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Pricing strategy
- 1. PRICING STRATEGY HBS reading by Robert J Dolan and John T Gourville Presented by Raj Kattimani
- 2. Agenda What’s pricing and why is it important? The Elements of Pricing Understand Price customization Know the price sensitivity indicators 1 3 2 4
- 3. What is Pricing and why? Determines revenue Relates to Bottom-line Value for money vs. Money on the table Pricingisthefunctionofdeterminingthechargevalueoftheproductafterconsideringthehostoffactorslikecost, competition,economicvalue,functionalvalueandtheperceivedvalue
- 4. Agenda What’s pricing and why is it important? The Elements of Pricing Understand Price customization Know the price sensitivity indicators 1 3 2 4
- 5. Cost-based vs. Value Pricing COGS Price Perceived Value True Economic Value Firm’s incentive Consumer’s incentive Marketing efforts Cost-based Pricing Value Pricing
- 6. What’s True Economic Value? TEV = Cost of next-best alt + Performance differential Why PV is generally less than TEV? Lack of awareness Skepticism Low probability of realization
- 7. Pricing function and marketing High High Low Low Price Mktg exp No/low Unit Sales Feasible (desired) Feasible (not desired) No Unit Contribution
- 8. Agenda What’s pricing and why is it important? The Elements of Pricing Understand Price customization Know the price sensitivity indicators 1 3 2 4
- 9. Price customization Tastes Nature of use Intensity of use Competition Controlling availability of prices Pricing on buyer characteristics Pricing on transaction characteristics Manage Product line offering
- 10. Agenda What’s pricing and why is it important? The Elements of Pricing Understand Price customization Know the price sensitivity indicators 1 3 2 4
- 11. Assessing Price sensitivity Using Managerial judgment ThroughMarket Research Type of data Qualitative Quantitativebut… When to use Genericproduct or You know the product Complement your assessment Methods Spot the sensitivity indicators Customer surveys Experiments Analysisof data
- 12. Price sensitivity Indicators Product Buyer Price $Performance prediction $Mission critical? $Differentiation $Comparability $Knowledge $Comparability $Relative sense $Reference prices $No clue of quality $Bearing cost $Switching easy? $Not motivated by Prestige
- 13. Other factors to consider Relationship bet’n price and demand Price elasticity of demand Understanding the drivers of profitability Breakeven Analysis