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Pricing Strategy WMP

This document discusses various pricing strategies and methods for measuring customer reactions to prices. It describes absolute and comparative methods for understanding how customers perceive the value of products at different price points, such as psychological price tests, price sensitivity meters, and brand price trade-off studies. The key methods examined are used to determine the optimal prices for products that will maximize sales and profits.

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Abhinav Rastogi
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148 views

Pricing Strategy WMP

This document discusses various pricing strategies and methods for measuring customer reactions to prices. It describes absolute and comparative methods for understanding how customers perceive the value of products at different price points, such as psychological price tests, price sensitivity meters, and brand price trade-off studies. The key methods examined are used to determine the optimal prices for products that will maximize sales and profits.

Uploaded by

Abhinav Rastogi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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PRICING STRATEGY-

APPLICATION
2
Strategic Pricing Question
Which combination of products to be
offered, when, where, and at what price
range, in order to realize the full profit
potential?
!
PRICING METHODS
MEASURING CUSTOMER REACTIONS TO PRICES

Price Techniques
Absolute Methods : Response to brands price is obtained
in isolation and no other brand is compared
Direct methods : price of brand is overtly mentioned before taking
response of customers). Example
Psychological price test
Price sensitivity meter (PSM)
Indirect methods
Randomized sequence of prices
Comparative methods : Response to brands price is
obtained in comparison to other brands
Brand Price Trade off (BPTO)
Dekho or Puchho
Psychological Price Test :
DS - Gutkha (10 gm)
Price Image
Price Image % of good value for
money
% Expensive
Brand A 20 56
Brand B 48 39
Brand C 68 16
7
Price Sensitivity Meter (PSM)
Developed by Van Westendorp in the mid 1970s
Respondent is shown a card with a wide price range eg 31 price points at
5% intervals!with current/proposed price in the middle
The four questions:
At which of these prices does the product become cheap ( or a good bargain)
At which price does it become expensive
!so expensive that you will no longer consider buying
!so cheap that you will be concerned about its quality
8
The Gabor Granger method Absolute Indirect
Method
A set of prices read out in a random order:
will you buy it?
purchase intention
Price
(Rs)
50 45 65 35 77 89 33
Yes 1 1 1 1 1 1 1
No 2 2 2 2 2 2 2
Monadic Pricing Studies
Single cell pricing research where respondents
are asked a single question about a product
If a Coke can is priced at Rs 55, how likely are you to buy it?
General issues with price survey techniques 3 flaws

Customers may deliberately understate their willingness
to pay
Customers may say a price that reflects how they want
the person conducting the survey to view them, but does
not reflect their actual willingness to pay.
Customers may simply be unsure about their willingness
to pay.
Source :MIT Open Source Pricing Course
11
Brand Price Trade Off :Comparative Method
Bi-attribute modeling Brand and Price
12
BPTO Process
Define the market for (test) brand and competition or
consideration set of respondents
Decide price range to be tested in line with actual price you
intend
Respondents exposed to all prices starting form the lowest
price range
Suppose you were to visit your usual shop and find these brands
of !!!!..(mention product) at the price shown on this card,
which of these brands would you be most likely to buy ?
Price of (first) chosen brand is increased and other brand prices
remain constant
Again the price of (second) chosen brand price is increased
irrespective of whether the second chosen brand is same as
(first) earlier or not
This continues till brand reaches its highest price and is
removed from choice and process continues
Brand Starting Price (Rs)
Pepsodent 47 48 49 50
Colgate
Strong Teeth
37 38 39 40
Colgate Total 45 46 47 48
Close Up 44 45 46 47
Brand Starting Price (Rs)
Pepsodent 11 12 15 16
Colgate
Strong Teeth
1 2 3 9
Colgate Total 4 5 6 7
Close Up 8 10 13 14
Dekho aur Puccho - Observation Research
Low price unit self medication- throat lozenges (Halls,
Strepsils etc.) or Vicks, Anacin etc.
Cost increased and wanted to increase the price from Rs.
1.00 to 1.50 that is increase 50%
BPTO test was done
Brand A (Test
Brand)
Brand B Brand C Brand D Brand E
1.00 0.50 0.75 0.50 0.75
1.25 0.75 1.00 0.75 1.00
1.50 1.00 1.25 1.00 1.25
2.00 1.25 1.50 1.25 1.50
Dekho aur Puccho True to life
Test brand volume would fall by 62%, gainer would be
Brand B (by 50%) and C (by 25%). Still, price was
increased.
Results - No effect, six months later Brand B increased
the price by Rs 0.50
Is technique faulty No
Product category is the answer
Questions to be answered:
Purchaser decide before or after reaching retail outlet
Price awareness level of purchaser and competition level (least)
Purchaser does comparison (No)
Retailer influence (least)
Brand value over brand price (High)
16
Experimental approaches
17
Proportion who bought at simulated shop
19
23
Base price Base price + 12%
VALUE (BENEFIT) PRICING
STRATEGY - EVC
Economic value to customers Functional (Product)
Benefit B2B
20
Economic Value to Consumers

Example Heavy equipment manufacturer
Reference
Competitive
alternative
for this
customer =
Rs. 72,500
Addl warranty
cost = -1050
Increased revenue
from higher uptime
rental svc = 2350
Invoice processing
& consistency
savings = 1500
Parts inventory
pgrm savings =
1250
Total offering
economic value
$79,950
Differentia
tion value
=
Rs. 7,450
Reference
value
=
Rs.72,500

Improved
residual value
= 1200
Fuel economy
savings = 2200
Source :MIT Open Source Pricing Course

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