REAL ESTATE

Presented by:

HARKESH BANSAL(5)
PANKAJ JAIN (13)
ANUPAM KASUHIK (16)
NIMISH SHINGHATWADIA
(23)
Pricing Strategies
Pricing Strategies
Pricing Strategies for
the Asia Pacific
Asia-Pacific Marketing Federation
Certified Professional Marketer
Copyright
Marketing Institute of Singapore
 Outline
• Introduction
• Pricing strategies and process
• Reactions to price changes
• Impact on discounting
• Price wars
• Yield management
 Introduction
• We need to set price when we have a new
product, or when we enter a new market with
an existing product
• How?
– Need to decide what position you want your
product to be in (see quality-price relationship—
next slide)
 Price-Quality Strategies

• Philip Kotler identified 9 price-quality

strategies
High Price Low Price
High Quality High Super
Premium
Value Value

Over Mid Good

Charging Value Value

False
Rip-off Economy
Economy
Low Quality
 Pricing Process
1. Set Pricing Objectives (see next slide)
2. Analyze demand
3. Draw conclusions from competitive
intelligence
4. Select pricing strategy appropriate to the
political, social, legal and economical
environment
5. Determine specific prices
Possible Pricing Objectives

• Profit objectives e.g.

– Targeted profit return
• Volume objectives e.g.
– Dollar or unit sales growth
– Market share growth
• Other objectives e.g.
– Match competitors’ price
– Non-price competition
 Demand Analysis

• Measure the impact of price change on

total revenue
• Predicts unit sales volume and total
revenue for various price levels
• Different customers have different price
sensitivities and needs
Impact of Cost on Pricing Strategy

• Fixed and variable costs

– Full-Cost Pricing
• Markup pricing, break-even pricing and rate-of-
return pricing
– Variable-cost pricing
• 3 types of relationships
– Ratio of fixed costs to variable costs
– Economies of scales
– Cost structure
 Discussion: Impact of Ethics on Pricing

• How should you price if your product is a life-

saving drug?
• What are the ethical considerations?
– Customers have no choice
– Need to pay for the research
– When cheaper options doesn’t work
– Competition decides
 Information Needed for Price
Change
• Customers’ ability & willingness to buy;
customer lifestyle; benefits sought;
characteristics of the product e.g.
– When the kopi tiams, local coffee shops in
Singapore tried to raise the price of a cup of coffee
by 10 cents in March 1994, the grass-root reaction
was stormy
– When Starbucks Coffee and Spinelli’s raised their
prices in the beginning of 1998 by a hefty 20%,
nobody raised an eyelit
 Information Needed for Price
Change (cont’d)
• Need to know everything about the
competitors
– How would competitors react to our price
change? (see following slide)
– In obtaining competitors’ information, remember
the value of the information
New-Product Pricing Strategies

1. Skimming pricing
– Charging a high price initially and reducing the
price over time
– Commonly used when introducing new &
innovative products in the ASPAC region
2. Penetration pricing
– Charging a low price when entering the market
to capture market share
– Used when competitors are closing in with
similar or better products
 New-Product Pricing Strategies
(cont’d)
3. Intermediate pricing
– Pricing somewhere in between the skimming
strategy and the penetration strategy
 Pricing Strategies for Established
Products
Three strategic alternatives:
• Maintain the price if you are the leader e.g.
– In 1999, Shell in Singapore maintained its price when other
petrol companies engaged in a price war until towards the
end of the engagement
• Reduce the price e.g.
– SIA regularly reduce its airfare in anticipation of the
developing market situations
• Increase the price
– during inflation, or if demand is expected to increase or if
you wish to harvest e.g. in Indonesia
 Price-Flexibility Strategy

• One-price policy—setting one fixed price

for all markets
• Flexible-price policy—setting different
prices in different markets based on:
– Geographic Location,
– Time of delivery, or
– The complexity of the product
 How much flexibility in price?

• Depends on the Demand-Cost gap and the

influence of competition, social, legal and
ethical considerations
• Example: Life-saving drugs
 Product-Line Pricing

• When pricing products in different lines,

must take cross-elasticities of demand
across the set of products into
consideration
• The idea is to maximize the profits of the
entire organization rather than that of a
single product or a single line
 Leasing Strategy
• Leasing is more common for industrial
goods e.g.
– Singapore Airlines sold many of their
aircraft and lease them back for their
operations
• There is a growing trend toward leasing
consumer goods as well
– e.g. Leasing of office equipment
 Reactions to Price Change

• Customers are more sensitive to price

changes if the products cost a lot and/or
are bought frequently
• Competitors may see each of your price
change as a fresh challenge and react
according to its self-interest at the time.
Need to estimate each close
competitor’s likely reaction
 Responding to Competitors’
Price Change
• If competitors lower price for homogenous
products
– Try augmenting the product
– If it doesn’t work or if it is not likely to work,
then meet the price cut head-on
Responding to Competitors’ Price
Change (cont’d)
• If competitors raise price
– In a homogeneous market, follow if you think
the whole market is likely to follow
– In a non-homogeneous market, evaluate
• The reason for the competitor price change
• If the price increase is temporary
• The effect on your market share & profit
• The likely response(s) from the other competitors
 When a Market Leader is Being
Attacked on Price

Options available:
• Maintain price
• Raise perceived quality
• Match competitors’ price
• Increase price and improve quality
Impact of Discounting on Brand
Equity

• Why discount?
• Problems emerging with discounts
• The value equation (V=Q/P)
 Price War

Price wars are frequent in industries where

• Cost differentiation opportunities exists
• Capital is intensive and products are
homogeneous
Examples: Airfares, ISP, Petrol, & Loans e.g.
– The Home Loan price war in Singapore in Sept
2000 involving OUB, UOB, DBS among others
 Yield Management

• What is it?
• Yield management goals
• Industries that benefited from yield
management
• Common variables
Penetration Pricing
 Penetration Pricing
• Price set to ‘penetrate the market’
• ‘Low’ price to secure high volumes
• Typical in mass market products – chocolate bars,
food stuffs, household goods, etc.
• Suitable for products with long anticipated life cycles
• May be useful if launching into a new market
Market Skimming
 Market Skimming
• High price, Low volumes
• Skim the profit from the market
• Suitable for products that have
short life cycles or which will face
competition at some point in the
future (e.g. after a patent runs
out)
• Examples include: Playstation,
jewellery, digital technology, new
DVDs, etc.

Many are predicting a firesale in

laptops as supply exceeds
demand.
Copyright: iStock.com
Value Pricing
 Value Pricing
• Price set in accordance with
customer perceptions about
the value of the
product/service
• Examples include status
products/exclusive products

Companies may be able to set prices

according to perceived value.

Copyright: iStock.com
Loss Leader
 Loss Leader
• Goods/services deliberately sold below cost to
encourage sales elsewhere
• Typical in supermarkets, e.g. at Christmas, selling
bottles of gin at £3 in the hope that people will be
attracted to the store and buy other things
• Purchases of other items more than covers ‘loss’ on
item sold
• e.g. ‘Free’ mobile phone when taking on contract
package
Psychological Pricing
 Psychological Pricing
• Used to play on consumer perceptions
• Classic example - £9.99 instead of £10.99!
• Links with value pricing – high value goods
priced according to what consumers THINK
should be the price
Going Rate (Price Leadership)
 Going Rate (Price Leadership)
• In case of price leader, rivals have difficulty in competing on
price – too high and they lose market share, too low and the
price leader would match price and force smaller rival out of
market
• May follow pricing leads of rivals especially where those rivals
have a clear dominance of market share
• Where competition is limited, ‘going rate’ pricing may be
applicable – banks, petrol, supermarkets, electrical goods –
find very similar prices in all outlets
Tender Pricing
 Tender Pricing
• Many contracts awarded on a tender basis
• Firm (or firms) submit their price for carrying out the
work
• Purchaser then chooses which represents best value
• Mostly done in secret
Price Discrimination
 Price Discrimination
• Charging a different price
for the same good/service
in different markets
• Requires each market to be
impenetrable
• Requires different price
elasticity of demand in each
market

Prices for rail travel differ for the same

journey at different times of the day

Copyright: iStock.com
Destroyer Pricing/Predatory Pricing
 Destroyer/Predatory Pricing
• Deliberate price cutting or offer of ‘free
gifts/products’ to force rivals (normally smaller and
weaker) out of business or prevent new entrants
• Anti-competitive and illegal if it can be proved
Absorption/Full Cost Pricing
 Absorption/Full Cost Pricing
• Full Cost Pricing – attempting to set price to
cover both fixed and variable costs
• Absorption Cost Pricing – Price set to ‘absorb’
some of the fixed costs of production
Marginal Cost Pricing
 Marginal Cost Pricing
• Marginal cost – the cost of producing ONE extra or ONE fewer
item of production
• MC pricing – allows flexibility
• Particularly relevant in transport where fixed costs may be
relatively high
• Allows variable pricing structure – e.g. on a flight from London
to New York – providing the cost of the extra passenger is
covered, the price could be varied a good deal to attract
customers and fill the aircraft
 Marginal Cost Pricing
• Example:

Aircraft flying from Bristol to Edinburgh – Total Cost (including

normal profit) = £15,000 of which £13,000 is fixed cost*
Number of seats = 160, average price = £93.75
MC of each passenger = 2000/160 = £12.50
If flight not full, better to offer passengers chance of flying at
£12.50 and fill the seat than not fill it at all!
*All figures are estimates only
Contribution Pricing
 Contribution Pricing
• Contribution = Selling Price – Variable (direct costs)
• Prices set to ensure coverage of variable costs and a
‘contribution’ to the fixed costs
• Similar in principle to marginal cost pricing
• Break-even analysis might be useful in such
circumstances
Target Pricing
 Target Pricing
• Setting price to ‘target’ a specified profit level
• Estimates of the cost and potential revenue at
different prices, and thus the break-even have
to be made, to determine the mark-up
• Mark-up = Profit/Cost x 100
Cost-Plus Pricing
 Cost-Plus Pricing
• Calculation of the average cost (AC) plus a
mark up
• AC = Total Cost/Output
Influence of Elasticity
 Influence of Elasticity
• Any pricing decision must be mindful of the impact of
price elasticity
• The degree of price elasticity impacts on the level of
sales and hence revenue
• Elasticity focuses on proportionate (percentage)
changes
• PED = % Change in Quantity demanded/% Change in
Price
 Influence of Elasticity
• Price Inelastic:
• % change in Q < % change in P
• e.g. a 5% increase in price would be met by a fall in
sales of something less than 5%
• Revenue would rise
• A 7% reduction in price would lead to a rise in sales
of something less than 7%
• Revenue would fall
 Influence of Elasticity
• Price Elastic:
• % change in quantity demanded > % change in
price
• e.g. A 4% rise in price would lead to sales falling
by something more than 4%
• Revenue would fall
• A 9% fall in price would lead to a rise in sales of
something more than 9%
• Revenue would rise
• Size of Indian Real Estate is currently USD 16 billion.
• Industry estimates indicate that the sector will
– Grow at CAGR of 30%
– To reach USD 50 billion by 2010
• Demand for quality real estate in India is seeing unprecedented
growth-demand supply gap exists across all segments of realty.

…Tremendous opportunity for real estate development across India.

 Trends in Real Estate
• Growth of India's middle class creating demand for housing.
• Strong demographic impetus: India has the second largest population in
the world and the growth rate of population is still rapid.
• High growth in service sector (IT/ITES) leading to demand for commercial
space.
• Rising FDI levels has increased commercial space requirements by foreign
firms.
• Expansion of organized retail sector.
• Growth in retain trade and tourism industry due to growth in Organised
retain and hotel industry
• Development spreading to Tier II and Tier III cities.
• Easy availability of finance.
• Alternative/Innovative financing options
 DEMAND FORECASTING FOR REAL ESTATE SECTOR

REGRESSION LINE Y = a + B1 I + B2P + B3R + B4G

Y = 1407.8 + 45.9(I) + 0.1 (P) + (-)17.3 (R) + (-)1.26 (G)

FY Demand in mn sq ft Income in lacs Price Per sqft Int_rate GDP at FC Estimated Demand

1 1382 2.25 1200 13.25 4.4 1383.45

2 1423 2.5 1300 12 5.8 1423.64

3 1466 2.75 1400 11 3.8 1463.80

4 1510 3.25 1500 10 8.5 1506.99

5 1555 3.75 1800 10 7.5 1557.89

6 1602 4.3 2250 11 9 1604.02

7 1650 5.15 2900 14 9.4 1648.56

8   5.65 3300 12.5 9 1733.51

9   6.15 3600 12.5 9 1783.15

10   6.75 4000 12.5 9 1846.28

SOURCES : ICICI, E&Y, DEUTSHE BANK, NHB, FICCI………....

 Demand Forecasting

2000

1800
Fin_Year
Demand in Sq Ft

1600
Estimated Demand
1400
Actual Demand
1200

1000
1 2 3 4 5 6 7 8 9 10
Financial Year
D
L
F
• The largest real estate development company in India

• In existence since 1946

• Completed 224mn sq ft of development

• Focus area – NCR (Delhi and Gurgaon)

• Responsible for developing the Satellite town ship in Gurgaon

• Current Land Base of 10,255 acres of land bank

 DLF- Financials
Particulars FY 05 FY 06 FY 07

Income from Operations in Cr Rs. 608 1154 2615

PAT in Rs. Cr. 88 193 1944

Net Profit Margins % 14.5 16.7 74.2

ROE % 11.8 22.7 78.7

ROCE % 8.9 15.5 30

EPS % 0.6 1.3 12.7

*Source IndiaInfoline      
DLF BUSINESS MIX
• Brand Name and Reputation
• Extensive Land Reserves
• Scale of Operations
• Strategic Locations
• Experienced and Dedicated
Management
• Political risks.
• Macroeconomic Factors
• Execution risk
• Regional concentration
• Dependency on DAL
• Large demand-supply gap in
affordable residential
accommodation
• Availability of loans at low interest
rates, tax incentives and a growing
middle class with higher savings
• Housing
• Increasing demand for commercial
space
• Office space for IT/ITeS
 THANK
YO
U
Pricing Strategies for
the Asia Pacific
Asia-Pacific Marketing Federation
Certified Professional Marketer
Copyright
Marketing Institute of Singapore
 Outline
• Introduction
• Pricing strategies and process
• Reactions to price changes
• Impact on discounting
• Price wars
• Yield management
 Introduction
• We need to set price when we have a new
product, or when we enter a new market with
an existing product
• How?
– Need to decide what position you want your
product to be in (see quality-price relationship—
next slide)
 Price-Quality Strategies

• Philip Kotler identified 9 price-quality

strategies
High Price Low Price
High Quality High Super
Premium
Value Value

Over Mid Good

Charging Value Value

False
Rip-off Economy
Economy
Low Quality
 Pricing Process
1. Set Pricing Objectives (see next slide)
2. Analyze demand
3. Draw conclusions from competitive
intelligence
4. Select pricing strategy appropriate to the
political, social, legal and economical
environment
5. Determine specific prices
Possible Pricing Objectives

• Profit objectives e.g.

– Targeted profit return
• Volume objectives e.g.
– Dollar or unit sales growth
– Market share growth
• Other objectives e.g.
– Match competitors’ price
– Non-price competition
 Demand Analysis

• Measure the impact of price change on

total revenue
• Predicts unit sales volume and total
revenue for various price levels
• Different customers have different price
sensitivities and needs
Impact of Cost on Pricing Strategy

• Fixed and variable costs

– Full-Cost Pricing
• Markup pricing, break-even pricing and rate-of-
return pricing
– Variable-cost pricing
• 3 types of relationships
– Ratio of fixed costs to variable costs
– Economies of scales
– Cost structure
 Discussion: Impact of Ethics on Pricing

• How should you price if your product is a life-

saving drug?
• What are the ethical considerations?
– Customers have no choice
– Need to pay for the research
– When cheaper options doesn’t work
– Competition decides
 Information Needed for Price
Change
• Customers’ ability & willingness to buy;
customer lifestyle; benefits sought;
characteristics of the product e.g.
– When the kopi tiams, local coffee shops in
Singapore tried to raise the price of a cup of coffee
by 10 cents in March 1994, the grass-root reaction
was stormy
– When Starbucks Coffee and Spinelli’s raised their
prices in the beginning of 1998 by a hefty 20%,
nobody raised an eyelit
 Information Needed for Price
Change (cont’d)
• Need to know everything about the
competitors
– How would competitors react to our price
change? (see following slide)
– In obtaining competitors’ information, remember
the value of the information
New-Product Pricing Strategies

1. Skimming pricing
– Charging a high price initially and reducing the
price over time
– Commonly used when introducing new &
innovative products in the ASPAC region
2. Penetration pricing
– Charging a low price when entering the market
to capture market share
– Used when competitors are closing in with
similar or better products
 New-Product Pricing Strategies
(cont’d)
3. Intermediate pricing
– Pricing somewhere in between the skimming
strategy and the penetration strategy
 Pricing Strategies for Established
Products
Three strategic alternatives:
• Maintain the price if you are the leader e.g.
– In 1999, Shell in Singapore maintained its price when other
petrol companies engaged in a price war until towards the
end of the engagement
• Reduce the price e.g.
– SIA regularly reduce its airfare in anticipation of the
developing market situations
• Increase the price
– during inflation, or if demand is expected to increase or if
you wish to harvest e.g. in Indonesia
 Price-Flexibility Strategy

• One-price policy—setting one fixed price

for all markets
• Flexible-price policy—setting different
prices in different markets based on:
– Geographic Location,
– Time of delivery, or
– The complexity of the product
 How much flexibility in price?

• Depends on the Demand-Cost gap and the

influence of competition, social, legal and
ethical considerations
• Example: Life-saving drugs
 Product-Line Pricing

• When pricing products in different lines,

must take cross-elasticities of demand
across the set of products into
consideration
• The idea is to maximize the profits of the
entire organization rather than that of a
single product or a single line
 Leasing Strategy
• Leasing is more common for industrial
goods e.g.
– Singapore Airlines sold many of their
aircraft and lease them back for their
operations
• There is a growing trend toward leasing
consumer goods as well
– e.g. Leasing of office equipment
 Reactions to Price Change

• Customers are more sensitive to price

changes if the products cost a lot and/or
are bought frequently
• Competitors may see each of your price
change as a fresh challenge and react
according to its self-interest at the time.
Need to estimate each close
competitor’s likely reaction
 Responding to Competitors’
Price Change
• If competitors lower price for homogenous
products
– Try augmenting the product
– If it doesn’t work or if it is not likely to work,
then meet the price cut head-on
Responding to Competitors’ Price
Change (cont’d)
• If competitors raise price
– In a homogeneous market, follow if you think
the whole market is likely to follow
– In a non-homogeneous market, evaluate
• The reason for the competitor price change
• If the price increase is temporary
• The effect on your market share & profit
• The likely response(s) from the other competitors
 When a Market Leader is Being
Attacked on Price

Options available:
• Maintain price
• Raise perceived quality
• Match competitors’ price
• Increase price and improve quality
Impact of Discounting on Brand
Equity

• Why discount?
• Problems emerging with discounts
• The value equation (V=Q/P)
 Price War

Price wars are frequent in industries where

• Cost differentiation opportunities exists
• Capital is intensive and products are
homogeneous
Examples: Airfares, ISP, Petrol, & Loans e.g.
– The Home Loan price war in Singapore in Sept
2000 involving OUB, UOB, DBS among others
 Yield Management

• What is it?
• Yield management goals
• Industries that benefited from yield
management
• Common variables