PRICING

•Role of pricing in the FS MM

•Complexities in pricing of FS
•Approaches & methods of setting price
 Role & Characteristics of prices
1. As a yardstick to compare competing options
2. Means by which value is assessed
3. Used as an indicator of product or SQ
4. Represents cost of good or service
5. Influence on frequency of purchase or
quantum of an individual purchase
 cont
1. Crucial determinant of margins & profits
2. Influences level of demand for its products &
services
3. Key role in affecting relative competitive
position
4. Quick adjustment, under certain conditions, to
enable provider to achieve short term volume or
margin priorities
5. Variable at different stages of PLC in conjunction
with other elements of the marketing mix
 Explicit or Overt Pricing
Clarity in pricing-annual fee for credit card/ATM
Advantage of being vey clear to consumer/supp.
Easier to predict likely revenue/ service costs
Allows SP to signal costs of diff. services & use
price as a means of influencing consumer
behavior(switching from high cost branch
based transactions to ATM)
 Implicit/Covert Pricing
• Unclear/invisible system of pricing-appears unpaid. bank
offering free banking–no interest. Orgn. Providing a regular
savings product may not explicitly charge for the product,
but will take a share of initial payments to cover cost &
contribute to profit
• Ad of being simple, low administering cost
• Disad: price paid by customer/rev paid by bank varies with
interest rate or amount that consumers wish to save/invest
• No incentive for consumers to move to lower-cost services
because all services offered appear to be free
• Creates potential for cross-subsidization-customer with
high credit balance pays ↑ price for given service than
customer with low credit balance
 Price determination
2CM
1. Cost based
2. Competitive
3. Market Oriented
 Cost Based Approach
• Full cost pricing
Mark Up
Target Return
Marginal Cost
 Market Oriented Approach
1. Marketing Strategy
2. Price-Q relationships
3. Product line pricing
4. Negotiating margins
5. Political factors
6. Costs
7. Effect on distributors & retailers
8. Competition
9. Explicability
10. Value to customer
 Marketing Strategy
Term Insurance
• Amount of sum assured($50,000/=)
• Tenure( 5 yrs)
• Age ( 25)
• Gender( male)
• Smoker/non-smoker( NS)
• Health status( good)
• Occupation ( sales rep Met Life)
• Leisure pursuits( Tennis, travelling)
 MS (Cont)
Price-Q relationship:high Q personalized service
Product line pricing:> personalized portfolio mgt
Negotiating margins: ( B2B)
Costs: organization who view pricing as marketing responsibility
benefits by having mktg executives with solid grasp of costs/profit
Effect on distributors & retailers: direct/indirect.
Ability to make sound judgment calls in respect of setting a price that
optimizes distribution margin & customer attraction is a crucial
marketing competence
Competition: by product/purchase simplicity, consumer knowledge &
confidence, low perceived risk from buying lowest cost option,
limited product differentation, ease of switching ( eg motor
insurance vs critical illness insurance)
 Explicability
• Under conditions of consumer ignorance &
perceived riskiness, price higher than norm may
seem to imply Q & instil consumer confidence
• More difficult to achieve the closer mkt
conditions approx. to perfect competition
Marketing Implication: Those seeking to acheive
premium price position must invest in
appropriate level of product/service
differentiation justifying price premium
 Value to customer
Loan
• Value of sum borrowed
• Duration of loan
• Incidence of default
• Cross-sale/purchase of other products
• Interest margin
 Price Differentiation & Discrimination
• Volume – lower costs associated with purchase
• Costs that vary with geographical variation in
labour costs & rents
• Buyer- people with poor credit rating indicate a >
propensity to default on loans & hence pay ↑
interest rate
• Off peak capacity utilization
• Demographic factors
( preffered lives approach )
 Price determination
Step1↓ Decide upon pricing objectives
Step2 ↓ Assess influence of 10 pricing factors
Step3 ↓ Propose indicative pricing approaches
Step4 ↓ Model price/demand relationships
Step5 ↓ Assess impact on pricing objectives
Step6 ↓ Assess responses expected from competitors &
distributors
Step7 ↓ Consult relevant internal departments & gain
agreement to prices
Step8 ↓ Set up information project
Step9 ↓ Launch price
 Step1 Decide upon pricing objectives
Financial Non Financial
• Sales value • Sales volume
• margin • Market share
• Profit • Market position
• Return-on-capital • Customer value
Step3 Other aspects of price indication
• Status reqts.- e.g no claim bonuses on motor
insurance, occupation, financial history,track
• Vol related factors:↓ ROI for ↑ value loans
• Allied charges-e.g penalty fees on overdue
payments, unauthorized OD charges
• customer contributions-level of excess
payments on general insurance contracts, &
early settlement penalties on say fixed-rate
mortgage loans
 RTGS Technology
Real Time Gross Settlement system
New tech based using which outstation cheques
can also be cleared on the same day & fund
transfers b/w different banks can be done
instantaneously
This result in evaporation of float money to invest in
overnight markets
Banks now charge a ceretain fee for entire
spectrum of cash mgt. servecis as new tech helps
transfer funds in real time