PUNCH LINES
There is no such thing as a free lunch
Profit is the price of survival
A price war can be a great way to shake out competition and build a commanding market share in a short period of time
Price wars can be a potent effective marketing strategy when deployed with forethought and skill and under the right circumstances
The greatest challenge of the business today is how to charge the least and serve the most
"My greatest challenge has been to change the mindset of people. Mindsets play strange tricks on us. We see things the way our minds have instructed our eyes to see", says Yunus, founder of Grameen Bank, Bangladesh, and the recipient of Noble Award
KEY POINTS
Three simplistic and ad-hoc approaches for pricing
Ø Cost - Plus Servicing
Ø Competition-based pricing
Ø Consumer-based pricing
Four levers can be played to boost the sales/profits
Ø Sales
Ø Variable costs
Ø Fixed costs
Ø Price
"PAY AS YOU WISH" - what all businesses this can be applied to
Ø A product with a low marginal cost
Ø A fair-minded customer
Ø A product that can be sold credibly at a wide range of prices
Ø A strong relationship between buyer and seller
Ø A very competitive marketplace
Most consumer behavior suggests that buyers use three ways to decide the price they are willing to pay
Ø Anchor pricing
Ø Value pricing
Ø Fair pricing
Why do people care so much about few pennies ?
Ø Social norms
Ø People have trouble setting prices themselves
Ø People naturally prefer options with no downsides
Few chinese Players such as (Changhong, a TV manufacturer, and Galanz, a Microwave manufacturer) made the decision of waging a PRICE WAR for the number of following reasons
Ø A significant number of chinese households were ready to modernize their Kitchen
Ø Reorganize the industry for sustainable future growth
Ø Establish your cost advantages in the market place
Ideal times price war can be initiated
Ø Heterogeneous firms with wide distribution of cost efficiencies
Ø New technologies with significant scale economies (means an enterprise/company which can cut down costs and increase its efficiency with more throughput)
IBEA (Incremental Break Even Analysis)
dq = dP - (1-cm) dC / (cm - dP + (1-cm)dC)
dq = Breakeven sales increase in %
dP = Magnitude of a price cut
cm = contribution margin in percentage ( before price cut)
dC = Reduction in marginal costs in percentage due to price cuts
Thinking Small
Ø Pitch pennies (9.99$, ending with 88, etc)
Ø Just pennies per day (Bring down the quantum of charges to decimals..)
Ø Supersize my profits (McDonalds, give more quantity for lesser price)
Ø Small price to pay (rent jets, share resorts on time basis)
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