Pricing Strategies This "Deco" border was drawn on the Slide master using PowerPoint's Rectangle and Line tools. A smaller version was placed on the Notes Master by selecting all of the elements (using Select All from the Edit menu), deselecting the unwanted elements such as the Title (holding down the Shift key and clicking on the unwanted elements), and then using Paste as Picture from the Edit menu to place the border on the Notes Master. After pasting as a picture, we used the resize handles (with Shift to maintain the proportions) to reduce it to the size you see. Be sure to delete this word processing box before using this template for your own presentation. Chapter 10: Pricing

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 product’s or service’s value to customers. Involves both math and psychology. 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. 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 company’s products and services. Price wars often eradicate companies’ profits and scar an industry for years. Best strategy: Stay out of a price war! Chapter 10: Pricing

Focus on Value Value ≠ low price, however. 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. Chapter 10: Pricing

Dealing with Rising Costs Communicate with customers Focus on improving efficiency Consider absorbing cost increases Emphasize the value of your company’s product or service to customers Anticipate rising costs and try to lock in raw material prices early Chapter 10: Pricing

What determines price? Price Ceiling ("What will the market bear?") ? ? ? Final Price (What is the company's desired "image?") ? Acceptable Price Range ? ? ? ? ? ? ? ? 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

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

Introducing a New Product Three Basic Strategies: Market penetration Skimming Sliding-down-the-demand-curve Chapter 10: Pricing

Pricing Techniques Odd pricing Price lining Leader pricing Geographical pricing Opportunistic pricing Chapter 10: Pricing

Pricing Techniques Discounts Bundling Optional-product pricing Captive product pricing Byproduct pricing Suggested retail prices Chapter 10: Pricing

Pricing for Retailers: Markup Dollar Markup = Retail Price - Cost of Merchandise Dollar Markup Percentage (of Retail Price) Markup = Retail Price Dollar Markup Percentage (of Cost) Markup = Cost of Unit Example: Dollar Markup = $25 - $15 = $10 $10 = 40% Percentage (of Retail Price) Markup = $25 $10 = 67% Percentage (of Cost) Markup = $15 Chapter 10: Pricing

Pricing for Manufacturers: Breakeven Selling Price Total fixed costs Breakeven Selling Price { Variable cost per unit Quantity } { } Profit + x produced + = Quantity produced Chapter 10: Pricing

Pricing for Manufacturers: Breakeven Selling Price Total fixed costs Breakeven Selling Price { Variable cost per unit Quantity } Profit { + x produced } + = Quantity produced Example: Breakeven Selling Price { 6.98/unit $110,000 $ 0 + x 50,000 unit } + = 50,000 units = $9.18 per unit Chapter 10: 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 = $13.44 per x 1 = $16.38 per hour hour (1 -.18) Chapter 10: Pricing

Consumer Credit Credit cards National Private Installment credit Trade credit Chapter 10: Pricing