1. MANA 3325 T-Th. Professor Thurburn PRICING 1.Is Your Product Too Expensive? - 10:00 minutes http://www.youtube.com/watch?v=isZZ8NZ7vuk http://www.youtube.com/watch?v=isZZ8NZ7vuk 2.Marketing & Advertising: How to Price Your Product - 3:08 minutes http://www.youtube.com/watch?v=4phxRH6vk-I http://www.youtube.com/watch?v=4phxRH6vk-I 3.Pricing Your Product- 5:04 minutes – Russell Brunson Youtube http://www.youtube.com/watch?v=9_2Hu1jQA_4 http://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 http://www.youtube.com/watch?v=RSAe_Fr9AJY Pricing Videos

2. MANA 3325 T-Th. Professor Thurburn PRICING Value: 1.A perception of the intrinsic worth. 2.The importance of something. 3.Subjectively Measured

3. 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

4. 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.

5. 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

6. MANA 3325 T-Th. Professor Thurburn PRICING Business Challenges that Drive Pricing Decisions

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. MANA 3325 T-Th. Professor Thurburn PRICING Price Ceiling - What will the market bear? Price Floor - What are the company's costs? Acceptable Price Range ? ? ? ? ? ? ? ? ? ? ? Final Price - What is the company's desired "image?" ? ? ? ? ? ?

15. 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

16. MANA 3325 T-Th. Professor Thurburn PRICING 3 Basic Strategies: Market penetration Skimming Life Cycle Pricing Introducing a New Product

17. 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

18. 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

19. MANA 3325 T-Th. Professor Thurburn PRICING Pricing Techniques… continued 1.Optional-product pricing… Cars 2.Captive product pricing… Printers 3.Byproduct pricing… grease 4.Suggested retail prices… MSRP 5.Follow-the-leader pricing… Airlines

20. MANA 3325 T-Th. Professor Thurburn PRICING Follow the Leader Pricing 1.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.

21. 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 Markup Cost of Unit Example: Percentage (of Retail Price) Markup = $16 $30 = 53.3% Percentage (of Cost) Markup = $16 $14 = 114.3%

22. 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

23. MANA 3325 T-Th. Professor Thurburn PRICING Pricing for Manufacturers Direct costing and pricing Absorption costing Variable or direct costing Breakeven

24. MANA 3325 T-Th. Professor Thurburn PRICING Breakeven Selling Price Quantity Example: = Profit Variable cost per unit produced Total fixed costs + { { x } } + Quantity produced Breakeven Selling Price = $0 6.98/unit 50,000 unit $110,000 + { x } + 50,000 units = $9.18 per unit Pricing for Manufacturers: Breakeven Selling Price

25. 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

26. MANA 3325 T-Th. Professor Thurburn PRICING Staff Markup in Service Fields: Markup Staff Costs 3 x 4 times Bill Client

27. 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.

28. MANA 3325 T-Th. Professor Thurburn PRICING A Typical Credit Card Transaction

29. 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

30. MANA 3325 T-Th. Professor Thurburn PRICING About 0.9% of online credit card transactions are fraudulent. Steps: 1.Use an address verification system 2.Require a CVV2 number 3.Check customers IP addresses 4.Monitor Web site activity with analytics 5.Verify large orders 6.Post notices on Web site that your company uses anti-fraud technology 7.Contact the credit card company or bank that issued the card E-Commerce and Credit Cards