Smart Pricing

Till Plant Weed Harvest

Farmer’s Harvest

Harvest Time!

Till Plant Weed Harvest

Farmer’s Harvest

Develop Create Market Sell

Business Cycle

8%

The 4 Levers- 1% better

Variable CostsSales Quantity

Fixed Costs

Price

The 4 Levers- 1% better

Fixed Costs 2.45% Increased Profits

The 4 Levers- 1% better

Sales Quantity3.28%Increased Profits

The 4 Levers- 1% better

Variable Costs6.52%

Increased Profits

The 4 Levers- 1% better

Price10.29%Increased Profits

A 1% difference..

Fixed Cost Sales Quantity Variable Costs Price0

2

4

6

8

10

12

increased profit

The 3 Simple Pricing Models

•Cost Plus•Competition Based or

“Strategic” Pricing•Consumer based pricing

Cost Plus

My Costs + 25%

‘Strategic’ Pricing

What is my competition charging for a similar

item?

Consumer Pricing

“What can I gouge this suckerCustomer for?”

Which Model are you using?

Why the traditional models

fail

Cost Plus• No incentive for Efficiency gains

• Price Floor

• Leaving money on the table

Strategic• Who’s saying that the competition is

pricing right?

• Moves your product to commodity

• Southwest vs Delta.

Consumer Based• Negotiation skills reign

• Bad Blood

• Biased based

Pay as you wish

4 Price Points for “Fries with that?”

Razors & Video Games

Price Wars

What Did Walmart do to win the retail game?

Think Small

98% of their skus sell less than 20 copies per year

Think Small1 Billion downloads @ $0.33 each= $330,000,000

Think Small1 Billion downloads @ $0.33 each= $330,000,000

Subscription Model

Fresh Videos, on demand

Subscription Model

Fresh Fruits, every month

Snob PremiumWhich sold (nearly 4x) better:

A Chinese silk scarf for $200-300or

A French silk scarf for $2000-3000

Same silk, similar designs, same manufacturer

Snob Premium

WHY?!?

Pay if it worksPay only if it works

model. No results, no pay.

So what’s the right way to price?