Assignment Topic- Pricing Strategies in B2B

Geographic Pricing
Competitive Bidding
Transfer Pricing
Leasing
BOOT & BLOT

Subject- B2B Marketing

Name- Vipul Tyagi
Course- PGDM-RM
Roll No- FRM1618
Submitted To- Mr. V.K. Mehta
Pricing Strategies in Industrial Marketing-

Pricing is one of the four elements of the marketing mix, along with product, place
and promotion. An effective pricing strategy is vital for companies who wish to
achieve success by finding the price point where they can maximize sales and
profits. Companies may use a variety of pricing strategies, depending on their own
unique marketing goals and objectives and also on which industry they represent.

Price setting and price getting require discipline, not luck. Companies differ
substantially in their approach to price setting but most (whatever the industry)
use one of these three strategies: cost-based pricing, competition-based (dynamic)
pricing or value-based pricing.

Manufacturing

The most popular pricing strategy used within manufacturing is cost-based pricing.
Decisions here are influenced primarily by accounting data, with the objective of
getting a certain return on investment or a certain markup on costs. It uses
manufacturing costs of the product as its basis for coming to the final selling price
of the product - either a fixed amount or a percentage of the total product
manufacturing cost is added as profit to the cost of the product to arrive at its
selling price.

Advantages for manufacturing industries using cost-based pricing

A straightforward and simple strategy.
Ensures that all production and overhead costs are covered before profits
are calculated.
Ensures a steady and consistent rate of profit generation.
It allows the manufacturer to consider how various levels of output can
affect the product price. Also, the manufacturer can examine how various
prices will affect the amount of output needed.
Disadvantages for manufacturing industries using cost-based pricing
May lead to under priced products.
Demand for a product will directly affect how much people will pay. If the
customer believes a product may be in short supply due to heavy demand,
they may be willing to pay more. On the other hand, if demand is very low
the customer will look for a discount on the price.
Competition is not included in cost-based pricing methods. In a competitive
market, cost based pricing may encourage competitors to enter the market
with a lower price.

Cost-based pricing can be of three types

1. Cost-plus pricing is a strategy whereby you add together the direct material,
labour and overhead costs for a product, and add to it a markup percentage
(to create a profit margin) in order to derive the price of the product.
2. Mark-up pricing is the practice of adding a constant percentage to the cost
price of an item to arrive at its selling price.
3. Planned profit pricing is very suited to manufacturing businesses. A
manufacturer often has the ability to increase or lower production
depending upon the demand or profit available.

Travel, Hospitality, Ecommerce, Retail

The most popular pricing strategy used in these industires is dynamic pricing. The
aim of dynamic pricing (also refered to as surge pricing or demand pricing) is
naturally to increase revenue but it also allows businesses to set flexible prices for
products or services based on current market demands. Businesses are able to
change prices based on algorithms that take into account competitor pricing,
supply and demand, and other external factors in the market.

Hotels and other players in the hospitality industry use dynamic pricing to adjust
the cost of rooms and packages based on the supply and demand needs at a
particular moment. The goal is to find the highest price that consumers are willing
to pay. The strategy features price increases when demand is high and price
decreases to stimulate demand when it is low. Having a variety of prices based on
the demand at each point in the day makes it possible for hotels to generate more
revenue by bringing in customers at the different price points they are willing to
pay.

Airlines often change prices depending on the day of the week, time of day, and
number of days before the flight. For airlines, dynamic pricing factors-in different
components such as: how many seats a flight has, departure time, and average
cancellations on similar flights.

Sports and theatre ticketing is a segment of the entertainment industry that uses
real-time pricing to boost revenue. Sports that are outdoors have to factor weather
into a pricing strategy, in addition to date of the game, date of purchase, and
opponent. Tickets for a game during inclement weather will sell better at a lower
price; conversely, when a team is on a winning streak, fans will be willing to pay
more. Theatre tickets can be reduced if a show has not proved to be as popular as
others on offer and/or staged at less popular times.

Retailers (and online retailers in particular) adjust the price of their products
according to competitors, time, traffic, conversion rates and sales goals. There are
three basic ways to do this:

1. Use of price intelligence to re-price based on the prices of their competitors.

2. A drop in prices when demand is low.
3. An increase in prices when demand is high.

Other industries

Value-based pricing is a pricing strategy which sets prices primarily, but not
exclusively, on the value, perceived or estimated, to the customer rather than on
the cost of the product or historical prices. Where it is successfully used, it will
improve profitability due to the higher prices without impacting greatly on sales
volumes. It can be used in many different industries.
Where is value-based pricing most used?

The value-based approach is most successful when products are sold based on
necessity (pharmaceuticals), emotions (fashion), in niche markets, in shortages
(e.g. drinks at open air festival on a hot summer day) or for indispensable add-ons
(e.g. printer cartridges, headsets for mobile phones).

It is also used where external factors such as a recession or increased competition

forces companies to provide value products and services to retain sales e.g. value
meals at McDonalds and other fast-food restaurants. Value price means that you
get great value for money, i.e. the price that you pay makes you feel that you are
getting a lot of product. However, reducing the price does not always increase
value.

Geographic Pricing-

Geographical Pricing is the practice of modifying a basic list price based on the
geographical location of the buyer. It is intended to reflect the costs of shipping to
different locations.

There are several types of geographic pricing:

FOB origin (Free on Board origin) - The shipping cost from the factory or
warehouse is paid by the purchaser. Ownership of the goods is transferred to the
buyer as soon as it leaves the point of origin. It can be either the buyer or seller that
arranges for the transportation.
Uniform delivery pricing - (also called postage stamp pricing)- The same price is
charged to all.
Zone pricing

Prices increase as shipping distances increase. This is sometimes done by drawing

concentric circles on a map with the plant or warehouse at the center and each
circle defining the boundary of a price zone. Instead of using circles, irregularly
shaped price boundaries can be drawn that reflect geography, population density,
transportation infrastructure, and shipping cost. (The term "zone pricing" can also
refer to the practice of setting prices that reflect local competitive conditions, i.e.,
the market forces of supply and demand, rather than actual cost of transportation.)
Zone pricing, as practiced in the gasoline industry in the United States, is the pricing
of gasoline based on a complex and secret weighting of factors, such as the number
of competing stations, number of vehicles, average traffic flow, population density,
and geographic characteristics. This can result in two branded gas stations only a
few miles apart selling gasoline at a price differential of as much as $0.50 per gallon.

Many businesspeople and economists state that gasoline zone pricing merely
reflects the costs of doing business in a complex and volatile marketplace. Critics
contend that industry monopoly and the ability to control not only industry-owned
"corporate" stations, but locally owned or franchise stations, make zone pricing
into an excuse to raise gasoline prices virtually at will. Oil industry representatives
contend that while they set wholesale and dealer tank wagon prices, individual
dealers are free to see whatever prices they wish and that this practice in itself
causes widespread price variations outside industry control.

Basing point pricing

Certain cities are designated as basing points. All goods shipped from a given basis
point are charged the same amount.
Freight-absorption pricing

The seller absorbs all or part of the cost of transportation. This amounts to a price
discount, and is used as a promotional tactic.

Competitive Bidding-

Competitive bids are offers extended by businesses in which they detail proposed
compensation that they will receive in exchange for executing a specific task or
tasks. These tasks can range from providing a service for a set period of time to
manufacturing and transporting a certain quantity of goods or materials.
Competitive bidding differs from other pricing strategies in that with bid pricing, a
specific price is put forth for each possible job rather than a generic price that
applies to all customers.

Competitive bidding is an especially common practice with government buyers,

many of whom have instituted mandatory bidding procedures. Government buyers
are typically required to accept the lowest bid that they receive, but it is important
to note that low bids can often be disregarded if they are judged to be lacking in
meeting minimum job specifications.

The competitive bid process generally advertises the requirements and

specifications of solutions and invites suppliers to provide a proposal about how
they will meet the need and at what price. Together, the steps of requesting
proposals from multiple vendors, evaluating the proposals by comparing them
against one another, and negotiating the terms constitute a competitive bid
process.

Bidding is also sometimes used as ethical gambling in which the prize money is not
determined solely by luck but also by the total demand that the prize has attracted
towards itself.

Types of bidding-

Online bidding-

Bidding performs in two ways online: unique bidding and dynamic bidding.

Unique bidding: In this scheme, the user who gives the most unique bid wins the
bidding. For example, if users A, B, C, D, and E are bidding for the same product,
and A bids $5, B bids $5, C and D bid $2, and E bids $3, then E wins the bidding
because his bid was unique.

Dynamic bidding: This is a type of bidding where one user can set his bid for the
product. Whether the user is present or not for the bidding, the bidding will
automatically increase up to his defined amount. After reaching his bid value, the
bidding stops from his side.
Timed bidding-

Timed bidding auctions allow users to bid at any time during a defined time period,
simply by entering a maximum bid. Timed auctions take place without an
auctioneer calling the sale, so bidders don't have to wait for a lot to be called. This
means that a bidder doesn't have to keep his eye on a live auction at a specific time.

By entering a maximum bid, a user is indicating the highest he is willing to pay for
a lot. An automated bidding service will bid on his behalf to ensure that he meets
the reserve price, or that he always stays in the lead, up to his maximum bid. If
someone else has placed a bid that is higher than the maximum bid, the bidder will
be notified, allowing he to change the maximum bid and stay in the auction. At the
end of the auction, whoever's maximum bid is the most wins the lot.

Live bidding is a traditional room-based auction. These can be broadcast via a

website where viewers can hear live audio and see live video feeds. The idea is that
a bidder places their bid over the Internet in real-time. Effectively it is like being at
a real auction, in the comfort of the home. Timed bidding, on the other hand, is a
separate auction altogether, which allows bidders to participate without the need
to see or hear the live event. It is another way of bidding, that is more convenient
to the bidder.

Bidding in procurement initiatives-

Most large organizations have formal procurement organizations that acquire

goods and services on their behalf. Procurement is a component of the broader
concept of sourcing and acquisition. Procurement professionals increasingly realize
that their make-buy supplier decisions fall along a continuum, from buying simple
transactions to buying more complex and strategic goods and services (e.g. large
scale outsourcing efforts). It is important for procurement professionals to use the
appropriate sourcing model. There are seven models along the sourcing/bidding
continuum: basic provider, approved provider, preferred provider, performance-
based/managed services model, vested business model, shared services model and
equity partnerships.
Bidding off the wall-

Bidding off the wall, or taking bids from the chandelier, as it is sometime known, is
where the auctioneer bids on behalf of the vendor.

This is allowed by law in some countries and states, and the auctioneer is allowed
to bid on behalf of the vendor up to, but not including, the reserve price. In some
cases, this may be extremely helpful for bidders because the reserve needs to be
met.

For an example, suppose a property is coming up for auction and there is only one
person interested in bidding for it in the room. The reserve has been set at
$100,000, and this bidder is happy to buy it at $120,000. The bidding starts at
$80,000. Without the auctioneer bidding on behalf of the vendor, it would never
progress beyond that amount. However, because the auctioneer will take bids or
generate bids of $85,000, the bidder then goes to $90,000 etc. If the bidder wants
to, he may bid $100,000 and secure the property on the reserve price.

The result is that the vendor has sold the property at reserve and the purchaser has
bought the property on the reserve price at less than he was prepared to pay.
Without the auctioneer taking bids off the wall, this would never have happened.

All professional auctioneers do this with all types of auctions, including motor
vehicles. As long as they are pushing it up towards the reserve price, then it is not
an issue. If you don't want to bid at the price the auctioneer is asking, don't bid. If
the goods don't meet the reserve and no-one but you wants to buy, then if the
auctioneer didn't bid off the wall to meet the required price, the goods wouldn't
be sold anyway.

Transfer Pricing-

Transfer pricing is the setting of the price for goods and services sold between
controlled (or related) legal entities within an enterprise. For example, if a
subsidiary company sells goods to a parent company, the cost of those goods paid
by the parent to the subsidiary is the transfer price. Legal entities considered under
the control of a single corporation include branches and companies that are wholly
or majority owned ultimately by the parent corporation. Certain jurisdictions
consider entities to be under common control if they share family members on
their boards of directors. Transfer pricing can be used as a profit allocation method
to attribute a multinational corporation's net profit (or loss) before tax to countries
where it does business. Transfer pricing results in the setting of prices among
divisions within an enterprise.

Transfer pricing multi-nationally has tax advantages, but regulatory authorities

frown upon using transfer pricing for tax avoidance. When transfer pricing occurs,
companies can book profits of goods and services in a different country that may
have a lower tax rate. In some cases, the transfer of goods and services from one
country to another within an interrelated company transaction can allow a
company to avoid tariffs on goods and services exchanged internationally.

Risks and benefits

However, some of the risks and benefits associated with transfer pricing are as
follows:

Benefits:

1. Transfer pricing helps in reducing the duty costs by shipping goods into high
tariff countries at minimal transfer prices so that duty base associated with these
transactions are low.

2. Reducing income taxes in high tax countries by overpricing goods that are
transferred to units in those countries where the tax rate is comparatively lower
thereby giving them a higher profit margin.

Risks:

1. There can be a disagreement among the organizational division managers as

what the policies should be regarding the transfer policies.
2. There are a lot of additional costs that are linked with the required time and
manpower which is required to execute transfer pricing and help in designing the
accounting system.

3. It gets difficult to estimate the right amount of pricing policy for intangibles
such as services, as transfer pricing does not work well as these departments do
not provide measurable benefits.

4. The issue of transfer pricing may give rise to dysfunctional behavior among
managers of organizational units. Another matter of concern is the process of
transfer pricing is highly complicated and time-consuming in large multi-nationals.

5. Buyer and seller perform different functions from each other that undertakes
different types of risks. For instance, the seller may or may not provide the
warranty for the product. But the price a buyer would pay would be affected by the
difference. The risks that impact prices are as follows

Financial & currency risk

Collection risk

Market and entrepreneurial risk

Product obsolescence risk

Credit risk

Leasing-

A lease is a contract outlining the terms under which one party agrees to rent
property owned by another party. It guarantees the lessee, the tenant, use of an
asset and guarantees the lessor, the property owner or landlord, regular payments
from the lessee for a specified number of months or years. Both the lessee and the
lessor face consequences if they fail to uphold the terms of the contract.

The fundamental characteristic of a lease is that ownership never passes to the

business customer.
Instead, the leasing company claims the capital allowances and passes some of the
benefit on to the business customer, by way of reduced rental charges.
Types of leasing-

Hire purchase
With a hire purchase agreement, after all the payments have been made, the
business customer becomes the owner of the equipment. This ownership transfer
either automatically or on payment of an option to purchase fee.
For tax purposes, from the beginning of the agreement the business customer is
treated as the owner of the equipment and so can claim capital allowances. Capital
allowances can be a significant tax incentive for businesses to invest in new plant
and machinery or to upgrade information systems.
Under a hire purchase agreement, the business customer is normally responsible
for maintenance of the equipment.

Finance Leasing
The finance lease or 'full payout lease' is closest to the hire purchase alternative.
The leasing company recovers the full cost of the equipment, plus charges, over the
period of the lease.
Although the business customer does not own the equipment, they have most of
the 'risks and rewards' associated with ownership. They are responsible for
maintaining and insuring the asset and must show the leased asset on their balance
sheet as a capital item.
When the lease period ends, the leasing company will usually agree to a secondary
lease period at significantly reduced payments. Alternatively, if the business wishes
to stop using the equipment, it may be sold second-hand to an unrelated third
party.

Operating Leasing
If a business needs a piece of equipment for a shorter time, then operating leasing
may be the answer. The leasing company will lease the equipment, expecting to
sell it secondhand at the end of the lease, or to lease it again to someone else. It
will, therefore, not need to recover the full cost of the equipment through the lease
rentals.

Advantages of Leasing
The use of hire purchase or leasing is a popular method of funding the acquisition
of capital assets. However, these methods are not necessarily suitable for every
business or for every asset purchase. There are a number of considerations to be
made, as described below:
Certainty
One important advantage is that a hire purchase or leasing agreement is a medium
term funding facility, which cannot be withdrawn, provided the business makes the
payments as they fall due.
The uncertainty that may be associated with alternative funding facilities such as
overdrafts, which are repayable on demand, is removed.
However, it should be borne in mind that both hire purchase and leasing
agreements are long term commitments. It may not be possible, or could prove
costly, to terminate them early.

Budgeting
The regular nature of the hire purchase or lease payments (which are also usually
of fixed amounts as well) helps a business to forecast cash flow. The business is
able to compare the payments with the expected revenue and profits generated
by the use of the asset.

Fixed Rate Finance

In most cases the payments are fixed throughout the hire purchase or lease
agreement, so a business will know at the beginning of the agreement what their
repayments will be. This can be beneficial in times of low, stable or rising interest
rates but may appear expensive if interest rates are falling.
On some agreements, such as those for a longer term, the finance company may
offer the option of variable rate agreements. In such cases, rentals or installments
will vary with current interest rates; hence it may be more difficult to budget for
the level of payment.

The Effect Of Security

Under both hire purchase and leasing, the finance company retains legal ownership
of the equipment, at least until the end of the agreement. This normally gives the
finance company better security than lenders of other types of loan or overdraft
facilities. The finance company may therefore be able to offer better terms.
The decision to provide finance to a small or medium sized business depends on
that business' credit standing and potential. Because the finance company has
security in the equipment, it could tip the balance in favour of a positive credit
decision.
Maximum Finance
Hire purchase and leasing could provide finance for the entire cost of the
equipment. There may however, be a need to put down a deposit for hire purchase
or to make one or more payments in advance under a lease. It may be possible for
the business to 'trade-in' other assets which they own, as a means of raising the
deposit.

Tax Advantages
Hire purchase and leasing give the business the choice of how to take advantage of
capital allowances.
If the business is profitable, it can claim its own capital allowances through hire
purchase or outright purchase.
If it is not in a tax paying position or pays corporation tax at the small companies
rate, then a lease could be more beneficial to the business. The leasing company
will claim the capital allowances and pass the benefits on to the business by way of
reduced rentals.

BOOT-
BOOT (build, own, operate, transfer) is a public-private partnership (PPP) project
model in which a private organization conducts a large development project under
contract to a public-sector partner, such as a government agency. A BOOT project
is often seen as a way to develop a large public infrastructure project with private
funding.
The public-sector partner contracts with a private developer - typically a large
corporation or consortium of businesses with specific expertise - to design and
implement a large project. The public-sector partner may provide limited funding
or some other benefit (such as tax exempt status) but the private-sector partner
assumes the risks associated with planning, constructing, operating and
maintaining the project for a specified time period. During that time, the developer
charges customers who use the infrastructure that's been built to realize a profit.
At the end of the specified period, the private-sector partner transfers ownership
to the funding organization, either freely or for an amount stipulated in the original
contract. Such contracts are typically long-term and may extend to 40 or more
years.

BOLT-

BOLT means Build Own Lease & Transfer.

The Private participant will lease the facility to the Government and the
Government will pay the lease charges for a specific period and on the completion
of the lease period the facility is transferred to the Government.

Sources-

http://whatis.techtarget.com/definition/BLOT-build-lease-operate-transfer

https://www.tutor2u.net/business/reference/finance-leasing-as-a-source-of-
finance

https://blog.blackcurve.com/what-are-the-most-popular-pricing-strategies-by-
industry-sector

https://www.linkedin.com/pulse/transfer-pricing-meaning-examples-risks-
benefits-shivangi-agarwal

https://en.wikipedia.org/wiki/Bidding

http://www.referenceforbusiness.com/small/Co-Di/Competitive-Bids.html

https://www.marketing91.com/geographical-pricing/