MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing Videos
1.
2.
3.
4.
Is Your Product Too Expensive? - 10:00 minutes
http://www.youtube.com/watch?v=isZZ8NZ7vuk
Marketing & Advertising: How to Price Your Product - 3:08 minutes
http://www.youtube.com/watch?v=4phxRH6vk-I
Pricing Your Product - 5:04 minutes – Russell Brunson Youtube
http://www.youtube.com/watch?v=9_2Hu1jQA_4
Roundtable Discussion: Structuring Profitable Products – Pricing
6:57 minutes
http://www.youtube.com/watch?v=RSAe_Fr9AJY
MANA 3325 T-Th.
Professor Thurburn
Value:
1. A perception of the intrinsic worth.
2. The importance of something.
3. Subjectively Measured
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Perceived Value:
the difference between the prospective
customer's evaluation of all the benefits
and all the costs of an offering, in
comparison to the perceived
alternatives.
Value = Benefits / Cost
MANA 3325 T-Th.
Professor Thurburn
Fair Market Value:
The price that an informed willing buyer
who is not under any external pressure
will pay for a product or service when
purchased from an informed willing
seller who is not under any external
pressure to sell.
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing
1. Is governed both by art and science.
2. Requires balancing a multitude of complex
forces.
3. Influences every aspect of a small company.
4. Is an important signal of a product’s or service’s
value to customers.
5. Involves both math and psychology.
MANA 3325 T-Th.
Professor Thurburn
PRICING
Business Challenges that Drive Pricing Decisions
MANA 3325 T-Th.
Professor Thurburn
PRICING
Price Conveys an Image
1. Price sends important signals to customers: Quality,
prestige, uniqueness, and others.
2. Common small business mistake:
Charging prices that are too low and failing to recognize
extra value, service, quality, and other benefits they offer.
3. Understand the target market and identify how much
customers are willing to pay rather than how much to
charge.
MANA 3325 T-Th.
Professor Thurburn
PRICING
Competition and Pricing
1. Must take into account competitors’ prices, but it is
not always necessary to match or beat them.
2. Key is to differentiate a company’s products and
services.
3. Price wars often eradicate companies’ profits and
scar an industry for years.
4. Best strategy: Stay out of a price war!
MANA 3325 T-Th.
Professor Thurburn
Increased Value
1. Uniqueness… the more the better
2. Reliability… high
3. Quality… high
4. Timeliness… timing is everything
5. Barriers to entry…
6. Others
PRICING
MANA 3325 T-Th.
Professor Thurburn
Decreased Value
1. Commodity… never good
2. Competition… high
3. Quality… low
4. Reliability… low
5. Technology Shift… structural shift
6. Timeliness… too late
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Focus on Value
1. The “right” price for a product or service depends on
the value it provides for a customer.
2. Two aspects of price:
1. Objective value
2. Perceived value – determines the price customers
are willing to pay.
3. Value is not synonymous with low price.
MANA 3325 T-Th.
Professor Thurburn
Focus on Value
1. Add a surcharge
2. Explain the reasons behind price increases
3. Focus on improving efficiency
4. Consider absorbing cost increases
5. Modify the product or service to lower
6.
its cost
7. Eliminate discounts, coupons, and freebies
PRICING
MANA 3325 T-Th.
Professor Thurburn
Focus on Value… continue
1. Diversify your product line
2. Anticipate rising costs and try to lock in prices of
raw materials early
3. Emphasize the value of your company’s product
or service to customers
4. Differentiate your product or service
5. Use cheaper raw materials
6. Raise prices incrementally and consistently
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
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?
MANA 3325 T-Th.
Professor Thurburn
PRICING
Introducing a New Product
Three Goals:
1. Getting the product accepted
►
Revolutionary products
►
Evolutionary products
►
Me-too products
2. Maintaining market share as competition grows
3. Earning a profit
MANA 3325 T-Th.
Professor Thurburn
Introducing a New Product
3 Basic Strategies:
Market penetration
Skimming
Life Cycle Pricing
PRICING
MANA 3325 T-Th.
Professor Thurburn
Pricing Techniques
1. Odd pricing
2. Price lining
3. Leader pricing
4. Discounts (Markdowns)
5. Bundling
6. Geographic pricing
7. Dynamic pricing
PRICING
MANA 3325 T-Th.
Professor Thurburn
Customized or Dynamic Pricing
A pricing technique in which a company
sets different prices on the same products
and services for different customers using
the information that it collects
about its customers.
Horse Traders & Car Dealers… haggle
PRICING
MANA 3325 T-Th.
Professor Thurburn
Pricing Techniques… continued
1. Optional-product pricing… Cars
2. Captive product pricing… Printers
3. Byproduct pricing… grease
4. Suggested retail prices… MSRP
5. Follow-the-leader pricing… Airlines
PRICING
MANA 3325 T-Th.
Professor Thurburn
Follow the Leader Pricing
1. Match competitor prices.
2. A “me too” pricing policy.
3. Robs a company of the opportunity
to create a distinctive image in its
customer’s eyes.
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing for Retailers: Markup
Dollar Markup = Retail Price - Cost of Merchandise
Percentage (of Retail Price) Markup =
Dollar Markup
Retail Price
Percentage (of Cost) Markup =
Dollar Markup
Cost of Unit
Example: Dollar Markup = $30 - $14 = $16
Percentage (of Retail Price) Markup =
Percentage (of Cost) Markup =
$16
$30
= 53.3%
$16 = 114.3%
$14
MANA 3325 T-Th.
Professor Thurburn
Below-Market Pricing
1. Attract a sufficient level of volume to offset the
lower profit margins.
2. Trim operating costs by eliminating extra services
such as:
1. Delivery
2. Installation
3. Credit granting
4. Sales assistance
3. Risky!
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing for Manufacturers


Direct costing and pricing

Absorption costing

Variable or direct costing
Breakeven
MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing for Manufacturers: Breakeven Selling Price
Total
Quantity }
Breakeven
{ Variable cost
fixed
Profit + { per unit
x produced } + costs
Selling
=
Quantity produced
Price
Example:
Breakeven
$0
Selling
=
Price
+ { 6.98/unit x 50,000 unit } + $110,000
50,000 units
= $9.18 per unit
MANA 3325 T-Th.
Professor Thurburn
PRICING
Pricing for Service Firms: Price per Hour
Price per Hour = Total cost per x
1
productive hour
(1 - net profit target
as a % of sales)
Example: Ned’s TV Repair Shop
Price per Hour = $18.59 per hour
x
1
(1 - .18)
= $22.68 per hour
MANA 3325 T-Th.
Professor Thurburn
Staff Markup in Service Fields:
• Markup Staff Costs 3 x 4 times
• Bill Client
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Consumer Credit
•
Credit cards – typical consumer has 7.7 credit cards.
1. Research: Customers who use credit cards make
purchases that are 112% higher than if they had
used cash.
2. On a typical $100 credit card purchase, cost to
business = $2.20.
MANA 3325 T-Th.
Professor Thurburn
A Typical
Credit Card
Transaction
PRICING
MANA 3325 T-Th.
Professor Thurburn
PRICING
Consumer Credit
•
Credit cards – typical consumer has 7.7 credit cards.
1. Research: Customers who use credit cards make
purchases that are 112% higher than if they had
used cash.
2. On a typical $100 credit card purchase, cost to
business = $3.20
•
Installment credit
•
Trade credit
MANA 3325 T-Th.
Professor Thurburn
PRICING
E-Commerce and Credit Cards
About 0.9% of online credit card transactions are fraudulent.
Steps:
1. Use an address verification system
2. Require a CVV2 number
3. Check customers IP addresses
4. Monitor Web site activity with analytics
5. Verify large orders
6. Post notices on Web site that your company uses
anti-fraud technology
7. Contact the credit card company or bank that issued
the card