Professional Documents
Culture Documents
Price Level
Price setting
Pricing Policy
Negotiation Tactics & Pricing Setting Procedures
Value Communication
Communication, Value Selling Tools
Price Structure
Metrics, Fences, Controls
Value Creation
Economic Value, Offering Design, Segmentation
Set baseline prices based on type of value assessment and initial differential value capture rate
Refine preliminary prices with iterative process balancing tradeoffs between price, cost, and market response
Set final prices and ensure acceptance among customers and organization through effective change management approach
Key Questions: How much of the differential value should be captured for each segment? How much time and effort should I invest in assessing the value of my products? How should I adjust segment prices to account for different price sensitivities?
Key Questions: What tradeoffs should I make between long-term strategic objectives and short-term market responses to price changes? What types of analytical techniques are best suited to my product and market conditions? How can I estimate customer response to potential price changes?
Key Questions: What tradeoffs should I make between long-term strategic objectives and short-term market responses to price changes? What types of analytical techniques are best suited to my product and market conditions? How can I estimate customer response to potential price changes?
Value Capture
Market Enterprise Software Heavy Manufacturing Process Manufacturing Computers High Technology Professional Services Distribution Pharmaceuticals
Differential Value Capture Rate 20 - 50% 10 - 30% 10 - 20% 20 - 40% 5 - 50% 10 - 40% 5 - 20% 30 - 50%
$ XXX
YY%
$ZZ
First, start with the value calculated from either the EVE or the WTP assessment. Second, determine the baseline value capture rate based on similar products in the market to set a starting point for price. Third, adjust the starting price up or down depending on the relevant price sensitivity factors. Finally, set the preliminary price by determining determine the percentage of the economic value you will attempt to capture. This preliminary price will be the starting point for considering strategic factors and conducting breakeven analysis.
Price Sensitivity Factors Product performance risk Expenditure Effect Fairness affect
+/=/-
-(- 10% )
Total adjustments
Preliminary Price
$ NNN
Price Paid
medium
Unharvested Value
low low medium high
Value Received
2003 Strategic Pricing Group, Inc. 6
Pricing Strategies
Pricing Strategy
SKIM PENETRATION NEUTRAL
COSTS
CUSTOMERS
COMPETITION
Pricing Strategy
SKIM
Low CMs Low Volumes Changes in Unit Price Drive Profit Large BE Sales Changes At or near capacity Low Price Sensitivity -Reference Price Effect -Price Quality Effect -Difficult Comparison Effect
PENETRATION
High CMs High volumes Changes in volume drive profitability Small BE Sales Changes Excess capacity High price sensitivity -Total Expend Effect -Large Part of EndBenefit Little differentiation
NEUTRAL
Costs similar to competitors Sufficient CM to finance adv, etc. Little excess capacity Incremental capacity is expensive
COSTS
CUSTOMERS
COMPETITION
Limited threat of opportunism Limited opportunity for scale economies Sustainable differentiation Low threat brands
Sustainable cost & resource advantage Competitors not willing to retaliate Financial strength Aggressive small share brands
Avoid threat of retaliation Large share brands with a lot to lose Sustainable mktg mix advantages Oligopolies
9
10
(b)
11
High Automated Price Automated Price Optimization Optimization System System Spreadsheet Spreadsheet based Break - based Break even Analysis even Analysis
Volume of Transactions
Number of Transactions
12
Contribution Margin
5% 35%
-88% -83% -75% -50% 0% NA NA NA NA
10%
-78% -71% -60% -33% 0% 100% NA NA NA
20%
-64% -56% -43% -20% 0% 33% 300% NA NA
30%
-54% -45% -33% -14% 0% 20% 100% NA NA
40%
-47% -38% -27% -11% 0% 14% 60% 167% 700%
50%
-41% -33% -23% -9% 0% 11% 43% 100% 233%
60%
-37% -29% -20% -8% 0% 9% 33% 71% 140%
70%
-33% -26% -18% -7% 0% 8% 27% 56% 100%
80%
-30% -24% -16% -6% 0% 7% 23% 45% 78%
90%
-28% -22% -14% -5% 0% 6% 20% 38% 64%
% Change in Price
13
.027
.018
.009
14
15
You are considering purchasing a personal computer. What factors would affect your price sensitivity in making that decision? How would those same factors affect the price sensitivity of some personal computer buyers differently?
16
17
What can a company do to decrease its customer's price sensitivity? Would all of the company's customers be likely to react in the same way?
18
Would a company ever want to do anything to increase its customers' price sensitivity? Why? What steps might it take?
19
(b) (c)
(d)
20
21
22
23
Positive Differentiation
Competitive Reference
Risk Analysis
Ov erlay Chart Comparativ e Risk Profiles Frequency Comparison
.036
.027
.018
.009
24