Pricing & Tendering

Group # 1:
Pradeep Parikh (134)
Payal Shah (150)
R. Balaji (101)
Rateesh Trakroo (158)
Sachin Rana (142)
AGENDA:

●WHAT IS PRICING & ITS IMPORTANCE

●INDUSTRIAL PRICING

●TYPES OF PRICING

●TENDERING (e-TENDERING)

●CASE STUDY: SCHNEIDER ELECTRIC

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What is a Price?
PRICE
Market value, or agreed exchange value, that will purchase a definite quantity, weight, or
other measure of a good or service.

OPTIMUM PRICE
Maximum amount that a customer is willing to pay for a
good or a service.

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Let’s start understanding the equation

There Are Only Three Profit Drivers

Profit = Price x Volume - Cost

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Why is Price the most Important lever
Assumptions: Fixed Costs = 30% of Sales, Variable Costs = 60% of Sales,
Profit = 10 % of Sales, Sales = 1 M items

A 10% improvement in … … leads to a profit increase of …

Profit Profit
driver Old New Old New

Price $100 $110 $10M $20M 100%

Variable
unit cost $60 $54 $10M $16M 60%

Sales
volume 1M 1.1M $10M $14M 40% (*)

Fixed
costs $30M $27M $10M $13M 30%

(*) excluding any fix cost impact of volume growth

Price is definitely the strongest profit driver

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Optimizing the Price
The psychological Perception is what the Customer is ready to pay for a perceived
value of the offer.

4 types of related
Market Values
Product
Values

Service Customer Marketer

Values Perceived
Overall
Offer Price
Values
Brand Value
Values

Cost
Values

Price is a realization of what value customer puts to associated services, brand apart from product itself
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Customer Cost-In-Use Components
●A broad perspective needed in examining the costs a particular
alternative may present for the buyer.
●Rather than making a decision on the basis of price alone, organizational
buyers emphasize the total cost in use of a particular product or service.

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AGENDA:

●WHAT IS PRICING & ITS IMPORTANCE

●INDUSTRIAL PRICING

●TYPES OF PRICING

●TENDERING (e-TENDERING)

●CASE STUDY: SCHNEIDER ELECTRIC

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Key Components – Industrial Pricing

There is no easy
formula for pricing an
industrial product or Fig. 15.2

service.
The decision is
multidimensional.
The each interactive
variable assumes
significance.

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Price Objectives

● The pricing decision must be based on objectives

congruent with marketing and overall corporate
objectives.

● The marketer starts with principal objectives and adds

collateral pricing goals:

1. Achieving a target return on investment,

2. Achieving a market-share goal,
3. Meeting competition.

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Price Elasticity of Demand

●The rate of percentage change in quantity demanded

attributable to the percentage change in price.

●Factors of price elasticity,

The ease with which customers can compare alternatives.

The importance of the product in the cost structure.

The value that the product represents to a customer.

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 The Life cycle of the product range
All product ranges follow a life curve, which reflects the different phases of an
offer’s life cycle.

For each phase, there are different prices and discounts.

High Price Penetration Market Price High Price

Price

Introduction Market Share Maturity Decline

to Market takeover
Volume

Discount Discount
No Discount by quantity by type of customer No Discount

Time 12
Price Strategy
A Price strategy is adopted depending on the following metric. A key action
related to price is taken based on where we lie in terms of market share vis a vis
Price

Market Share

Protection Discrimination
Aim is to maintain high A high price will not prevent
High market share by using low you from gaining market
prices as a barrier. share.

Penetration Skimming
A low price is used to gain A « niche » approach covering
Low quickly market share. a part of the overall market
using a high price policy.

Price
Low High
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Sources of the Experience Effect

Learning by doing.

Technological improvements.

Economies of scale.

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 Pricing Objectives
Some of the common objectives of pricing could be

● Current profit maximization – Seeks to maximize current profit taking into account
revenue and cost, it can not be a good objective if it leads to lower long term profits.

● Current revenue maximization – Seeks to maximize current revenue with no

regards to profit margins. The underlying objective is to maximize long term profits by
gaining market share and lowering costs by economies of scale.

● Quality leadership- Use price to signal high quality in an attempt to position the
product as high quality.

● Partial cost recovery – An organization that has other sources of revenue may opt
for partial cost recovery.

● Survival – In a situation like market decline and over capacity, the goal may be to
recover the costs and remain in business.

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Pricing Methods
To set specific price levels to achieve pricing objective following methods
can be used.

● Cost Plus Pricing- Set the price at production costs plus a certain margin

● Market Based Pricing- See what the market is willing to offer for the
products and adjust your margin structure accordingly

● Value Based Pricing- Base the price on effective value of the product
relative to alternate products

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Break-Even Point
Cost-volume-profit (at a price) analysis

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AGENDA:

●WHAT IS PRICING & ITS IMPORTANCE

●INDUSTRIAL PRICING

●TYPES OF PRICING

●TENDERING (e-TENDERING)

●CASE STUDY: SCHNEIDER ELECTRIC

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Types of Pricing

● Penetration Pricing
● Market Skimming
● Value Pricing
● Loss Leader
● Psychological Pricing
● Going Rate (Price Leader)

DISCOUNTING STRATEGIES:

TENDER PRICING:

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Penetration Pricing

● price set to ‘penetrate the market’

● ‘Low’ price for high volumes Penetration Pricing
● "Dumping"?
Price
● typical in mass market products – Whole
chocolate bars, food stuffs, market price
household good, etc.
● suitable for products with long life
cycles
● useful for launching in new market
● problem to raise price subsequently

Quantity

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Market Skimming
“Skim the cream (profit) off the top
first” pricing
Skimming Pricing
high price for those willing to pay
Sell at high
Price
price before then aim at more price-sensitive
reducing to
Initial next price level consumers.
skimming and repeat
price

● High price, low volumes

Second
price

Final
● Suitable for products with short life
price cycles or soon facing competition
(e.g. after a patent runs out)
Quantity
● e.g. Harry Potter hard-back,
Playstation, digital technology, new
DVDs, etc.

LCD and Plasma screens: Why are high prices falling?

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 Value Pricing

● Price set according to perceptions

about the value of the product/service
● e.g. status products/exclusive
products

Loss Leader
● At International Supermarkets, e.g. milk, £5 gin at Christmas (people attracted
to the store & buy other things)
● Purchases of other items more than covers ‘loss’ on item sold
● e.g. ‘Free’ mobile phone when taking on contract package

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Psychological Pricing
Play on consumer perceptions e.g. Rs. 995
& not Rs. 1040 !

Links with value pricing – high value goods

priced according to what consumers THINK
should be the price

Going Rate (Price Leadership)

● Where there is a price leader, rivals can't compete on price
● too high & lose market share
● too low & price leader matches price & forces smaller rival out of market
● So follow pricing leads of rivals with dominant market share
● Where competition is limited, ‘going rate’ pricing may apply – banks, petrol,
supermarkets, electrical goods – similar prices all outlets
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Discount Pricing
Normally quoted price to end users is known as list price. Price is usually
discounted for distribution channel members and end users.

There can be several kinds of discounts some of them listed below.

Quantity Seasonal

Discount
Pricing

Sale Cash

Trade
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Tender Pricing

●Many government
contracts awarded via a
tender
●Firm (or firms) submit
their price for carrying out
“the work”
●Purchaser then chooses
which offers best value
●Mostly done in secret

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Destroyer Pricing/Predatory Pricing
 Deliberate price cutting or offer of ‘free gifts/products’ to
force rivals (normally smaller & weaker) out & prevent
new entrants
 Anti-competitive & illegal if proved

Absorption/Full Cost Pricing

● Full Cost Pricing – set price to cover both fixed & variable costs
● Absorption Cost Pricing – Price set to ‘absorb’ some fixed costs of production
● Price of some products in a portfolio therefore need not be full cost

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Contribution Pricing

Contribution = Selling Price – Variable (direct costs)

● From break even analysis
● Set price to cover variable costs+ a ‘contribution’ to the fixed costs
● Similar to marginal cost pricing

Cost-Plus Pricing

Calculate the average cost (AC) and add a “mark up”

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AGENDA:

●WHAT IS PRICING & ITS IMPORTANCE

●INDUSTRIAL PRICING

●TYPES OF PRICING

●TENDERING (e-TENDERING)

●CASE STUDY: SCHNEIDER ELECTRIC

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Tendering
Tenders are Issued by PSU’s (generally) for complying with Government
Regulations for buying products.

TYPES OF TENDERS:
1.OPEN TENDERS: Tenders where multiple (empanelled or open)
Vendors are invited to bid for supply of Products or Service’s.
2.CLOSED / NOMINATION TENDERS: Tenders where nominated /
Selected vendor are invited to bid for supply of Products or Service’s.
Usually done for Monopolistic Products and where purchaser doesn’t
have much option.
(eg.: Microsoft, Essel ProPack, Oil PSU’s, etc.)
3.INTERNATIONAL TENDERS: Tenders where companies or countries
want to buy products and invite international vendors / Govt.’s with
relevant experience.
(eg.: Telecom, Infrastructure Tenders).
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Tendering Process Details:

Tendering Process Involves:

● RFI (Request for Information): Optional process in Tendering
- Interested Parties to provide details to Tendering Organisation
on how best they need to implement the technology or
specifications for the Tender.

● RFQ (Request for Quotation) – Once Company has decided on

what to buy, they send out a RFQ (to parties who are
empanelled or to Open parties) for the products / services that
they want to buy.

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Tendering Process Details:
TENDER CONTAINS:
● INTRO LETTER: Company Brief Description, Project
Description
● GENERAL COMPLIANCE: Qualification Criteria’s, etc.
● TECHNICAL COMPLIANCE: Technical Details of Products,
Compliance & Deviation Documents.
● PRICE BID: Commercial Proposal for Products / Services.
● COMMERCIAL FORMAT: Format of Commercial Bid.
● TERMS AND CONDITIONS: Payment Terms, LD’s, Penalties,
etc.
● SPECIAL TERMS AND CONDITIONS: IPR, Document
Formats, Industrial Norms, etc.

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Pricing in Tendering

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What is e-Tendering / e-Procurement?
● E Tendering is a process of carrying out entire Tendering Cycle Online
including submission of Price Bid such that Efficiency, Economy, Speed
of Internet can be harnessed.
● E Tendering Cycle can be broken in Key Modules

1) Tender Notice Creation 7) Tender Storage & Opening

2) Tender Promotion
3) Tender Document
4) Pre Bid Meeting
5) Bid Submission
6) Payment Gateway
8) Tender Evaluation
9) Negotiation
10) Tender Award
11) Vendor Registration & Rating
12) Tender Audit & Storage

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Benefits of e-Tendering / e-Procurement

● Completely Automated Process

● Shortens Procurement Cycle
● Economical and Environment Friendly
● Greater Transparency
● Improvement in work culture in the departments
● System aided Evaluation process
● On the fly reports/comparatives statement
● Minimize Human errors
● Minimal Storage Spaces
● Change in Perception – Progressive Organization
● Lesser hassle of communication and administration

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Benefits to Suppliers/Contractors

● Anytime & Anywhere Bidding

● Fair, Free and Fearless participation for vendors.
● No dependence on Newspaper, Courier, Banks,…
● Zero Administrative hassles
● Can carry out all activities from any computer
● Economical – saving on Traveling cost
● Reduces efforts & cost of bidding
● No tenders can be missed because of distance
● Can submit bid on last minute

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Manual v/s E Tendering System
Manual Tendering System
● Longer Procurement Cycle
● Expensive
● Paper Based Procurement
● Restricted Mobility
● No work on Holidays
● Prone to Human errors
● Content not sharable
● Physical Security
● Wastage of space to store bids
● Not retrievable
● Ideal till 2003
E - Tendering System
● Shorter Procurement Cycle
● Economical – Fixed Cost
● Environmentally Friendly
● Anytime – Anywhere Bidding
● Bidding possible on Holidays
● Automated & Accurate process
● Shareable Content
● Foolproof Security
● Lifelong storage on CD
● One click access to bids
● For year 2004 & Beyond
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Is e-Tendering Secure?

E Tendering Challenges
●Detecting whether document is Tampered or not
●Identifying a person in the faceless world of Internet
●Non Repudiation
●Document Secrecy
●Bidding should not be allowed after due date and time
●Bids cannot be opened before due date and time
●Bids can only be opened by authorized officers

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Digital Certificate

Private Key
Public Key

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Digital Certificate

● Digital Certificate is your Internet

Passport
● Digital Certificate come with 1 / 2
Years validity
● Can be procured easily, in less
than 8 Hours
● List of licensed Certifying Agency
(CA)
●TCS
●N Code (GNFC)
●Safescrypt
●MTNL
●NIC

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AGENDA:

●WHAT IS PRICING & ITS IMPORTANCE

●INDUSTRIAL PRICING

●TYPES OF PRICING

●TENDERING (e-TENDERING)

●CASE STUDY: SCHNEIDER ELECTRIC

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SEI

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The global specialist in
energy management

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Helping people “Make the most of your
energy”
Reliable Safe Efficient Productive Green

renewable energy solutions

industrial
automation
low
& medium & control
critical
voltage
power &
power
cooling building automation
& security

installation systems & control

(wiring devices + home automation)

solutions & energy efficiency

Historical presence New businesses

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From plant to plug™, helping customers
make the most of their energy
72%
5 end markets
Energy and infrastructure
Industry
●
Data centres & networks
●
Buildings
●
Residential
●

part of the worldwide

●

energy consumption of
these five markets

Offering integrated
solutions for segments
like…
● Electrical Energy
● Water & waste water
● Oil & Gas
● Marine
● Mining, Mineral, Metals
●Data centres
●Offices
●Hospitals
● Hotels
●Retail
●Nuclear
●Machines
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A long presence in India
Steady Progress
Our Key Pricing Practices & Process

● Product Prices are calibrated twice a

year based on market conditions.

● Discount control is done via

commercial validation process.

● Rate contracts with customers are

negotiated every year.

● Commercial policy (std discounts) are

also calibrated every year.

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 The Offer Classification
Our offer is divided into these three categories and prices are determined using the
following principle:
Pricing Products classified A (Window) to be competitive.
Increase price, without bothering the competitiveness, the prices of products
classified B and/or C (Shadow - Blind).

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Segmentation… access channel

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Questions & Comments:

THANK YOU…

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