pricing & tendering - group i(100803)

8/7/2019 Pricing & Tendering - Group I(100803)

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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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Profit = Price x Volume - Cost

Lets start understanding the equation

There Are Only Three Profit Drivers


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(*) excluding any fix cost impact of volume growth

Price is definitely the strongest profit driver

A 10% improvementin

Profit

driver

Profit

Price

leads to a profit increaseof

100%

60%

40% (*)

30%

Old NewNewOld

$10M $16M$54$60

$10M $14M1.1M1M

$10M $20M$110$100

$10M $13M$27M$30M

Variable

unit cost

Sales

volume

Fixed

costs

Why is Price the most Important leverAssumptions: Fixed Costs = 30% of Sales, Variable Costs = 60% of Sales,

Profit = 10 % of Sales, Sales = 1 M items


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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.

Price

Perceived

Offer

Value

Customer Marketer

Overall

Values

Product

Values

Service

Values

Brand

Values

Cost

Values

4 types of related

Market Values

Price is a realization of what value customer puts to associated services, brand apart from product itself


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A broad perspective needed in examining the costs a particularalternative may present for the buyer.

Rather than making a decision on the basis of price alone, organizationalbuyers emphasize the total cost in use of a particular product or service.

Customer Cost-In-Use Components


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AGENDA:


INDUSTRIAL PRICING

TYPES OF PRICING




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Fig. 15.2

There is no easyformula for pricing an

industrial product orservice.The decision ismultidimensional.

The each interactivevariable assumessignificance.

Key Components Industrial Pricing


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Price Objectives

The pricing decision must be based on objectivescongruent with marketing and overall corporateobjectives.

The marketer starts with principal objectives and addscollateral 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 demandedattributable 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 anoffers life cycle.

For each phase, there are different prices and discounts.

High Price Penetration

Price

Market Price High Price

Introductionto Market

Market Sharetakeover

Maturity Decline

No DiscountDiscount

by quantity

Discount

by type of customer No Discount

Volume

Time


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Price Strategy

Price

Low High

Market Share

Low

High

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 visPrice

Protection

Aim is to maintain high

market share by using low

prices as a barrier.

Discrimination

A high price will not prevent

you from gaining market

share.

PenetrationA low price is used to gain

quickly market share.

SkimmingA niche approach covering

a part of the overall market

using a high price policy.


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

Quality leadership- Use price to signal high quality in an attempt to position theproduct as high quality.

Partial cost recovery An organization that has other sources of revenue may optfor partial cost recovery.

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


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Pricing Methods

To set specific price levels to achieve pricing objective following methodscan 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 theproducts and adjust your margin structure accordingly

Value Based Pricing- Base the price on effective value of the productrelative to alternate products


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Break-Even PointCost-volume-profit (at a price) analysis


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AGENDA:


INDUSTRIAL PRICING

TYPES OF PRICING




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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

"Dumping"?

typical in mass market products

chocolate bars, food stuffs,household good, etc.

suitable for products with long lifecycles

useful for launching in new market

problem to raise price subsequently

Price

Quantity

Penetration Pricing

Whole

market price


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Market Skimming

High price, low volumes

Suitable for products with short lifecycles or soon facing competition(e.g. after a patent runs out)

e.g. Harry Potter hard-back,Playstation, digital technology, newDVDs, etc.

LCD and Plasma screens: Why are high prices falling?

Skim the cream (profit) off the topfirst pricing

high price for those willing to paythen aim at more price-sensitive

consumers.

Price

Quantity

Initialskimmingprice

Secondprice

Finalprice

Skimming Pricing

Sell at highprice beforereducing tonext price leveland repeat


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Value Pricing

Price set according to perceptionsabout the value of the product/service

e.g. status products/exclusiveproducts

Loss Leader

At International Supermarkets, e.g. milk, 5 gin at Christmas (people attractedto 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 goodspriced 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

Trade

Quantity Seasonal

DiscountPricing

Sale Cash

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.


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Tender Pricing

Many governmentcontracts awarded via atender

Firm (or firms) submittheir price for carrying outthe work

Purchaser then chooseswhich 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 costsFull Cost Pricing set price to cover both fixed & variable costs Absorption Cost Pricing Price set to absorb some fixed costs of productionAbsorption Cost Pricing Price set to absorb some fixed costs of production

Price of some products in a portfolio therefore need not be full costPrice of some products in a portfolio therefore need not be full cost


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Contribution Pricing

Contribution = Selling Price Variable (direct costs)Contribution = Selling Price Variable (direct costs)

From break even analysisFrom break even analysis

Set price to cover variable costs+ a contribution to the fixed costsSet price to cover variable costs+ a contribution to the fixed costs

Similar to marginal cost pricingSimilar to marginal cost pricing

Cost-Plus Pricing

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


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AGENDA:


INDUSTRIAL PRICING

TYPES OF PRICING




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Tendering

Tenders are Issued by PSUs (generally) for complying with GovernmentRegulations 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 Services.

2.CLOSED / NOMINATION TENDERS: Tenders where nominated /Selected vendor are invited to bid for supply of Products or Services.Usually done for Monopolistic Products and where purchaser doesnthave much option.

(eg.: Microsoft, Essel ProPack, Oil PSUs, etc.)

3.INTERNATIONAL TENDERS: Tenders where companies or countrieswant to buy products and invite international vendors / Govt.s withrelevant 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 Organisationon how best they need to implement the technology orspecifications for the Tender.

RFQ (Request for Quotation) Once Company has decided onwhat to buy, they send out a RFQ (to parties who are

empanelled or to Open parties) for the products / services thatthey want to buy.


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TENDER CONTAINS:INTRO LETTER: Company Brief Description, Project

Description

GENERAL COMPLIANCE: Qualification Criterias, 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, LDs, Penalties,etc.

SPECIAL TERMS AND CONDITIONS: IPR, DocumentFormats, Industrial Norms, etc.

Tendering Process Details:


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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 Onlineincluding submission of Price Bid such that Efficiency, Economy, Speedof Internet can be harnessed.

E Tendering Cycle can be broken in Key Modules

1) Tender Notice Creation 7) Tender Storage & Opening

2) Tender Promotion 8) Tender Evaluation

3) Tender Document 9) Negotiation

4) Pre Bid Meeting 10) Tender Award

5) Bid Submission 11) Vendor Registration & Rating

6) Payment Gateway 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 TransparencyImprovement in work culture in the departments

System aided Evaluation process

On the fly reports/comparatives statement

Minimize Human errorsMinimal 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 hasslesCan carry out all activities from any computer

Economical saving on Traveling cost

Reduces efforts & cost of bidding

No tenders can be missed because of distanceCan 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 MobilityNo 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 SecurityLifelong 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 RepudiationDocument 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

Public KeyPrivate Key


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Digital Certificate

Digital Certificate is your InternetPassport

Digital Certificate come with 1 / 2Years validity

Can be procured easily, in less

than 8 HoursList of licensed Certifying Agency(CA)

TCSN Code (GNFC)

SafescryptMTNLNIC


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AGENDA:


INDUSTRIAL PRICING

TYPES OF PRICING




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SEI


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The global specialist inenergy management


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Offering integratedsolutions for segmentslike Electrical Energy Water & waste water Oil & Gas

Marine Mining, Mineral, MetalsData centresOfficesHospitals HotelsRetailNuclearMachines

From plant to plug, helping customersmake the most of their energy5 end markets

Energy and infrastructure

Industry

Data centres & networks

Buildings

Residential72%part of the worldwideenergy consumption ofthese five markets


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A long presence in India

Steady Progress


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Our Key Pricing Practices & Process

Product Prices are calibrated twice ayear based on market conditions.

Discount control is done via

commercial validation process.

Rate contracts with customers arenegotiated every year.

Commercial policy (std discounts) arealso calibrated every year.


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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).

The Offer Classification


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Segmentation access channel


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Questions & Comments:

THANK YOU