2. Results of a Price Raise  Good: Larger profit Hire more employees Buy new Equipment Work Less (owner)  Bad: Alienate longtime customers Close the store

3. How Prices are currently set  Entrepreneurs respond: “we go by our gut” ○ Result: Price is low Cost + (%) margin of profit ○ Which is great! However, if you set 20% but could make 40% you LOSE! Competitors price – (%) = Price ○ Good: if product is identical ○ Bad: if competitors do not know how to price correctly

4. Correct way to price  Smart Pricing consist: Costs Competitors Customers Sales people  The Value of a product or service How much would a rational consumer be willing to pay for your product

5. Value  Objective The most that you could rationally charge for a product  Perceived What person is willing to spend  Gap between value of product and perceived value

6. Willing to Pay  Calculator Study Travel 20 minutes to save $5  Jacket Study $125  People are irrational in purchase decisions

7. Setting Prices  Reference price Shop your competitors  Cenedella’s price $50/month to $25/month Far from satisfied  Sam Calagione, President of Dogfish Head Craft Brewery Sam Calagione, President of Dogfish Head Craft Brewery Uses fine wine as reference price Purposely doesn’t meet demand to create demand Aligned prices with objective value

8. Selling Your Price  Fire Eye raised prices by 25% Sold the increase to his clients  Henk Keukenkamp, CEO of Scope Product similar to Microsoft Customers urged him to raise prices Started at $795 per user per year now at $2,295

9. Back Door Price Hike’s  Eliminating discounts Eliminating 2% discount within 30 day payment is easier than raising prices 2%  Start charging add on services that are free  Reduce amount of product but keep price Dogfish Head sells 4 pack instead of 6 pack

10. Questions  How do you guys perceive value in products? Use reference prices?  How much farther are you willing to travel for a product that’s cheaper?  If you were a business would you tell your supplier to rise their prices?