Question No # 1:-

What is strategic pricing? How does it work and what data are required.

Strategic pricing:
Pricing strategy is the tactic that company use to increase sales and maximize
profits by selling their goods and services for appropriate prices.

Strategic pricing can make a use of a series of analytics tools that can help you
better understand how your pricing activities affect the overall business. There
are three components of these analytics tools.

 Value identification: Evaluates your value proposition and performs

conjoint analysis to help you understand where the opportunities for
pricing improvement may lie. Conjoint analysis quantitatively measure
customer preferences for product features. Forecast how pricing changes
affect demand. And predict market acceptance of a new product.
 Competitive Environment: Looks at the external market and analyzes your
competitors.
  Qualitative analysis: Applies a capability maturity model to benchmark the
organization’s ability to apply advanced pricing strategies and evaluates
performance over time.

There are six different market pricing strategies

1. Pricing at premium
2. Pricing for market penetration
3. Economy pricing
4. Price skimming
5. Psychology pricing
6. Bundle pricing

The pricing pyramid:

A comprehensive pricing strategy is comprised of many layers creating a
foundation for price setting that minimizes erosion and maximizes profits over
time. These layers combine to form a strategic pricing pyramid. Value creation
forms the foundation of the pyramid. A deep understanding of how products and
services create value for customers is the key input to the development of a price
structure that determines how your offerings should be priced.

Significances of strategic pricing:

What customers are willing to pay for a product may be vastly more, or less, than
a company would charge if it simply priced based on cost. Discovering what
consumer’s value about your product can allow a company to increase its price –
or, alternatively, might even suggests that a new product has no chance of being
profitable.

Alternatives to strategic pricing:

Traditional pricing is set either based on the cost of production or on the price
that competitors are Charging. Sometimes this is a reasonable approach but when
multiple competitors produce the same product at the same price, the only way
to compete is to offer a discount. Pricing a company's product strategically is
therefore key to avoiding price wars.

Example:
Software companies often use strategic pricing because they cannot price on cost.
They usually don't know how many copies they will sell, and there is virtually no
incremental cost for producing more units. Suppose they poll their potential
customers and determine that some people want to use the software a little bit
every day, and some want to use it intensely a few times a year? This may lead
the company to offer two different pricing plans for the same software, e.g. a
£19.99 monthly subscription and a £4.95 per use fee.

Tips for strategic pricing:

1. Strategic pricing is a marketing decision, which means it should be informed
by dialogue with your customers.

2. Keeping a close eye on your competitors is important, but remembers they

are not the ones purchasing your product, and they may be making
mistakes in their own pricing.

3. Recognize what your customer’s value and charge them accordingly rather
than going head to head on price with competitors.

Question No # 2:
What roles do information systems plays in strategic pricing? What role
do people play in getting a strategic pricing system to work?

Strategic information system:

(SIS) are information systems that are developed in response to corporate
business initiative. They are intended to give competitive advantage to the
organization. They may deliver a product or service that is at a lower cost, that is
differentiated, that focuses on a particular market segment, or is innovative.
Sources
1. Pricing at a Premium:
With premium pricing, businesses set costs higher than their competitors.
Premium pricing is often most effective in the early days of a product’s life
cycle, and ideal for small businesses that sell unique goods.

Because customers need to perceive products as being worth the higher

price tag, a business must work hard to create a value perception. Along
with creating a high-quality product, owners should ensure their marketing
efforts, the product’s packaging and the store’s décor all combine to
support the premium price.

2. Pricing for market penetration:

Penetration strategies aim to attract buyers by offering lower prices on
goods and services. While many new companies use this technique to draw
attention away from their competition, penetration pricing does tend to
result in an initial loss of income for the business.

Over time, however, the increase in awareness can drive profits and help
small businesses to stand out from the crowd. In the long run, after
sufficiently penetrating a market, companies often wind up raising their
prices to better reflect the state of their position within the market.

3. Economy pricing:
Used by a wide range of businesses including generic food suppliers and
discount retailers, economy pricing aims to attract the most price-conscious
of consumers. With this strategy, businesses minimize the costs associated
with marketing and production in order to keep product prices down. As a
result, customers can purchase the products they need without frills.

While economy pricing is incredibly effective for large companies like Wal-
Mart and Target, the technique can be dangerous for small businesses.
Because small businesses lack the sales volume of larger companies, they
may struggle to generate a sufficient profit when prices are too low. Still,
 selectively tailoring discounts to your most loyal customers can be a great
way to guarantee their patronage for years to come.

4. Price skimming:
Designed to help businesses maximize sales on new products and
services, skimming involves setting rates high during the introductory
phase. The company then lowers prices gradually as competitor goods
appear on the market.

One of the benefits of price skimming is that it allows businesses to

maximize profits on early adopters before dropping prices to attract more
price-sensitive consumers. Not only does price skimming help a small
business recoup its development costs, but it also creates an illusion of
quality and exclusivity when your item is first introduced to the marketplace.

5. Psychology pricing:
With the economy still limping back to full health, price remains a major
concern for American consumers. Psychology pricing refers to techniques
that marketers use to encourage customers to respond on emotional levels
rather than logical ones.

For example, setting the price of a watch at $199 is proven to attract more
consumers than setting it at $200, even though the true difference here is
quite small. One explanation for this trend is that consumers tend to put
more attention on the first number on a price tag than the last. The goal of
psychology pricing is to increase demand by creating an illusion of enhanced
value for the consumer.

6. Bundle pricing:
With bundle pricing, small businesses sell multiple products for a lower rate
than consumers would face if they purchased each item individually. Not only
is bundling goods an effective way of moving unsold items that are taking up
space in your facility, but it can also increase the value perception in the eyes
of your customers, since you’re essentially giving them something for free.
 Bundle pricing is more effective for companies that sell complimentary
products. For example, a restaurant can take advantage of bundle pricing
by including dessert with every entrée sold on a particular day of the week.
Small businesses should keep in mind that the profits they earn on the
higher-value items must make up for the losses they take on the lower-
value product.

Pricing strategies are important, but it’s also important to not lose sight of
the price itself. Here are five things to consider, alongside your strategy,
when pricing your products.

Question No # 3:
What kind of impact does strategic pricing have on business such as a
parker Hannifin?

Answer:
Parker’s investment into this initiative has not only preserved the hard-earned
savings from Strategic Procurement and Lean, but has allowed Parker to deliver
Profitable Growth through high quality, high value products and systems at the
best price. Pricing to resistance through product and market segmentation, value
in use, and competitive analysis, Parker’s global team of pricing professionals are
helping to win more business at prices that are fair, profitable, and differentiated.
Pricing has a powerful effect on the company’s Growth and Profitability. By
choosing to actively manage price, Parker leverages the benefits while minimizing
risk. ‘Strategic Pricing’ does not mean charging higher prices across the board. It
means charging the right price for each situation. Parker employs pricing
professionals in the following disciplines:

 Quoting specialist
 Pricing analyst
 Pricing coordinators
 Pricing managers

Strategic Pricing Associates led Parker Hannifin’s Strategic Pricing Initiative

through its pilot stage from 1999 to 2001, and through the global roll-out from
2001 through 2005. Encompassing all of Parker’s operations worldwide, roughly
90 manufacturing businesses and 30 trading subsidiaries (company-owned
distribution channels), the initiative was a central part of CEO Don Washkewicz’s
WIN Strategy, a three-pronged approach to improving profitability in this $10
billion, NYSE company (PH). The initiative involved leading all of Parker’s
operations away from an undisciplined, non-strategic “cost-plus” approach to a
value-based, strategic architecture with improved internal processes and controls.

Question No # 4:
What other kinds of businesses could benefit from strategic pricing?

Answer:
The pricing strategy tool works by enabling you to first enter in the variables that
affect your pricing decisions. The factors added include market position,
promotions, analysis, demand versus price, value, product expenses and costs,
and environmental factors. There are other considerations; however these are
the most common. When you utilize a pricing tool, this tool will account for all of
these variables and others that affect pricing to help you arrive at the right price
for your product.

Pricing is a strategy, not a task. If you think of pricing as a mere task, you will
overlook many decisions, variables, and plans that go into your pricing method
and structure. Pricing is directly related to positioning in the market and it is one
of the four elements of your marketing mix. It also affects other elements in
various ways, so you have to make sure that you set your prices accordingly.

Think about the type of product that you are launching and the market that you
are targeting. And consider factors such as your costs, the competition, and the
objectives of your company, brand or product.

It's also important to review your pricing strategy, particularly if market

conditions change.
Question No # 5:
How are value chain and competitive forces analysis related to parker
Hannifin strategic pricing?

Answer:
In his revolutionary article - "Five Forces that Shape Strategy", Michael Porter
observed five forces that have significant impact on a firm's profitability in its
industry. These five forces analysis today in business world is also known as -
Porter Five Forces Analysis. The Porter Five (5) Forces are –

 Threat of New Entrants

 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat from Substitute Products
 Rivalry among the existing players.
Threats of New Entrants:
New entrants in Industrial Equipment & Components brings innovation, new ways
of doing things and put pressure on Parker-Hannifin Corporation through lower
pricing strategy, reducing costs, and providing new value propositions to the
customers. Parker-Hannifin Corporation has to manage all these challenges and
build effective barriers to safeguard its competitive edge.

Bargaining Power of Suppliers:

All most all the companies in the Industrial Equipment & Components industry
buy their raw material from numerous suppliers. Suppliers in dominant position
can decrease the margins Parker-Hannifin Corporation can earn in the market.
Powerful suppliers in Industrial Goods sector use their negotiating power to
extract higher prices from the firms in Industrial Equipment & Components field.
The overall impact of higher supplier bargaining power is that it lowers the overall
profitability of Industrial Equipment & Components.

Bargaining Power of Buyers:

Buyers are often a demanding lot. They want to buy the best offerings available
by paying the minimum price as possible. This put pressure on Parker-Hannifin
Corporation profitability in the long run. The smaller and more powerful the
customer base is of Parker-Hannifin Corporation the higher the bargaining power
of the customers and higher their ability to seek increasing discounts and offers.

Threats of Substitute Products or Services:

When a new product or service meets a similar customer needs in different ways,
industry profitability suffers. For example services like Dropbox and Google Drive
are substitute to storage hardware drives. The threat of a substitute product or
service is high if it offers a value proposition that is uniquely different from
present offerings of the industry.

Rivalry among the Existing Competitors:

If the rivalry among the existing players in an industry is intense then it will drive
down prices and decrease the overall profitability of the industry. Parker-Hannifin
Corporation operates in a very competitive Industrial Equipment & Components
industry. This competition does take toll on the overall long term profitability of
the organization.