Case study

Case study

Software pricing: issues of client billing
Infosys, one of the major IT companies in India, has developed a new method of pricing software maintenance project. The new method is called as ‘ticket – based pricing. The customer payment will be based on three types of client request or ticket. First, customer may request for small enhancement in the software application. Second, customer may request for big enhancement in the software application and third, request may be for a bug fix. Earlier the methods used for pricing were ‘fixed price’ and ‘time and material-based pricing’. Under the ‘time and material based pricing’, customers are billed based on the number of man-hours spent on a project, while under the fixed price, the customer pays an agreed price that doesn’t vary with the manpower deployed on the project.
Infosys developed this new pricing strategy after examining the current pricing methods. Software application methods become more stable after some time. If the client opted for fixed pricing and his request for software maintenance reduced, still has to pay fixed maintenance charges. Ticket based pricing will provide flexibility to the client. Many IT majors have been trying to decrease the dependence of revenue growth on manpower addition. But this is for the first time such an attempt has been made to bring a transaction-based pricing model. The new move is expected to increase the revenue without a proportional increase in the number of employees. Contrary to this view many industry observers still feel that fixed price or time and material based pricing provide continuous revenue. The excess revenue available from these two methods can be used for reserves or hedging. In case of ticket based pricing client has to negotiate with the company every time.

a. Do you think ticket based pricing will provide continuous revenue to Infosys in the long term? Comment
Answer: Since Infosys may have two type of client that is Big & Small.
a) General small kind of client prefers to outsource their project to avoid the expenditure incurred on the installation of software and maintenance. But because of the ticket based pricing strategy the small client will also think to install the software on the basis of requirement. I think ticket based pricing is one of the best strategy adopted by the Infosys which will definitely a source of continuous revenue in the long run because of the following reason, because now they know that they are able to upgrade or may fix the problem on the basis of demand arise end have to pay accordingly. They need not to pay the fix amount of money regardless of the work alone through which the share of market for Infosys will increase amazingly.
b) Due to the fearness of fix maintenance charged occurred while the fixing of problem any big or small enhancement the big client will generally install the software of which some of its feature may not be useful for the company at all. It may unnecessary become the capital burden for the company and Infosys may not get the business of after sales and service but because of this strategy the company will install the software according to the need and utility. Further the need will arise, the company will be required for the big enhancement or small enhancement of the software end the company have to pay accordingly.
In case of any troubleshoot in the software the company is asked to pay the large fix amount on the basis of installed software

b. Compare three pricing strategies discussed here and choose any one as your choice
Answer: In case of fix price the big client will prefer to purchase new software because the amount to pay for its fixing might have purchase the new one with the enhanced technology this will further shrink the market share and attract the new entrants in the market.
In case of time any material based pricing the company may not incurred profit because The Resource involved in the fixing of problem may be the greater than the actual cost received from the client. But now the company can decides the resource factor to oversee due problem and same the cost.

Psychographic Segmentation

In Psychographic segmentation, buyers are classified into different groups on the basis of lifestyle or personality and values. People within the same demographic group can exhibit very different psychographic profiles.
a) Lifestyle:
People exhibit different lifestyles and goods they consume express their lifestyles.
Many companies seek opportunities in lifestyle segmentation. But lifestyle segmentation does not always work.

example

For example, HUL launched ‘pepsodent kids’ for small children.
b) Gender: Gender segmentation has long been applied in clothing, hairstyling, cosmetics and magazines. For example, Emami segmented its personal care business on the basis of gender. For women, it is having Emami naturally fair, and for men it is fair and handsome.
c) Income: Income segmentation is a longstanding practice in such product and service categories as automobiles, clothing, cosmetics and travel. However, income does not always predict the best customers for a given product.
For example, Baja Auto limited, a leading automobile company, different bikes for different commuters. For entry level (less than Rs35000) it is Bajaj CT 100, for mid segment (greater than Rs35000 but less than Rs60000) it is pulsar and for the upper segment greater than Rs
60000 Avenger and Eliminator is positioned.

Demographic Segmentation

: In demographic segmentation the market is divided into groups on the basis of variable such as age, family size, family lifecycle, gender, income, occupation, education, religion, race, generation, nationality and social class. Demographic variables are the most popular bases for distinguishing customer groups. One reason is that consumers’ wants, preferences and usage rates are often associated with demographic variables. Demographic variables are easy to measure. Even when the target market is described in nondemographic terms, the link back to demographic characteristics is needed in order to estimate the size of the target market and the media that should be used to reach it efficiently. Some of the demographic variables used are :
a) Age and LifeCycle Stage: Consumers’ wants and abilities change with age. On the basis of age, a market can be divided into four parts viz., children, young, adults and old. For consumers of different age groups, different types of products are produced. For instance, different types of readymade garments are produced for consumers of different age groups. A successful marketing manager should understand the age group for which the product would be most suited and determine his marketing policy, pricing policy, advertising policy
etc., accordingly.

Geographic segmentation

Dividing the market into different geographical units such as nations, states, regions, cities or neighborhoods. The company can operate in one or a few
Geographic areas or operate in all but pay attention to local variations. For example, Bennett, Coleman and co Ltd divided markets according to geographical units for their tabloids. In Bangalore the tabloid is known as Bangalore Mirror where as it is Mumbai Mirror in Mumbai.

Habitual buying behavior

The low involvement between the brands and few differences between the brands leads to the habitual buying behavior. For example spice powder marketed by MDH, Everest or MTR have very few difference between them and customer do not search the information to purchase particular product. Marketers whose customer represents this category should follow below listed strategies
a. Use price and sales promotions to stimulate product trial.
b. Use more visual aspects than the wordings in the advertisements
c. Television is the better media for this type of products.
d. Use classical conditioning theory to create advertisements.

Variety seeking buying behavior

When there are significant difference between the brands existing but customer will not involve more while purchasing, marketer identify this behavior as variety seeking buying behavior. Let us discuss the purchasing behavior of customer for biscuits. There are many varieties of biscuits available. One can purchase salt biscuits, cream biscuits, Marie biscuits, and milk biscuits of Britannia, Parle, ITC sun feast and others. The customer who purchased Britannia tiger earlier may purchase Sun feast cream biscuit next time. This doesn’t mean that quality of Britannia tiger is inferior to other brands but customer would like to try the varieties available in the market. In this situations marketer should undertake following steps
a. The market leader should encourage customers to buy repeatedly.
b. Make the product available and visible to the customer in the shopping places.
c. The firm who are not market leader should come out with sales promotion techniques to encourage customer to purchase the product.

Dissonance reducing buying behavior

The behavior exhibited by the customer when product purchase requires high involvement but only few differences exist. For example, customers who want to purchase CTV will not find many differences between the brands but the price of the product and its technicality makes customer to involve more. One of the major disadvantages of this type of behavior is customer will show post purchase dissonance which is very difficult to control.

Analytical Marketing Systems

Also known as Marketing Decision Support systems (MDSS), this is a coordinate collection of data, systems, tools and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action. All the data which is generated through the other three systems described above are stored in a data base. The storage and retrieval capability of decision support system allows the collection and use of a wide variety of data throughout the company. Senior managers can access the data base and continually and monitor sales, markets, performance of the sales people and other marketing systems as well.

Marketing Research System

This is the third component of MIS. Marketing Research provides information to marketing manager when he/she encounters marketing problems. This may involve conducting Marketing Research survey by collecting primary data. These surveys may be conducted by the marketing department itself or a it can hire services of an external marketing research agency.

Marketing Intelligence System

This is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. This system supplies ‘happenings’ data unlike Internal Records System which supplies ‘results’ data. Marketing managers collect data from published sources like books, magazines and journals; by talking to customers, intermediaries and sales personnel. Some companies appoint specialists to gather consumer and competitor information, who does mystery shopping to monitor the performance of their own or competitor’s dealers. Competitor information can also be obtained by buying their product, attending their press conferences, trade shows and reading their annual reports. Companies purchase commercial information from outside suppliers and market research agencies like IMRB, ORG – MARG to obtain competitive data on their sales, advertising expenditures etc., besides their own.

Order to payment cycle

This includes information on (i) Order to payment cycle and (ii) sales information systems.
Order to payment cycle has a system which records, the timing and size of orders placed by consumers, the payment cycle followed by consumers and the time taken to fulfill the orders, in the shortest possible time. Customers place order through sales people and companies dispatch the goods and receive payments directly or through bank. A proper record system pertaining to order – to – payment cycle management helps mangers to decide on production and dispatch schedule, inventory and accounts receivable schedule and also logistics and distribution management schedules,
Sales Information Systems record everything in the sales Department, starting from Sales Call
Reports to prospects history to Sales territory and quota information for better sales planning and forecasting purpose.

Age structure of the population

from the following table you can generalize that India is having 48% population who are aged less than 21 and 28% of the population are in the bracket of 2125.
Many marketing companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music.
Radio indigo targets youth segment who like western music.

Demographic Environment.

Demography: The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion.
Demography statistics helps companies to develop their products in better way. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.

1. Age structure of the population
2. Marital status of the population
3. Geographic distribution of the population
4. Education level
5. Migration
6. Occupation.

Invest strategy

In this position SBU
a. Should receive ample resources
b. Should support by well financed marketing efforts.
3 Protect strategy: SBU’s in this position should
a. Allocate the resources selectively.
b. Develop strategies which help in maintain its market position.
c. Generate cash needed by other SBU’s.

GE matrix:

1 Management can use the GE business matrix to classify SBU’s on the basis of two factors
a. Market attractiveness: Market size, entry barriers, competitors, technology and profit margin are some factors used to analyze the market attractiveness.
b. Business position can be determined on the basis of market share, SBU size, R&D capabilities and cost controls
Each cell in the model represented by the particular strategy namely, invest strategy, protect strategy, harvest strategy and divest strategy

Dogs:

SBU’s in this category generates less cash for the company as it operates in low growth and low market share. Usually companies will not invest in this category and try to liquidate or divest.
BCG matrix for ITC
1. SBU: FMCG
Industry growth rate: 24% (AC Nielson retail audit report 2007)
Company growth rate: 50% (the Hindu business line 19 th January 2008)
Company’s market share : 8% (outlook business)
Largest competitor share: HUL: 54% (outlook business)
Relative market share= 0.14
2. SBU: Paper board
Industry growth rate: 7.2% (the Hindu business line 27 th May 2007)
Company growth rate: 11% (the Hindu business line 19 th January 2008)
Company’s market share: 55%
Largest competitors share: BILT 35%
ITC’s FMCG segment analysis shows that though it is market leader in some categories their overall relative market share is 0.14. Company is in the high growth low relative market share area i.e. question mark position. ITC should invest heavily to convert its SBU position into star.
ITC’s Paperboard industry is in low growth and high market share category i.e. in cash cow segment. It should plan for investing the cash generated from this position into other businesses.

Question Mark

This category represents high market growth and low market share. SBU’s in this category has two options, either to invest heavily and bring them to star position or divest / liquidate from that position.

Model components:

Star: This category represents the high market share and high industry growth. SBU’s in this category require large investment to defend their position. SBU will turn as cash cow after some time.
Cash cows: This category represents the low growth rate and high market share which is the characteristic of SBU operating in mature industry. Here company needs less investment to hold their position. Hence it generates more cash or in management terms we say cash cow can be milked.

Axis components:

1. Market growth rate: The rate at which market is growing
2. Relative market share: Market share of the SBU divided by the market share of the largest competitor.

business portfolio of any one company using BCG matrix, GE matrix, and Ans off model

BCG matrix: This model is used to identify company’s SBU’s position in the market. This model identifies the SBU’s strength, weaknesses, opportunities and threats on the basis of market growth rate and relative market share. This model is also known as growth share matrix