9 R10 R11 BIASED UNBIASED

3500 3000 4000 4000 3300 2500 3300 3200 3500 4000 2500 3345.45 3533.33 4700 4125 5050 4825 4650 4825 4350 4625 4225 5275 4500 4650 4647.22

DEALER MARGIN 1200 1125 1050 825 1350 2325 1050 1425 725 1275 2000 1304.55 1113.89 DEALER MARGIN % 25.53 27.27 20.79 17.1 29.03 48.19 24.14 30.81 17.16 24.17 44.44 28.05% 23.97%

WEIGHTED AVERAGE MEAN OF vWPSM

Further weighted average mean of all the responses is calculated and specific no.s for C,B,G, and V are calculated to have a better understanding of the product perception with respect to its pricing. Following are the results.. The product at and around these price points will look.. Cheap : INR 3468 Bargain : INR 4243 Getting Expensive : 5220 Very Expensive : 5696 Now while pricing the product looking at the graph on next page, clear cut picture can be ascertained as to where does the product lie on the perception map of the consumer. For eg: if we price it at 4000 then product is lying between cheap and bargain but nearer to to the bargain perception of the consumer.

W A M OF v W M
100

1

C

B

G

E

0 3468 4243 5220 5696

0

PRICE

FOLLOWING IS THE VOLUME COMMITMENT OF THE DEALERS AT VARIOUS PRICE POINTS

PRICE POINTS 3500 4000 4500 5000 5500 6000

R1 0 200 0 0 0 0

R2 100 100 70 60 40 30

R3 100 70 50 0 0 0

R4 R5 R6 R7 TOTAL UNITS 200 300 500 1000 2200 170 0 300 600 1440 125 0 150 400 795 100 0 100 250 510 80 0 0 150 270 65 0 0 60 155

DEMAND AND ELASTICITY From the above responses avg revenue per month and avg units per month can be calculatd at various price points for all the responses from which demand as a function of the price can be drawn and demand elasticity can also be found out. For the graph given below demand is max for price 3500 and then reduces gradually . Price band 3500-4000 has the highest elasticity(7%) signifying that a unit change in price there wil have a greater impact on demand than in any other band , say between band 5500-6000, where elasticity is only 1% ,so not much change in demand will happen there.

AVERAGE REVENUE AND VOLUME From the above data it is possible to calculate the avg revenue per month and avg units sold per month . For eg. At price point INR 3500 (dealer price) revenue per month will be INR 91666 and units sold per month will be around 26.14.

DEMAND & ELASTICITY AS A FUNC OF PRICE
100 90 80 70 60

100

DEMAND ELASTICITY

7%

dy/dx=elasticity

65
5%

% DEMAND

50 40 30 20 10 0 3000 3500 4000 4500 5000 5500 6000 6500

38
3%

% DEMAND

22
2%

10

1%

4

PRICE

AVG VOL(NO.S) & REV (INR)/ MONTH
100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 16

91666 68571

28

24

20

42589
12

AVG REV PER MONTH AVG UNITS/MONTH

30357 17678
26.17
3500 8

11071
1.83
6000

4

17.08
4000

9.42
4500

6
5000

3.17
5500

0

PRICE

RATING FOR OVERALL PRODUCTS AND SERVICES ON A SCALE OF 5.
R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 R11 AVERAGE MEDIAN MODE SKEW STD DEV QUALITY 2 4 2 2 2 3 2 3 2 4 3 2.64 2 2 0.85 0.81 PRICE 4 4 2 3 3 4 3 4 4 2 3 3.27 3 4 -0.57 0.79 BRAND 1 4 2 2 2 4 2 3 3 3 3 2.64 3 2 -0.02 0.92 DESIGN 2 3 2 2 3 3 2 2 3 3 2 2.45 2 2 0.21 0.52 VALUE 2 4 1 2 3 4 3 3 3 2 2 2.64 3 2 -0.02 0.92

1 2 3 4 5

POOR OK FAIR GOOD EXCELLENT

OVERALL 2.73 3 2 0.45 0.79

OBSERVATIONS
Overall on an average and most commonly , products and services are rated more close to FAIR. PRICE being the only parameter rated more than FAIR all others being rated close to FAIR.

RATING FACTORS
QUA LITY PRICE BRA ND DESIGN V A LUE 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

FACTORS

RATING SCALE

CORRELATION ANALYSIS:

Value is a very vague term and may mean different to different people. correlation analysis helps us to understand as to what factors from quality,price,brand and design affect most the value perception of the customer,or in other words what factors among q,p,b and d have maximum positive correlation with the value perception of the customer.

CORRELATION ANALYSIS
100

As can be seen in the graph price has the maximum correlation with the percieved value by the customer and second in line falls brand , That means price and brand are the major factors in determining the percieved value by the customer.

90 80 70 60

PERCENTAGE

50 40 30 20 10 0 QUALITY PRICE BRAND DESIGN

CORRELATION WITH VALUE

FACTORS

COMPETITIVE ADVANTAGE OF THE PRODUCTS
Following is the response of the dealers for the products offering the competitive advantage and rating them on a scale of 5

PRODUCTS VTS VDP C TALK RDU 4 ZONE PANIC SWITCH PORCH UNIT
AVERAGE 3.73 3.09 2.73 2.73
5 4.5 4 3.5 3

2.91

2.82

2.55

COMPETITIVE ADVANTAGE FROM PRODUCTS

RATING

2.5 2 1.5 1 0.5 0 VTS VDP C TALK RDU 4 ZONE PANIC SWITCH PORCH UNIT

PRODUCTS

BIBLIOGRAPHY.
MARKETING RESEARCH BY DAVID AKER. SOCRATIC Inc. WIKIPEDIA. RESEARCHINFO.COM SURVEYZ.COM

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