Business Marketing

MDI Gurgaon
Case Study

The Case of the Pricing Predicament

GROUP

5
Esha Sharma

SDM Section A

Case Facts
Joanne Braker, Purchasing Manager at Occidental Aerospace

A new more aggressive competitive bid policy by the purchasing dept Standard submitted bid for $ 4,29,000, Kakuchi at $3,90,000 and Akita Ltd. A little over 400K $

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

Impact of Cost on Pricing Strategy

Fixed and variable costs
Full-Cost Pricing Markup pricing, break-even pricing and rateof-return pricing Variable-cost pricing 3 types of relationships

Ratio of fixed costs to variable costs Economies of scales Cost structure

Pricing Strategies
Skimming pricing Charging a high price initially and reducing the price over time Commonly used when introducing new & innovative products Followed by Kakuchi 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 Followed by Akita Ltd. Intermediate pricing Pricing somewhere in between the skimming strategy and the penetration strategy

Alternative 1: Rebid at $ $ 4,00,000( equal or lower than Akita Ltd.)

Motivation Clear cut comparison with Akitas offerings Strategic intent to capture the potential business Occidental, founded on quality and reliability, cant let customers haggle on the prices

Pros
Huge potential business opportunity for Akita in 2 plants of Occidental Aerospace Occidental will get a good price

Cons
Violation of the Fixed- price policy Being an industry leader, Standard may cause the Price wars Development costs not fully supported by the price charged may lead of losses

Alternative 2: Rebid at $ 4,07,000

Motivation Comparable bid with other competitors

Pros
Occidental will get a good price Price good enough to support the development costs for Standard Another feather in the Standards hat

Cons
Competitors may further reduce prices: Price wars

Alternative 3: Status quo at $ 4,29,000

Motivation Standard- the innovators, founded on quality and reliability

Pros

Reaffirm high quality and services of Standard

Cons

Loss of potential business opportunity

Recommendations ( Contd..)
Standard should follow Intermediate pricing strategy considering the excellent training, good quality and reliable offerings

Standard can follow Price flexible policies:

One-price policysetting one fixed price for all markets Flexible-price policysetting different prices in different markets based on: Geographic Location, Time of delivery, or The complexity of the product

Recommendations
The flexibility in price depend on :the Demand-Cost gap and the influence of competition, social, legal and ethical considerations

Since the market is non- homogenous, Standard should 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

Thank You!