MANA 3325 T-Th.Professor Thurburn PRICING

1. Is Your Product Too Expensive? - 10:00 minuteshttp://www.youtube.com/watch?v=isZZ8NZ7vuk

2. Marketing & Advertising: How to Price Your Product - 3:08 minuteshttp://www.youtube.com/watch?v=4phxRH6vk-I

3. Pricing Your Product - 5:04 minutes – Russell Brunson Youtubehttp://www.youtube.com/watch?v=9_2Hu1jQA_4

4. Roundtable Discussion: Structuring Profitable Products – Pricing 6:57 minutes

http://www.youtube.com/watch?v=RSAe_Fr9AJY

Pricing Videos

MANA 3325 T-Th.Professor Thurburn PRICING

Value:

1. A perception of the intrinsic worth.2. The importance of something.3. Subjectively Measured

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 PRICING

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.

MANA 3325 T-Th.Professor Thurburn 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.

Pricing

MANA 3325 T-Th.Professor Thurburn PRICING

Business Challenges that Drive Pricing Decisions

MANA 3325 T-Th.Professor Thurburn PRICING

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.

Price Conveys an Image

MANA 3325 T-Th.Professor Thurburn 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!

Competition and Pricing

MANA 3325 T-Th.Professor Thurburn PRICING

1. Uniqueness… the more the better

2. Reliability… high

3. Quality… high

4. Timeliness… timing is everything

5. Barriers to entry…

6. Others

Increased Value

MANA 3325 T-Th.Professor Thurburn PRICING

1. Commodity… never good

2. Competition… high

3. Quality… low

4. Reliability… low

5. Technology Shift… structural shift

6. Timeliness… too late

Decreased Value

MANA 3325 T-Th.Professor Thurburn PRICING

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.

Focus on Value

MANA 3325 T-Th.Professor Thurburn PRICING

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

MANA 3325 T-Th.Professor Thurburn PRICING

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

MANA 3325 T-Th.Professor Thurburn PRICING

Price Ceiling - What will the market bear?

Price Floor - What are the company's costs?

AcceptablePrice

Range

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?

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

?

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MANA 3325 T-Th.Professor Thurburn PRICING

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

Introducing a New Product

MANA 3325 T-Th.Professor Thurburn PRICING

3 Basic Strategies:

Market penetration

Skimming

Life Cycle Pricing

Introducing a New Product

MANA 3325 T-Th.Professor Thurburn PRICING

Pricing Techniques

1. Odd pricing

2. Price lining

3. Leader pricing

4. Discounts (Markdowns)

5. Bundling

6. Geographic pricing

7. Dynamic pricing

MANA 3325 T-Th.Professor Thurburn PRICING

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

MANA 3325 T-Th.Professor Thurburn PRICING

Pricing Techniques… continued1. Optional-product pricing… Cars

2. Captive product pricing… Printers

3. Byproduct pricing… grease

4. Suggested retail prices… MSRP

5. Follow-the-leader pricing… Airlines

MANA 3325 T-Th.Professor Thurburn PRICING

Follow the Leader Pricing1. 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.

MANA 3325 T-Th.Professor Thurburn PRICING

Pricing for Retailers: Markup

Dollar Markup = $30 - $14 = $16

Dollar Markup = Retail Price - Cost of Merchandise

Percentage (of Retail Price) Markup = Dollar Markup

Retail Price

Percentage (of Cost) Markup = Dollar MarkupCost of Unit

Example:

Percentage (of Retail Price) Markup = $16$30 = 53.3%

Percentage (of Cost) Markup = $16

$14= 114.3%

MANA 3325 T-Th.Professor Thurburn 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!

Below-Market 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

Breakeven SellingPrice

Quantity

Example:

= ProfitVariable

cost per unit

produced

Total fixed costs+

{{ x

}} +

Quantity produced

Breakeven SellingPrice

= $0 6.98/unit 50,000 unit

$110,000

+ { x }+

50,000 units

= $9.18 per unit

Pricing for Manufacturers: Breakeven Selling Price

MANA 3325 T-Th.Professor Thurburn PRICING

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

Pricing for Service Firms: Price per Hour

MANA 3325 T-Th.Professor Thurburn PRICING

Staff Markup in Service Fields:

• Markup Staff Costs 3 x 4 times

• Bill Client

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 PRICING

A Typical Credit Card Transaction

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

About 0.9% of online credit card transactions are fraudulent.Steps:

1. Use an address verification system2. Require a CVV2 number3. Check customers IP addresses4. Monitor Web site activity with analytics5. Verify large orders6. Post notices on Web site that your company uses

anti-fraud technology7. Contact the credit card company or bank that issued

the card

E-Commerce and Credit Cards