RESUME Modul 9 (PBM) Yaka Ridho K Al Sembiring (1201110309)

VALUE BASED PRICING & COST COVERED Value in use Pricing: Price is the most visible cost of any purchase Price is only the top of iceberg Perceived Value pricing: Perceived customer benefit approach for value based pricing Competitive advantage is the key of Perceived value Performance Based pricing: if we were to ask a businesss customer to name those things that most influence their purchase decision, they will generally say everything] Price Margin users and the amount a business actually receives often vary greatly. This is especially so for businesses using indirect channel. When the cost of selling direct is greater than the margin given to intermediaries is more profitable Depending on Channel strategies, price discounts, transaction cost, and the reality of getting paid, a business can encounter an enormous gap between the price the customer pays for a product and the pocket price the amount the business receives.

Poket Price bandwith A business will not have just one pocket price, but several. Plotting the pocket price bandwidth is helpful for gaining insight into the profit impact of a pocket price A business can plot its pocket price in relation to the volume sold for each pocket price as illustrated in the next page

Pricing and Profitability Sales growth is an obsession in most business. If those in marketing can deliver more volume, more market share , and more sales revenues, then we can grow profits This may be true in many cases but we need to be especially careful when using price to achieve this objective

Price Volume Sales Strategy Marketing and Sales team need to grow sales revenue greater then 10% The product markets are price sensitive Sales team judges that 10% price decrease would result in volume gain 25%

The revenues will increase from $10 million to $11.25 million

Price Volume Strategy and Profit Impact The problem with this sales-oriented approach we would lose money The goal of pricing strategy should be to increase profit not to increase sales or volume

Price Volume Profitability The problem is How much volume do we need to maintain the current level of profitability ? To maintain gross profit of $3 million, strategy that lower price 10% would require a 50% share gain (from 20% to 30%)

Gross Profit = Market Demand X Market Share X (Unit Price Unit Cost)

Price Elasticity and Profitability Inelastic price management Elastic price management

Inelastic price management When a price is inelastic, all aspect of performance are improve when prices are increased. Lowering price when it is inelastic will hurt sales, margins and gross profit but increase unit volume

Elastic price management Previous figure show that arriving at successful pricing strategy is difficult in profit will depend on the level of price elasticity Price and Break-Even Analysis Price and Break-Even Volume Price and Break-Even Market Share

Price and Break-Even Volume Pricing strategy and marketing effort, it is useful to determine the number of units that need to be sold in order to break-even that is to produce operating income equal to zero

Price and Break-Even Market Share Market Share is constrained between 0 100 %, so break even market share provides a better frame work for judging profit potential and risk Break even Volume Break-even Market Share = --------------------------------Market Demand

With a break even volume 25 million units, if the market demand is 200 million units per year, then break-even market share would be 12.5% If the business has 24% market share, which is 11.5% share point above break-even