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Summer Internship Project Report

On

“Pricing Strategy”

Master of Management Studies under the University of Mumbai

By Sarfaraz khan ,24

Specialization :( Marketing)

Allana Institute of Management Studies and Research

CST, Mumbai-400001

2011

ACKNOWLEDGEMENT

It is indeed a matter of great pleasure and privilege to work on the project titled “Pricing Straregy”. I would like to express special thanks to and for providing me an excellent opportunity to complete my summer internship at O-zone Pvt Ltd.

I would like to express my Indebtedness toMr. Bobby Serin (C.E.O) Mr. Tarun Gupta (Marketing Head), Mr.Malhar Broker & all the staff member of O-zone for their excellent guidance and valuable suggestions for the successful completion of the project.

I would also like to thank entire technical staff of O-zone for providing their excellent support.

I am bound to the Honorable for his stimulating support and guidance.

Without the support of everyone mentioned above, this project wouldn’t have been possible.

DECLARATION

I Sarfaraz Iqbal Khan the student of Anjuman-I-Islam’s Allana Institute of management Studies Research (2010-2012) hereby declare that the project report on Pricing Strategy with O-zone Mumbai is based on my own experience.

The information submitted is true and original to the best of my knowledge. Further I also declare that I have tried to my best to complete this project with almost sincerity, honesty and accuracy.

Signature

Sarfaraz Khan

Roll No. 24

Different Pricing Strategies on o-zone

Competition-based pricing

Setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product: Products have lasting distinctiveness from competitor's product. Here we

can assumeo The product has low price elasticity.o The product has low cross elasticity.o The demand of the product will rise. Products have perishable distinctiveness from competitor's product,

assuming the product features are medium distinctiveness. Products have little distinctiveness from competitor's product. assuming

that:o The product has high price elasticity.o The product has some cross elasticity.o No expectation that demand of the product will rise.

o-zone is expected to do so if it would have severe rival for the product

Cost-plus pricing

Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.

This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a % markup, the latter is only used in periods of high competition as this method usually leads to a loss in the long run.

Creaming or skimming

Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target "early adopters" of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. In market skimming goods are sold at higher prices so that fewer sales are needed to break even.

This strategy is employed only for a limited duration to recover most of investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors

Limit pricing

A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition.

The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.

Loss leader

A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other profitable sales.

Market-oriented pricing

Setting a price based upon analysis and research compiled from the targeted market.

Penetration pricing

Setting the price low in order to attract customers and gain market share. The price will be raised later once this market share is gained.

Price discrimination

Setting a different price for the same product in different segments to the market. For example,

this can be for different ages or for different opening times, such as cinema tickets.

Premium pricing

Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.

Predatory pricing

Aggressive pricing intended to drive out competitors from a market. It is illegal in some places.

Contribution margin-based pricing

Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price. The product's contribution to total firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold).

Psychological pricing

Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.00.

Dynamic pricing

A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers - ranging from where they live to what they buy to how much they have spent on past purchases - dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a

customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight

Price leadership

An observation made of oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following.

Target pricing

Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.

Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.

Absorption pricing

Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing

High-low pricing

Method of pricing for an organization where the goods or services offered by the organization are regularly priced higher than competitors, but through promotions, advertisements, and or coupons, lower prices are offered on key items. The lower promotional prices are targeted to bring

customers to the organization where the customer is offered the promotional product as well as the regular higher priced products.

Premium Decoy pricing

Method of pricing where an organization artificially sets one product price high, in order to boost sales of a lower priced product

Marginal-cost pricing

In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.

Value Based pricing

Pricing a product based on the perceived value and not on any other factor. Pricing based on the demand for a specific product would have a likely change in the market place

Nine Laws of Price Sensitivity & Consumer Psychology

In their book, The Strategy and Tactics of Pricing, Thomas Nagle and Reed Holden outline 9 laws or factors that influence how a consumer perceives a given price and how price-sensitive s/he is likely to be with respect to different purchase decisions.

Reference Price Effect Buyer’s price sensitivity for a given product increases the higher the product’s price relative to perceived alternatives. Perceived alternatives can vary by buyer segment, by occasion, and other factors.

Difficult Comparison Effect Buyers are less sensitive to the price of a known / more reputable product when they have difficulty comparing it to potential alternatives.

Switching Costs Effect The higher the product-specific investment a buyer must make to switch suppliers, the less price sensitive that buyer is when choosing between alternatives.

Price-Quality Effect Buyers are less sensitive to price the more that higher prices signal higher quality. Products for which this effect is particularly relevant include: image products, exclusive products, and products with minimal cues for quality.

Expenditure Effect Buyers are more price sensitive when the expense accounts for a large percentage of buyers’ available income or budget.

End-Benefit Effect The effect refers to the relationship a given purchase has to a larger overall benefit, and is divided into two parts: Derived demand: The more sensitive buyers are to the price of the end benefit, the more sensitive they will be to the prices of those products that contribute to that benefit. Price proportion cost: The price proportion cost refers to the percent of the total cost of the end benefit accounted for by a given component that helps to produce the end benefit (e.g., think CPU and PCs). The smaller the given components share of the total cost of the end benefit, the less sensitive buyers will be to the component's price.

Shared-cost Effect The smaller the portion of the purchase price buyers must pay for themselves, the less price sensitive they will be.

Fairness Effect Buyers are more sensitive to the price of a product when the price is outside the range they perceive as “fair” or “reasonable” given the purchase context.

The Framing Effect Buyers are more price sensitive when they perceive the price as a loss rather than a forgone gain, and they have greater price sensitivity when the price is paid separately rather than as part of a bundle.

Bibliography

o ̂ Kent B. Monroe, The Pricing Strategy Audit, 2003, Cambridge Strategy Publications, p. 40 ISBN 978-0-273-64938-0

o ̂ Philip Kotler & Gary Armstrong, Principles of Marketing 13E, 2010, Pearson Prentice Hall, p.293 ISBN 978-0-13-607941-5

o ̂ Nagle, Thomas and Holden, Reed. The Strategy and Tactics of Pricing. Prentice Hall, 2002. Pages 84-104.

o ̂ Mind of Marketing, "How your pricing and marketing strategy should be influenced by your customer's reference point"

o Google.com

o Wikipedia .com

o O-zone.com

Company Profile

Introduction

O-Zone Company Background

O-Zone is building India’s largest public Wi-Fi network. Its primary assets is comprised of the Wi-Fi network that it builds/owns, long term exclusive contracts for Wi-Fi deployment (DLF, Ansals, Café Coffee Day, Subways, Chokola, Hard Rock Café, Aqua Java Café’s, Trident) at strategic sites and key locations across India and sizeable O-Zone subscriber base. O-Zone is fully funded and backed by one of leading Private Equity fund house in the world. O-Zone has assembled a world class executive management team that has a success record of building, delivering and managing leading edge Wi-Fi solutions and some of the largest managed telecom services deployments across the world.

About O-zone :

Ozone is a neutral host , public wifi provider . O-zone network pvt ltd was founded with the aim of providing wireless

internet and mobility solutions to the masses across india. our objective is to provide a fully integrated and seamless mobile broadband

experience across all of networks at affordable prices. ozone vision is to be indias largest wireless broadband connected community

across commercial, enterprise and city based networks and to have fifty thousand hot spots by 2013.

ozone delivers a unique, simple, compelling and predictable service experience through intelligent integration devices, application and services.

the management team of ozone has extensive international and national business experience and deep knowledge of telecom, network solutions and applications.

with ozones wi fi you can be assured of high speeds, highest level of security and seamless connectivity and mobility throughout your premises and thus leading to increase in productivity.

ozone is currently present in to six retails, real estate, hospitality, hospitals, education and transportation.

website: www.ozonewifi.com

PRICINGMODEL

WITH BROADBAND(RS. 1500p.m)

WITHOUT BROADBAND

Pricing Strategy of O-zone Wifi

Revenue sharing

ratio

[70:30]

Fixed price model

Rs.750 p.m

Vouchers worth rs.3000

Fixed price unlimited model

Rs.2000 p.m

Unlimited vouchers

Voucher time Price Data usage

15mins Rs.10 15mb

30mins Rs.15 30mb

60mins Rs.27 60mb

PRICING MODEL WITH BROADBAND

This pricing model is for those customers who do not have a broadband facility at their respective outlets for such customers ozone provides them with broadband facility at their outlets.

The network carrier company which provides the best service in the area is chosen and a broadband of such a company is installed. Ozone has tie-ups with Aircel, Airtel etc. for providing broadband.

The charges for such services are fixed per month at Rs.1500 and it is further divided into two categories:

1) Revenue sharing model:

In this model there is a sharing of revenues by the client and ozone pvt ltd in the ratio of 70:30 the 70% of the revenues are taken by ozone and the remaining 30% is kept with the client. This model has an advantage and that is the client does not have to pay anything for the service on a monthly basis its free of cost and the cost is borne by the company hence it takes the major portion of the profits. This model is suitable for small outlets who want to test whether this service can bring any benefits to the profits or not once the outlet owner is satisfied he can switch to the fixed pricing model. At any time the owner can switch to any pricing model.

2) Fixed pricing model: This is a fixed price method of charging customers. In this model the customers are charged on a monthly basis at a fixed price unlike the revenue sharing model.

There are 2 types of pricing techniques depending upon a main constraint which is broadband. If the outlet has a broadband already in the outlet then there are no broadband charges. The following are the two schemes:

a)If there is already a broadband in the outlet the owner has to pay a flat rs.750 p.m for which he will get vouchers worth Rs.3000. There a

re vouchers of Rs 10,15, and 27 respectively he can get any combination of these three prices vouchers eg.300 vouchers of Rs.10 after these vouchers are exhausted the plan automatically gets converted into revenue sharing model

b)Rs.2000 model: This is an unlimited vouchers model in this model there is a fixed charge of Rs.2000 p.m and the outlet owner can avail unlimited vouchers of whatever combinations and whatever prices.

C)If there is no broadband the outlet owner has to pay additional Rs.1500 per month as rent for hiring a broadband service from ozone along with the plan he/she is taking like a Rs.750 model or a Rs.2000 unlimited model respectively.

The speed which the customers will get depends on the broadband they have. If the customers take broadband from ozone the speed will be 2mbps.The time taken for installing the service is 2weeks in case the outlet has its own broadband connection and 4-6 weeks if ozone is providing its own broadband connection.

Comparing Wifi vs GSM, 3g, Wimax, LTE according to significance

GSM 3G WIMAX WIFI LTE

Capacity GPRS:114 kbps

EDGE:upto 384 kbps

UMTS:upto

1 mbps HSDPA upto 14.4 mbps (max 3.6 mbps in india)

DL.144 mbps

UL 35 mbps

802.11 n up to 300 mbps

DL 100 mbps

UL 50 mbps

Chipset price EDGE chip set=$ 10 -15

IPR royalty=$7

3g modem chip set=$20-25

IPR royalty=$15

WIMAX chipset=$20

802.11 a/b/g chipset<$1

Predicted to be $15 in 2011

Device nos by 2013 600 million 275 million 14 million 250 million 56 million

Advantage Max cell size 35 km

Good coverage indoor

Mobility

Max cell sizes 2-3 km

Mobility

Cell size NLOS 3-4 km

LOS 50 km

Free spectrum

Low CAPEX/OPEX

ROI<12 months

Lower latancy>100ms simultaneous use support

Disadvantages Expensive spectrum I CAPEX/OPEX

ROI 3-5 years

Expensive spectrum

HighCAPEX/OPEX

ROI 3-5 years

Poor indoor coverage

Expensive spectrum high CAPEX/OPEX

ROI 3-5 years

Limited cell size 300-500 m

High infrastructure cost

Consumer needs new device

Consumer consumes a lot of battery

Wifi is a booming product in our country and there is a scope for wifi , it is much cheaper then wimax or 3g. the pricing for the o-zone wifi is designed according to customers need. The pricing plans are very flexible and the one can easily access internet on the go with the help of many supporting hotspots the pricing of a wifi not only meant to surf but also gives importance to security.

Table of Content

Sr. No. Topics Page No.

1. Executive Summary on pricing

2. Introduction of company

3. Pricing strategy of o-zone

4. Recommendations

5. Conclusions

6. Bibliography

CONCLUSION

From this project we conclude the following:

Ozone has immense market potential to achieve its vision and mission through pricing strategy by developing its short term plans.

There is great potential for Ozone to establish its product in different market segments targeting different customers, as it did by introducing its product in a new market like Mumbai.

Ozone however has to work on its promotional activities as stated earlier in the project in order to create brand awareness when it comes to creating hotspots across various markets (existing or new), as it becomes easier to communicate with the clients when they know about the brand beforehand.

Ozone’s organizational structure is such that their strategic decision making depends heavily on the people working at the lowest level, these are the ones who interact with the clients of ozone and bring in more new clients for the company, they are the first point of contact of the company, hence any customer queries, suggestions for improvement is conveyed to the top management which then brings in respective changes in order to serve their product in a better way.

O-zone Staffing helps the the company to grow and also they will be in market for al long run.

Recommendation

Our recommendation to o-zone is that 30-70 sharing revenue plan must be more flexible so that the restaurant owners would get more profit and with that we also can gain immense profit.

The contract period of ozone wifi is 5 years which under circumstances of negotiation can be minimized upto three years which again proved objectionable by the clients as they thought we are trying to confine them by imposing limitations for them to forcibly be with us thus we suggest that flexibility should be provided to the clients and the term of contract should be kept as minimum as possible which could be convenient for the client..

One thing we have concluded from the internship is that ozone is facing immence competition from tata primarily and also people are not aware about the existence of ozone , thus we recommend that ozone should propagate a promotion drive if not extensive advertising which can atleast create an awareness about what ozone is all about.

Since browsing charges are low we can target to tier 2 and tier 3 cities .ozone established their market in this cities as growth opportunities are immense and would also be helpful for the company as they would be the first to explore such potential market and plant their dominance .

Ozone should also penetrate in A plus societies as there is tremendous scope to provide wifi in their lobbies , playing parks , swimming pool and health clubs .when we talk about A plus societies we are targeting the niche segment in the market for whom browsing is an essential thing .

Ozone should undertake market research in the respective markets to understand the market potential and competitors detail which would help them develop better strategies for their long and short term growth and thus would be easier to evaluate the findings and would help them take appropriate course of action.

Ozone should properly segment their target market in order to serve their product in a way which connects to the consumers in question and will also help them to create strategies to bombard the target consumers as they would know the requirements.