GROUP MEMBERS

NAME KOMAL ADVANI RENU DESWAL ALOK JHA JIBIN JHOHNEY KHUSHBOO MANSHANI NIJA NARAYANAN RUCHI PATEL POONAM RATHI VISHAL ROHRA ROLL NO. 61 64 69 70 72 81 89 100 102

AGENDA:
1. 2. 3. 4. 5. 6. 7. 8. 9. INTRODUCTION TO B2B B2B PRICING FACTOTRS INFLUENCING PRICING DECISION PRICING METHODS PRICING POLICIES PROCESS OF PRODUCT/ SERVICE PRICING PRICING STRATEGIES ROLE OF B2B PRICING ON EFFECTIVE PROMOTIONS CASE STUDIES

B2B MARKETING
Business-to-business (B2B) describes commerce transactions between businesses Contrasting terms are B2C and B2G The volume of B2B transactions is much higher than the volume of B2C transactions In a typical supply chain there will be many B2B transactions involving sub components or raw materials, and only one B2C transaction, specifically sale of the finished product to the end customer

 Online and offline B2B marketing Converting prospects into customers One of the fastest developing fields Larger sums of money enter the circuit

DIFFERENCES BETWEEN B2B AND B2C

B2BRelationship driven Maximize the value of the relationship Small, focused target market Multi-step buying process, longer sales cycle Brand identity created on personal relationship Educational and awareness building activities Rational buying decision based on business value

B2CProduct driven Maximize the value of the transaction Large target market Single step buying process, shorter sales cycle Brand identity created through repetition and imagery Merchandising Emotional buying decision based on status, desire, or price

B2B PRICING
Pricing is the process of determining what a company will receive in exchange for its products. The business market can be convinced to pay premium prices more often than the consumer market if you know how to structure your pricing and payment terms well. Pricing factors includes manufacturing cost, market place, competition, market condition, and quality of product.

CHARACTERISTICS OF B2B PRICING

Characterized by
o highly variable costs of goods and order sizes o the prevalence of product and service customization o the reliance on personal selling.

B2B environment involves evolving long-term relationships between buyers and sellers. Transactions in B2B markets exhibit greater complexity as the business customer typically makes several inter-related decisions. Decision makers (buyers and sellers) in B2B settings are often assumed to behave rationally.

IMPORTANCE
Two Primary Reasons: Most Flexible Marketing Mix Variable. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions. Setting the Right Price. Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to the marketing organization losing revenue.

FACTOTRS INFLUENCING PRICING DECISION PRICING OBJECTIVE

Survival Maximum Short term Profit Maximum Short term Sales Maximum Sales Growth( Market Penetration) Maximum Market Skimming Product- Quality Leadership

 DEMAND ANALYSIS Price elasticity of demand = Percentage change in quantity demanded Percentage change in price Inelastic Demand- Less price sensitive Few competitors No availability of substitute products Elastic Demand - More price sensitive

 COST ANALYSIS Company cost sets the lowest point on pricing range. Identify and classify costs :Fixed Cost , Variable Cost, Semi variable cost, Direct Cost , Indirect cost etc. To make profit products should be priced above their average cost.  COST BENEFIT ANALYSIS Benefits received and cost incurred by the target customers should be analyzed. Cost includes not only price but many other expenses incurred in purchasing and using the product.

COMPETTITIVE ANALYSIS
Competitors price and costs should be analyzed. Competitors product quality, technical expertise and delivery performance should be analyzed. Competitors Response to Price Change  Competitors corporate objective is analyzed:
 To increase market share  Profit maximization

Common reaction profiles of competitors are: Do no react strongly React in a selective manner React strongly Unpredictable

 GOVERNEMENT REGULATIONS
To ensure fair play, and to protect consumers and smaller companies Example: Price Discrimination Predatory Pricing

Pricing Methods

Cost-Based Pricing
Procedure :

Eg. Of Cost-Based pricing

Variable cost per unit : rs.600 Fixed cost : rs. 200,000,000 Expected sales volume in numbers : 1,000,000 Cost per unit = Variable cost + (Fixed Cost/Sale in nos.) = 600 + (200,000,000/1,000,000) = Rs. 800 Suppose manufacturer wants to earn a target profit of 25% on sales , then price is worked out as Cost per unit /(1 Target profit on sales) = 800 / (1-0.25) = Rs. 1067

Arguments favoring Cost-Based pricing & Difficulties with this pricing

Fair to both buyers & sellers Sellers earn a fair return on investment Suppliers can estimate costs more easily than they can estimate demand Price competition is minimized if all suppliers use cost-based pricing

DIFFICULTIES
It ignores Current Demand ,Customer s perceived value ,Competition Many supplier firms lack an accurate understanding of costs Shared fixed costs Costs are based on expected (or forecasted ) sales volume

Value-Based Pricing
Customer s perceptions of value of the product. Use of various marketing mix elements The firm must first understand decision making process and value drivers. And then decide the value proposition of different groups or segments of customers. Firm should deliver more value than its competitors

Warranty Service and technical Support Customer s impression of product performance, quality Supplier s Reputation

Customer s Perception

Price Buyers (Offer Basic product )

Value Buyers (eg. A camera with LCD projector) Loyal Buyers (Invest in CRM)

Competition-Based Pricing
Setting prices in relation to competitor s prices Price is set the same as dominant competitor , or slightly higher or lower. For eg. The steel tube industry Generally , the supplier with highest market share provides price leadership.

DIFFICULTIES IN THIS PRICING

Difficult for marketing managers to know competitors prices accurately. Many suppliers keep on reducing prices to match competitor s prices thus giving away value Of their market offerings.

Pricing Policies

Key Terms associated with pricing

 List Price It indicates the effective date of its applicability and mentions extra charges (if applicable) , the excise duty, sales tax, freight, octroi etc. The net price is worked out based on list price less discounts. Net price is the most important to the organizational buyers (eg . If List price of a product is Rs.1000 and the industrial marketer gives discount of 10% and concession of not charging the freight( say 3% of list price) the Net price is Rs.870)

 Trade Discounts
 Quantity Discounts (Subtract the volume discount from the list price)  Cash Discount (eg. Against the normal credit granted to a customer of 30days , if a customer pays the bill in advance or within 7days from the date of invoice, the customer is given a 2-2.5% discount on the amount of the bill)

PROCESS OF PRODUCT/ SERVICE PRICING

SETTING PRICING OBJECTIVES

DEMAND DETERMINATION

ANALYZING THE PRICING OF COMPETITORS

SELECTION OF A PRICING METHOD

SELECTION OF PRICING POLICY

etting pricing objectives

Survival Profit Return on investment Market share Status quo Product quality

Demand determination
Price sensitivity Demand Curve

Analyzing pricing of competitors

Maintain status quo Set the price equal Attack the price changes

election of pricing method

Mark-up pricing Return on investment method Going rate pricing Differentiated pricing Sealed bid pricing

PRICING STRATEGIES

Others
Promotional Pricing Geographical Pricing Product Bundle Pricing Psychological Pricing

Pricing across Product Life Cycle

Growth phase Lowering the price Product differentiation Maturity phase Match the competitor

Decline phase Reduce cost and not price Increase the price if less competition

Role of B2B Pricing on:

Effective Promotion Marketing & Sales

Effective Promotion
Pricing plays a very important role when it comes to promoting a new brand A new entrant when decides upon pricing, it needs to take care of the cost incurred in promotion Just to penetrate, a new entrant cannot price it so low that it is termed as a cheap product.

Contd..
Needs to take care of quality if charging exorbitantly high Needs to undergo a reality check before deciding upon an appropriate price

New Entrant

Y
Competi tor s Analysis

Market Leader

Effectivenes s in promotion

Failure in Promotion

Study the Environmen t

Rework on Strategies

Role of Pricing
Maximize Customer & Shopper Opportunities Get Value for Money Deliver Sustained Improvement

Marketing & Sales

Reality Check, improved marketing Positioning appropriate Improved visibility w.r.t Dealers and Distributors No scope of heavy discounts Easy acceptability

CASES ON
Micromax mobile Koutons

ITC AS A MANUFACTURER
 Objective of the company.  Company does not raise the price of its most selling brand(Gold Flake) so that it can get max market share and earn money on its premium brands(Insignia).  Demand is Inelastic.  But there is an inter brand elasticity as the people shift to competitive brands if the price of one is raised.

 There are not much price or product variations in the competitor s brands and all of them work in the same segment.  Pricing strategy: MARK-UP PRICING METHOD.  The company also follows the consumer perceived value while launching its new products in the super premium segment.

 Works on the low margin, high volume strategy and also its distributors work on the same strategy, so the company raising its prices will have a huge impact on its value chain.  Further company cannot afford to raise its mark-up due to the presence of intense competition.  So before making changes to the prices the company will have to consider the interest of the distributors and also the strategies adapted by its competitor.

CANON
 Leading manufacturers of IT consumables.  SITUATION: New low-cost products considered to meet competitive offerings. were being

 PROBLEM: The company was facing intense competition for a line of IT consumable goods in a developing market. Lower quality products at substantially lower prices. To compete in this environment, canon considered introducing low-cost products of its own.

SOLUTION:  Market Research helped to determine if lower quality products could damage existing sales.  Created a model of the value chain from the manufacturer to the end-users for all existing products.  Analyze the effects of the new product range based on different price points in terms of profitability and market share.

RESULTS:  The analysis showed that the new low-cost, lowmargin product would substantially cannibalize existing high-margin products.  There would be a small gain in market share but at the cost of a 10% drop in profits.  Canon decided not to introduce the low-cost product in the developing market and avoided major profitability losses.

Tribune Media Services

Objective: Develop and implement a new global pricing strategy in order to simplify sales and increase profits. Situation: New competitors utilizing new lower cost technologies were hurting sales and margins. Service companies that compete based on technology are constantly in a bind. They must continually fight for market share using their existing infrastructure when new competitors come into their space with the latest tools.

The Problem .
New technologies that allowed competitors to offer fixed prices were taking business away from the company, who offered a variable-cost service. The client s offering was complex and it was difficult for users to predict the price for company s services on a month-by-month basis. The company s business model was also complicated by different service offerings and prices in different countries. They did not have a global price strategy in a transparent marketplace and their services were not clearly defined across all markets

Solution
Market research: They conducted a survey of customer buying practices and analyzed the result & found that customers showed a preference for fixed, predictable pricing in most market segments. Market research combined with analysis of historical sales data helped company identify key leverage points for change. The research also revealed that there was substantial confusion regarding the company s complicated rate structure. The results helped them understand the specific things that needed to change in order to make the offer more attractive.

 Results: A new global offer was introduced to simplify sales, increase profits and improve cash flow. The company implemented a new set of offers that included fixed prices and prepayment options in all markets worldwide. The company also plugged the income leaks identified in order to improve profits in a number of markets. Top management s support for the new global strategy helped the business units collaborate much more effectively and to efficiently leverage the firm s global competencies.

J.D.Industrail Products
Objective: A new pricing strategy for the industrial supplier for a long term sustainable profit. Situation: A major supplier of industrial products wanted a long term improvement in margins. The client was using a simple cost plus pricing approach. The sales force had developed a bad habit of giving significant discounts to most customers without demanding anything in return. No one person was in charge of pricing, yet there were many people involved in the process of setting prices. The CEO realized that something had to change.

 The company had an annual turnover of over 1 billion. There was a huge potential to improve margins by introducing a strategic pricing program.  What strategic changes should they make that would be effective in their highly competitive market?  How long would it take to implement the changes?  How fast would they see results? Solution: A strategic move towards target pricing. Senior management worked to develop a long term plan for implementing a new pricing strategy and pricing organization. The strategy called for a distinct move, in small achievable steps, away from cost plus pricing (Breakeven Price*Profit Margin) and towards target pricing. Target pricing works by dynamically adjusting prices based on analysis of historic transaction data, demand and customer buying habits.

Contd..
It combines information from the pricing organization and the client's CRM system

The company designed a proprietary software pricing engine

Calculates the correct price based on a set of pricing algorithms

It then delivers pricing updates to the company s ERP system.

 Results: An additional 3% return on sales! Helped company to offer more attractive prices on the most popular items, resulting in higher levels of customer satisfaction and a more competitive market profile. The typical immediate effect on result: 3% increase in gross profits and long term an additional 2-5% increase; The target pricing approach they selected for the company typically works very well if:
 The client has a large sales volume  The client has large numbers of transactions with large numbers of customers  The revenue leakage through the current cost plus pricing process and the lack of governance structure is significant.

B2B Pricing Strategy Matrix

Price
Low Medium High

Premium Perceived Value

High
-

Promotional
Temporary Price

Highest quality product/service at a premium price - prestige brand

Value
Good quality at a reasonable price

Medium
-

Commodity
Lowest quality with no differentiation among competitors

Skimming
Mediocre quality at a high price

Low

Volume

High

Medium

Low

How much will a respondent pay for an added value service/product over and above the present price?

How much of a cutback in service/product requirement would necessitate a price reduction?

Also included all the tools needed to fix the problem. The company was able to charge a premium as no time was lost looking for tools A company which supplies spares for aircraft engines who offered not only a speedy, reliable service Look for a niche, be reliable, offer extras if you can - anything from good, clear instructions to the tools needed to fix the job For B2B, price is an important factor. What other factors may be more important than price?

BIBLIOGRAPHY
INDUSTRIAL MARKETING BY KRISHNA HAVALDAR BUSINESS MARKETING BY KRISHNA HAVALDAR B2B MARKETING BY MICHAEL D.HUTT www.marketingprof.com www.afaqs.com