Managing Your Market Proactively February 27

Proactive Pricing Present Price as a result of Value Received Tailor price to specific customer value Support price by marketing (rather than the reverse) Make price part of a broader competitive strategy

Pricing Structure Create Pricing fences to segment market Choose pricing metrics to fit the value received –Preferably automatically with Value created &/or Cost to serve –Price trade offs, not concessions –Selectively add value –Use incentives to avoid counterproductive customer response

The Pricing Process Price is a powerful short term tool Price changes can have long term effects –Force future price changes –Increase transactions cost –Affect long term market growth or timing –Change competitive dynamics Consistent (avoid spoiling market) “Me-too”

Alternative Pricing Processes Auction (good for one-of-a-kind) Dutch Auction (spoilable product, quick sale) Internet (E-Bay, Price-Line, etc.) (bid, offer) Selective couponing

Value-Based Marketing Strategy The 5 C’s Comprehend what drives value Create this value (Convert expertise into value) Communicate this value Convince customers of value Capture value (Tie Price to Value)

High Price Strategies Skim Pricing (High relative to value) –Unique product (limited substitutes –Price inelastic customers (willing to pay) –Some barriers to entry (or at least slow entry) –High variable costs (low CM) Sequential Skimming –Slow entry, respond with entry –New product, grow the market –Diverse set of users

Low Price Strategies Penetration (low relative to value) –Price elastic customers –Homogeneous (easy to evaluate) product –Low variable cost (high CM) –Cost competitive advantage –Broad product line (so loss leaders make sense) –Small firm relative to market (less likely to have competitor response)

All other Prices Neutral –Value sensitive customers –Neutral RELATIVE to VALUE (not relative to competition)