Pricing Strategies

Chapter 10: Pricing

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Pricing

Is governed both by art and science. Requires balancing a multitude of complex forces. Cuts across every aspect of a small company. Is an important signal of a products or services value to customers. Involves both math and psychology.
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Chapter 10: Pricing

Price Conveys Image

Price sends important signals to customers quality, prestige, uniqueness, and others. Common small business mistake: Failure to recognize extra value, service, quality, and other benefits they offer and charging prices that are too low. Study: Only 15 percent to 35 percent of customers consider price to be the chief criterion when selecting a product or service.
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Chapter 10: Pricing

Competition and Pricing

Must take into account competitors prices but it is not always necessary to match or beat them. Key is to differentiate a companys products and services. Price wars often eradicate companies profits and scar an industry for years. Best strategy: Stay out of a price war!
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Chapter 10: Pricing

Focus on Value

The right price for a product or service depends on the value it provides for a customer. Two aspects: Objective value Perceived value

Value low price, however.

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Chapter 10: Pricing

Dealing with Rising Costs

Communicate with customers Focus on improving efficiency Consider absorbing cost increases Emphasize the value of your companys product or service to customers Anticipate rising costs and try to lock in raw material prices early

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What determines price?

Price Ceiling ("What will the market bear?")

?
Acceptable Price Range

? ?

Final Price (What is the company's desired "image?")

? ? ? ?

? ?

Price Floor ("What are the company's costs?")

Customized or Dynamic Pricing

A pricing technique in which the company sets different prices on the same products and services for different customers using the information that a company collects about its customers.

Chapter 10: Pricing

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Introducing a New Product

Three Goals: Getting the product accepted Revolutionary products Evolutionary products Me-too products Maintaining market share as competition grows Earning a profit

Chapter 10: Pricing

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Introducing a New Product

Three Basic Strategies: Market penetration Skimming Sliding-down-the-demand-curve

Chapter 10: Pricing

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Pricing Techniques

Odd pricing Price lining Leader pricing Geographical pricing

Zone pricing Delivered pricing FOB pricing

Chapter 10: Pricing

Opportunistic pricing
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Pricing Techniques

Discounts Bundling Optional-product pricing Captive product pricing Byproduct pricing Suggested retail prices

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Pricing for Retailers: Markup

Dollar Markup = Retail Price - Cost of Merchandise Percentage (of Retail Price) Markup = Percentage (of Cost) Markup = Dollar Markup Retail Price

Dollar Markup Cost of Unit

Example: Dollar Markup = $25 - $15 = $10 Percentage (of Retail Price) Markup = Percentage (of Cost) Markup = $10 $25 $10 $15

= 40%
= 67%

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Pricing for Manufacturers: Breakeven Selling Price

Total Breakeven { Variable cost Quantity } fixed Selling Profit + { per unit x produced } + costs = Price Quantity produced

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Pricing for Manufacturers: Breakeven Selling Price

Total Breakeven { Variable cost Quantity } fixed Profit + { per unit x produced } + costs Selling = Quantity produced Price Example: Breakeven Selling = Price $ + { 6.98/unit x 50,000 unit} + $110,000 0 50,000 units

= $9.18 per unit

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Pricing for Service Firms: Price per Hour

Price per Hour = Total cost per productive hour Example: Neds TV Repair Shop
Price per Hour = $13.44 per x hour 1 (1 -.18) = $16.38 per hour

1 (1 - net profit target as a % of sales)

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Consumer Credit

Credit cards National Private Installment credit Trade credit

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