Pricing Strategies

Presented By:

George Dierberger Augsburg University

Minneapolis, MN

Presented at: ACLEA 55th Annual Meeting

July 27, 2019 Chicago, Illinois

George Dierberger Augsburg University

Minneapolis, MN Dr. George Dierberger is a business professor and MBA Director at Augsburg University in Minneapolis, Minnesota. He is a former 3M executive who spent 25 years in a variety of leadership roles. Dr. Dierberger started 5 businesses in 10 years for 3M and currently consults for the outdoor, organic food and consumer products industries. He has published 5 journal articles in areas covering innovation, creativity, acquisitions and entrepreneurship.

Dr. Dierberger will discuss the importance of pricing for businesses and non-profits. The presentation will include pricing approaches that include the following: demand oriented (skimming, market penetration, prestige, odd-even, target, bundle and yield pricing), cost oriented, profit oriented and competition based pricing (loss-leader). The discussion will be very hands-on with specific examples of each type of pricing strategy.

ACLEA ConferenceChicagoJuly 30th

Agenda

• Marketing background• The 4 “p’s”• Pricing strategies• Summary

Developing a Positioning Statement• To (target segment

and need) our (brand) is (concept)

that (point of difference)

Selecting an Overall Positioning Strategy• The value proposition is the full positioning of a brand—

the full mix of benefits upon which it is positioned.

6 - 4

Branding

• identifies the maker or seller of a product or service.

A brand is a name, term, sign, symbol, or design, or a combination of these, that

Internal and External Considerations Affecting Price Decision

Overall Marketing Strategy,

Objectives, and Mix

Organizational Considerations The Economy

The Government Social Concerns The Market and Demand

Cost-Based Pricing

Cost-Based PricingSetting Price Based on Costs

Cost-Plus Pricing

Breakeven Pricing

Customer Value-Based Pricing

Customer Value-Based PricingBuyer’s Perceptions of Value

Good-value pricing

Value-added pricing

Marketing Analysis

PlanningDevelop Strategic

PlansImplementation

Analysis

Control Measure results

Marketing Analysis

Developing an Integrated Marketing Mix

The Buyer Decision Process for New Business Owners

Environmental Scanning & Monitoring

• Environmental scanning involves surveillance of a firm’s external environment

• Predicts environmental changes to come• Detects changes already under way• Allows firm to be proactive

• Environmental monitoring tracks evolution of environmental trends

• Hard trends – measurable facts/events• Soft trends – estimated, probable events

2-13

Competitive Intelligence

• Competitive intelligence • Helps companies define & understand their industry• Identify rivals’ strengths & weaknesses

• Collect data on competitors• Interpret intelligence data

• Helps firms avoid surprises• Anticipate competitors’ moves• Decrease response time

• Beware of the potential for unethical behavior while gathering intelligence

2-14

The Intensity of Rivalry Among Competitors in an Industry

• Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties

• Interacting factors lead to intense rivalry:• Numerous or equally balanced competitors• Slow industry growth• High fixed or shortage costs• Lack of differentiation or switching costs• Capacity augmented in large increments• High exit barriers

2-15

Three Generic Strategies

Exhibit 5.1 Three Generic StrategiesSource: Adapted and reprinted with the permission of The Free Press, a division of Simon & Schuster Inc. from Competitive Strategy: Techniques for Analyzing Industries and Competitors. Michael E Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.

5-16

Choosing the Right Competitive Advantages

Important

Distinctive

Superior

CommunicablePreemptive

Affordable

Profitable

Pricing Strategies• Skimming

• Setting a price at the highest level the market will bear, usually because there is no competition at the time.

• Prestige or premium pricing• Setting a price above that of the competition so as to indicate a

higher quality or that a product is a status symbol.• Bundling

• Combining two or more products in one unit and pricing it less than if the units were sold separately.

• Multiple or bonus pack• Combining more than one unit of the same product and pricing

it lower than if each unit were sold separately.

9-18

Pricing Strategies• Odd-even pricing

• Setting a price that ends in the number 5, 7, or 9.• Partitioned pricing

• Setting the price for a base item and then charging extra for each additional component.

• Captive pricing • Setting the price for an item relatively low and then

charging much higher prices for the expendables it uses.• Price lining

• The practice of setting (usually) three price points: good quality, better quality, best quality.

9-19

Price-Lowering Techniques• Coupons, Rebates, Loyalty and Referral Programs• Referral discount

• A discount given to a customer who refers a friend to the business

9-20

Value-Based versus Cost-Based Pricing

DANGER- PRICE ADJUSTMENTS

Responding to Price Changes

XYZ Project 2018-2020 Global Strategy Implementation

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Growth – Accelerate• Superior speed to market and coverage

Xxx sales from $ to $ million in 2019Entitlement of $ Million Chain sales from $ to $ million in 2019Key accounts from $ to $ million in 2019

• Accelerate growth of strategic power brandsMarket share of xxx from % to % in 2019

• Marketing and technology innovationDevelopment of new platform.

new launch- $ in 2019Platform entitlement of $ million

PROJECT CLUSTERS

Identify and develop new new technologies and growth opportunities

Identify new categories and products using white space analysis

Build xxx sales & profits by expanding current accounts, new channels, and OUS markets

Develop new xxx and yyy solutions to grow & increase distribution

Leadership - Demonstrate

Six Sigma projects focus on DBT, terms changes, deductions

Six Sigma control plan focus on D&E, SKU Productivity, SMI

Business team processes focus on S&OP, Parameter Mgmt.,MRP planning tools

Stretch assignments, recognition, communications, team building

Focus on EH&S leadership in our operations

Project engagement and development plans EC&DP

Implement xxx with key suppliers to achieve sourcing goal of $k

SKU Optimization

MRP Planning Tools, S&OP Process effectiveness

Improve roll-through yield for xxx to % in 2019

Costs - Streamline / Invest• Operational Excellence

Improve factory cost from % to %Invest in manufacturing scale-up for

gripping solutions

Cash - Generate• Business Process Excellence

Increase cash flowIncrease working capital turns from to

Nationwide introduction of new xxx connector in 2020

Increase sales of xxx and yyyby increasing distribution and market coverage

AFE investments for productivity and new technology platform

Utilize corporate sourcing (dual sourcing, eAuctions, SS @ suppliers, Preferred Supplier Network)

Business Conduct - Protect the Corporation• Ethical business practices

100% Six Sigma trained salaried workforce by end of 2019

Business conduct training, communications, expectations

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Acquisitions & Alliances to further strengthen market position

Measure xx Performance to Customer Expectations / Entitlement Quality

Summary

• Know your market• Follow your competitors• Understand your fixed costs and what it takes to breakeven• Find your sweet spot in the market• Network, network, network• Pivot when things are not working