Presented by-Shama ParveenMeenu GuptaNishtha ZutshiKanika Agarwal

Traditional pricing

Traditional pricing is also known as

Conventional or Cost Based Pricing .

It is known as cost based pricing because it

is calculated as:

Cost + Fixed Profit Percentage = Selling

Price

Dynamic pricing

•A flexible pricing mechanism made possible by advances in

information technology, and employed mostly by Internet based

companies

•By responding to market fluctuations or large amounts of data

gathered from customers

•Allows online companies to adjust the prices

of identical goods to correspond to a

customer’s willingness to pay

MERITS OF DYNAMIC PRICING OVER TRADITIONAL PRICING

Reaching new customers who are price

sensitive

Helping dealers move used and refurbished

products

Providing your best customers with a private

market for your products

Tapping into a customer base looking for

low prices over non-price features

Targeting unsuccessful bidders as new sales leads

demerits

Diminishing the image of high-price/high-quality brands

Reducing margins on products sold via auctions

TYPES OF DYNAMIC PRICING

Yield based pricing Activity based pricing Auction based pricing

YIELD MANAGEMENT

A yield management (also known as Revenue Management) based pricing strategy

uses historic data and mathematical models

to predict demand at future points in time

It then sets different prices at these different time points according to the predicted demand as well as varying prices according to the actual demand

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YIELD MANAGEMENT: MAXIMIZING REVENUE FROM AVAILABLE CAPACITY AT A GIVEN TIME

Based on price customization--charging different customers (value segments) different prices for same product

Useful in dynamic market where demand can be divided into different price buckets according to price sensitivity

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Yield Management: Maximizing Revenue from Available Capacity at a Given Time

Requires rate fences to prevent customers in one value segment from purchasing more cheaply than willing to pay

YM uses mathematical models to examine historical data and real time information to determine• what prices to charge within each price bucket• how many seats (or other service units) to allocate

to each bucket

SEVEN STEPS TOWARDSYIELD MANAGEMENT

Identify unused capacity and reasons for underutilization Identify and derive use cases for unused capacity Calculate the impact on profitability and cost of

ownership Perform value-creation analyses for different stakeholders Base solutions on innovative services explicitly designed to use only spare capacity Get ideas from other industries for a framework that will

simplify decision modeling Articulate several innovative cases to test both the strength of arguments and the decision framework

AIRLINES INDUSTRIES

Price discrimination strategy -Business class Reserve full seat Limit the number of discount seat -Leisure travelers Price more flexible Advance booking Non refundability

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First Class

Full Fare Economy (No Restrictions)

One-Week Advance Purchase

One-Week Advance Purchase, Saturday Night Stayover

3-Week Advance Purchase, Saturday Night Stayover

3-Wk Adv. Prchs, Sat. Night Stay, No changes/refunds

3-Week Adv. Prchs, Sat. Night Stay., $100 for Changes

Late Sales through Consolidators/ Internet, no refunds

Capacity

of AircraftNo. of Seats Demanded

Capacity

of 1st-classCabin

Price perSeat

ACTIVITY BASED PRICING

ABC based pricing recognize that all activity taking place within the firm directly or indirectly supports the production, marketing and delivery of goods and services

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ACTIVITY-BASED COSTING(ABC)

Managers need to see costs as integral part of firm’s effort to create value for customers

When looking at prices, customers care about value to them, not what production cost the firm

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ACTIVITY-BASED COSTING:

Traditional cost accounting emphasizes expense categories, with arbitrary allocation of overheads

ABC management systems examine activities needed to create and deliver service (do they add value?)

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ACTIVITY-BASED COSTING:

Must link resource expenses to:• variety of products produced• complexity of products• demands made by individual

customers

STEPS OF ABC Identify and define activities and

activity pools

Directly trace costs to activities (to the extent feasible)

Assign costs to activity cost pools Calculate activity rates

Assign costs to cost objects using the activity rates and activity measures previously determined

Prepare and distribute management reports

EXAMPLE: HOSPITALS

The cost of an episode of care Accurate allocation of administrative costs to products A comparison of costs and their causes over time Information regarding the cost of various activities

AUCTION BASED PRICING

Common name for several types of sales where the price is neither set nor arrived at by negotiation, but is discovered through the process of competitive and open bidding

An auction is complete when a bid is accepted by the seller or the buyer

Internet auctions are an important aspect of electronic commerce

TYPES OF AUCTION

(1) Forward auction in which several buyers bid for one seller's good(s) and

(2) Reverse auction in which several sellers bid for one buyer's order

EXAMPLE: E-AUCTION

Auction Pricing Strategy of Ebay

The ‘Few Dollars More’ Strategy

The ‘One Dollar Less’ Strategy

The ‘Free Shipping’ Strategy

The ‘Go for It’ Strategy

UNINOR-CREATED DYNAMISM IN TELECOM

Badalta 24*7 discount plan

Ranges from 5% to as much as 60%

Acc. To the place of calling

Time of calling

HOW IT WORKS

visible at all times on the screens of handsets that display cell broadcast

depend on network traffic and customers location at that time

all their communication conveys dynamism