1. Strategic Planning And Implementation For Adidas
Executive Summary
In any industry, changing a strategy is a must especially if the company has
difficulty in surviving in the environment. Companies should have the appropriate tools
and procedures that will help them determine whether their strategies are appropriate.
The strategies formulated by businesses will always be under certain issues. These
issues helps a company determine which strategy is the best one for them to consider.
Strategies should not only be based on changes in the local environment. The strategy
of any company is affected by the different changes in the international environment.
Strategies need to be globally competitive and well adjusted to the demands of the
environment for it to be a success. The strategies of businesses differ due to the nature
of the industry they belong in. One industry that has specialized strategy is the sports
product industry. This industry is competitive and ever changing because of the varying
needs of athletes. Companies need to make sure that they have a competitive strategy
that fits the sports product industry. This paper intends to give a strategy for Adidas. It
intends to determine a strategy that fits the environment of Adidas.
Task 1
Strategy is an approach that includes the directed, coordinated work required to
pursue one or more goals, supported by a rationale for selecting the approach to be
taken (De Wit & Meyer 2004). Businesses who engage in sports should target

2. appropriate demographic-psychographic market segments as well as affirm lifestyle and
connote quality and excellence (Gratton & Taylor 2000). The economic viability of any
major sports event is normally crucially dependent on the ability of the event organizers
to raise substantial revenue through sponsorship. Sponsorship is pervasive throughout
sport, not only at the narrow elite part of the sports hierarchy (Gratton & Taylor 2000).
One company that succeeds in marketing sports goods and engaging in sponsorships is
Adidas. This company is a major player in the creation and sale of sports related
equipment. This company has reached a wide territory and popularity. Adidas is part of
the Adidas Group and is one of the most popular and successful manufacturers of
sports apparel. It is a market leader in the industry together with Nike and Reebok.
Adidas’ listed revenue for 2008 was €10.799 billion. This was better than the listed
revenue in 2007 which was €10.299 billion which translates to about US$15.6 billion.
Adidas has different products ranging from running apparel, basketball apparel, and
other sports related apparel. Adidas also has clothing products and other accessories
that fit the different needs of clients in every country or region they operate in. To
institute changes within the firm two options are being considered. One is the creation of
shoes that has lesser price. The other is entry into a newer market through creation of
new products.
Criteria for reviewing the options
In reviewing the options the criteria that would be involved are the cost of the
option, the impact to the company and the extent of change. The option should not cost
much; it should not give additional expenses to the firm. Instead it should make sure

3. that the firm would spend less. The option should make sure that it will create a positive
impact to the firm. The option should make sure that change will create a better status
for the firm and additional clients. The option should not institute change that will
stabilize the overall process of the firm. It may create some changes in production or in
marketing but it cannot initiate a total change to the firm’s operations.
Agreed strategy and resources
The probable strategy for the company is the creation of shoes that has lesser
price. This would reduce the onset of the sale of imitation shoes. If the company could
create a shoe line that has lower price but with the same quality then shoe imitation
would be prevented. In such strategy the firm would be able to attract various types of
clients. It would gain more earnings from the increase in their clientele. The sale of low
priced shoe would give the firm a unique identity and would help in improving the firm’s
status in the local and global market. Moreover the sale of low priced shoe would make
sure that the firm would have a good image with the environment. The probable
constraint would be the expenses of the strategy and the resistance to the change in
strategy. It would create difficulty in recognizing the criteria for potential strategy
options. One resource for the new strategy would be funds. The budget will be used to
pay for the different expenses. Another resource would be the skilled personnel. The
personnel that would be involved in the strategy should be skilled in creating their
products. Moreover a resource for the strategy would be suppliers of the materials for
shoe creation.
Suitable structure to ensure participation in the process

4. A suitable structure to develop the strategy would be one wherein the new
strategy would be slowly integrated to the system. In this structure the decision makers
would determine the departments that will be affected by the new strategy. In this
structure the decision makers would determine how the new strategy would affect the
organization, its image and its status. To make sure that participation in the process,
there would be designations for every member of the company. Each member would be
given a certain responsibility on the production, statistics or marketing of the shoes that
are priced less. Apart from the production team, some members of the organization
would document and supervise the production process. They would ensure that the
shoe product would be priced lesser. Some members of Adidas would focus on getting
statistical data after the product is sold to the public. They will determine and compare
the number of people who bought the low priced shoe over a certain amount of time.
Some members of the company would focus on marketing the product to costless
means. They will be in charge of developing a marketing system that is effective but will
not create additional costs.
Task 2
Value
Values include the things that the firm gives high priority. This can either be the
firm’s service, relationship with the environment or the attainment of goals. The
company’s values service to clients and relationship with the environment. Through the
low priced shoes company wants to make sure that proper service is given to clients

5. and they maintain a good reputation in society. The customer is being valued much by
the firm that is why they intend to sell low priced shoes.
Vision and mission statement
Vision is what a firm foresees to happen in the future. The mission statement is
what a firm is willing to do so that it can achieve its vision. Adidas’ vision is to introduce
a newer trend in the shoe making industry by producing low priced shoes. The
company’s mission statement is to determine means to reduce the cost of shoe making
to produce a shoe that will be low priced. The company targets the release of low
priced shoe within the year.
Strategic Objectives
Strategic objectives are what the company does to achieve its mission. The
strategic objectives of the firm in its goal to create low priced shoe include competing
well with rivals, establishing a good relationship with society, providing the best products
and making use of responsible marketing strategies. To determine other strategies that
can be used in the creation of low priced shoes, the company will use Pestle analysis to
understand the environment.
PESTLE Analysis
Political
Adidas is not affected by the political events in their different markets all over the
world. The company has its own political ideas but prefers to keep it to themselves.

6. Adidas makes sure that whenever there is a scenario where political turmoil is involved
they refuse to participate and be part of the scenario. Ever since, Adidas refuses to
participate in partisan politics and politics that will ruin the relationship of people in a
country. Adidas knows that political scuffle is not good for business. The local political
scenario in the UK is stable and free from too much political noise. The political
environment has allowed the liberation of the market, liberation of the market paved the
way for improvement of services.
Economic
Adidas can be said to be economically stable for the past years. Adidas have
acquired good profits due to their products that are of high quality and the ambiance of
the different branches they have. Adidas have made sure that their liabilities have not
overcome their profits. The company makes sure that there is a balance in their
financial statements. The economy of a country affects the decision made by Adidas.
Any change in the financial status of a country forces a change in the pricing and/or
marketing strategy. The economic forces can dictate the actions of Adidas and its
branches, if the economy is doing well of Adidas and its branches can offer new
services but if the economy is in a worse state then of Adidas and its branches have to
reduce unnecessary expenditures and un important actions. The UK market has made
sure that Adidas will have the profits that it desires. This market features clients who
would buy their products for sporting or non sporting purposes. The clients in the UK
have considerable income to spend on the country’s products.

7. Social
The society plays a big part in the success of Adidas. The society is the clients of
the company and they are the ones that the company wants to serve and provide the
best products. Adidas and its branches have made sure that they adhere to the
traditions and culture of the people in the places they operate in. Adidas tries to
research for any tradition or belief that might cause any problems with people. Adidas
tries its best to be sensitive to the culture, ideals and identity of the country they operate
in. Adidas make sure that all personnel know and fully understand the culture of a
country they operate in. Adidas instills in the mind of the personnel that the culture of
the people should be respected and given outmost consideration before making any
actions.
Technological
For Adidas technology is an important factor in making decision. Technology is
what is used by the company to create, store and deliver its products. Technology has
proven its worth to the company and it will continue to help the company survive
competition and the changing market scenario. Technology helped in making sure that
the firm’s business processes will be up to date and prepared for any change. Adidas
and its subsidiaries uses highly advanced and better performing manufacturing
production systems. Adidas, its branches and its subsidiaries introduced an online

8. purchase system wherein people can just go and log on to the internet, find Adidas’
website and then purchase a shoe or any sports related product that they like. Adidas
also makes use of the best kind of security systems to their production, storage and
online facilities. The production and storage facilities have cameras in its vital parts to
protect the personnel from criminal activities. It also has secure method of
communication for the delivery and storage of products. Adidas and its subsidiaries
relies on its kind of service and the products created by the technological forces; the
products of these forces are the ones that can give Adidas, its branches and its
subsidiaries advantage over their rivals and success in the sports product industry.
Legal
The laws of most countries they have operated in have not been a hindrance to
the growth of Adidas. Laws make sure that a company does not step beyond the
boundaries. The laws of a state make sure that foreign firms like Adidas will not have
unfair advantage against local shoe making businesses. The laws of the state have
provided the much needed help in the achievement of Adidas goals. Adidas and other
shoe manufacturing companies make sure that they allow the law of the country to
govern them and impose taxes and duties. The company makes sure that they pay the
right amount of taxes as they engage business in a country. Adidas makes sure that
they pay the proper duties whenever they let a product or a material for a product come
to a certain country. Adidas don’t want to risk their client’s welfare and the industry’s
image by breaking local and international laws. It is part of their social responsibility to

9. make sure that they keep the client’s safe. Through the laws imposed by countries, the
use of dangerous substances is prevented and the clients are protected.
Environmental
Adidas engages in charitable activities, community involvement at its different
branches and personnel involvement. Adidas has given some contributions to various
charities all over the world. Through the various charitable institutions, the company
reaches out to the marginalized sectors of society. Adidas made sure that it involves
itself in activities that will benefit the community. Adidas engages in fund raising drives
and other activities that will reduce the problems of the people in their environment.
Adidas instills in the mind of the personnel the importance of the environment; the
company provides seminars and trainings that will make sure that the personnel
understand the importance of the environment and what should be done to protect it.
The personnel are instructed to make sure that they practice sustainability and make
sure that they don’t waste materials. Adidas makes sure that their materials have been
well tested for any substances that will be dangerous to the environment. The company
makes sure that the materials will not be toxic to humans and pets. Moreover Adidas
follows the environment codes and laws set by the local government. Adidas makes
sure that the sanitation laws will be implemented and given appropriate attention.
Task 3

10. Time sheet
The initial part of implementing the strategy will last for 1 to 2 weeks. In this part
the goal is to gather information that will be used in the implementation of the strategy.
Among the information that will be needed is the financial capability of the firm, the
probable effect of the strategy and how the market would react to such strategy. The
second part of implementation will take one week. In this part the strategy has been
planned. The manufacturing, sales and other departments that will be affected will be

11. notified of the change in strategy. The second part of implementation focus on making
sure that the new strategy will not create any more problems. The third part of the
implementation will last in 2 to 3 months and it will focus on the full use of the strategy.
In this part the low priced shoe has been made and will be sold in the market. In this
part the company will introduce the low priced shoe to the different markets. In this part
the company will set up a recommended price of the shoe. During this time the
company lists the effect of the strategy and the current changes that happened. The last
part of the implementation will occur within 1 to 2 weeks. In this part the strategy’s
problem, has been seen and the company has tried means to control such problem. In
this part the strategy will be evaluated and its effect to the company is fully realized.
Feedback system
The feedback system will focus on the use of technology for the employees and
clients to air their ideas about the new strategy. In this system the company will put up a
part in the website that will allow clients and even the personnel to comment on the new
strategy. The clients are expected to comment on how they like the strategy and how
did the strategy change their perspective on the organization. The employees are
expected to give their ideas on the effects of the product and their observations on how
the strategy impacted the local market.
Evaluate the effectiveness of the strategy

12. Through comparison with past figures, the company will evaluate how the
strategy affected the firm. Comparison of the past figures and status of the firm after
strategy implementation would help in determining what has changed and what were
the errors of the strategy. It will give more than one point of view in analyzing how the
strategy changed the firm. The feedback would also give assistance in evaluating the
strategy. It will provide alternative sources of information.
Dissemination process to gain commitment
The management would use emails and notices to inform the personnel about
the planned change. The management would explain why there is a need for low priced
shoes and how would the low priced shoes affect the firm. The management would also
explain the probable benefits of the low priced shoes. The management would then post
on their website the planned creation of low priced shoes. This would inform clients
about the product line being developed by the firm. The management would then
provide notices to shareholders to inform them about the new product line. It is just right
for the company to inform their shareholders about the changes that should be done.
Conclusion
Having a low priced product is a beneficial endeavor for a company. It will make
sure that the firm like Adidas would have additional income and it would make sure that

13. the firm would have a better image. Implementing a new strategy would help Adidas
reach its vision, mission and objectives. The implementation of a new strategy such as
low priced shoes would require a time period to accomplish and the use of systems to
make it effective.
Nokia
How do you best determine the price to charge customers?
Do you look at the competition and price the same as they do? Undercut them a little? What
happens if you do undercut them, then the customer still demands further discounts?
Pricing can be difficult to get right. We don’t know exactly how much the other party is prepared
to pay, but we need customers in order to sustain and grow our businesses. So how do we ensure
money is not left on the table, yet we still make the sale?
This guide looks at a few fundamental pricing techniques, ideas and strategies. We'll look at how
to avoid getting caught in the “race to the bottom” scenario of endless price cutting.

14. Market Price
Many people believe that when the buyer and seller agree on a price, then the market has arrived
at the optimal price.
This is not strictly true.
What it means is the buyer and seller agreed on a price at a point in time. The seller might be
desperate to land the next deal simply to make payroll for one more month. He almost feels sick
when he accepted such a low offer, but he’ll worry about the fact he’s running into the red next
month. Things will be better by then. Hopefully.
Meanwhile, the buyer now has an expectation she can always get discounts if she pushes hard
enough. She makes a note to go even harder on price next month. After all, she got the distinct
impression the seller had even more room to move.
Getting pricing right is about more than two parties agreeing on a price at a point in time. Pricing
is also strategic. Pricing is about the long-term sustainability of a company.
But ultimately, pricing is about value.
What Do Your Customers Value?
Business is about providing and creating value.
You provide a valuable service or product the buyer can’t provide themselves. They then use
your product or service, from which they derive, or add, value, and on-sell that value to their
customers.
In order to set appropriate prices, you need to understand what your customers value.
How does one restaurant charge more than another in the same area? Why is that one restaurant
always packed? It’s probably because they understand what people value. It might be the type of
food they serve, or how they serve it, or they have a great view of the sea. Perhaps they do all
three well. Their competitors do not.
They probably couldn’t charge what they do if they were two blocks back and overlooked a
parking lot. The restaurant that is two blocks back with a view of the parking lot better figure out
something else customers will value, or they are out of business.
The first step in determining pricing is to find out what your customers value, then adjust your
service, where necessary, to provide that value. In this way, pricing can be seen as intrinsically
linked to your positioning strategy. Perhaps customers value a free and easy returns policy
(convenience) over price. Perhaps they want individual items packaged together (individual
commodity tools packaged together in a stylish box becomes a toolbox gift idea). Perhaps they
didn’t want to buy a handbag at all, they just wanted to rent one (bagborroworsteal.com).

15. The aim of value based pricing is to shift the focus from price to questions of value.
Move To Value Based Pricing
Value based pricing means pricing based on the value you deliver to a customer.
You figure out the value of your product to to the customer, then take a slice of that value to
arrive at your price. Your production cost might be $10 per unit, but if each unit provides $1000
worth of value to your customer, then $500 might be a fair price to charge.
In order to price based on value, you need to understand exactly what your customer values and
your point of differentiation to your competitors. Your value proposition combined with your
price point must be differentiated. After all, it would be difficult to price at $500 if your
competitors were pricing at $300, and both provide the same value to the customer.
The Problem With Cost-Plus Pricing
Cost-plus pricing is when you figure out your total costs, then add a percentage, which is your
profit.
It may cost you $X to produce and sell a service and make a profit, but if buyers don’t value
what you offer, then your price will always be too high. Also, if you use cost-plus pricing and
your customer derives considerable value from what you offer, then the customer may love you,
but you’re leaving a lot of money on the table. You could be making more profit and using that
to invest in your business.
Commodity
But what if you’re selling the same stuff as everyone else?
The internet can be a hostile place for commodity sellers as price comparisons are only a click
away. This type of environment works well for big players who can compete on price when
selling commodity items, yet still make money off thin margins and fat volume.
Low-volume competitors would be wise to consider a shift of focus to value-added services,
such as higher service levels, if they can’t compete on price.
Best Interests Of The Customer
It might be in the best interests of your customer to pay higher prices if this means the value they
seek can be reliably delivered on an on-going basis. If an industry is run into the ground due to
price cutting, then where will the customers get the services they really do value in future?
Part of the process of getting pricing right is customer education i.e. ensure they can see the
value. Demonstrate what is involved in arriving at your price points. For example, who pays $70
for an ipad cover when you can get them for $10?

16. People do if it’s a DODOcase.
DODOcase demonstrate what goes into producing their cases. They’re selling the experience and
craft values as much as they are selling the product itself, so this is also a way to differentiate the
product. Their customers value the idea of supporting artisan crafts, which is part of the value
they’re paying for, but this wouldn’t be obvious if their customers were comparing one case
against another on price alone. DodoCase have shifted the debate away from price and made it
about value. Well, values.
So, customers like to see what goes into the product. It helps them determine value.
Transparency is a big part of pricing, particularly high-end pricing. To be credible and survive
scrutiny, high end pricing has to to be accountable and make sense.
Knowing what price to set is knowing what the customer values, or can be made to see value
where previously they saw none. Always ask questions and refine your offer based on the
answers. Do you need to change how you present your existing offers in order to demonstrate
value? Do you need to change your offerings to meet the market?
Pricing Strategies
Let’s look at three of the most common pricing strategies.
Skim Pricing
Skim pricing is when you set a higher price than your competitors.
In order to set pricing in this way, your customers need to perceive that your offer provides them
with greater benefits than they will find elsewhere. Apple use skim pricing.
Customers perceive that Apple products are superior to the competitors, so it is therefore worth
paying a premium. Whether this is objectively true or not is irrelevant - so long as the customers
perceive that value, then it exists. This justifies the higher price. It could be argued the customer
also gains social value by paying a high price, as they have something exclusive.
In order to skim price, you need to offer something the customer can’t easily get elsewhere. The
customer must place a high value upon your service.
Consultants with proven reputations can use skim pricing, although maintaining a reputation
over and above everyone else in crowded, maturing markets can be difficult. Where there are
high margins, competitors will soon enter the space offering similar value.
The benefit of skim pricing is that you get to pick off the price-insensitive top-of-the-market
clients. Who wouldn’t want this situation?
The downside is that other competitors can move into the price gap, slightly beneath the skim
level, then bump up the value they offer in order to challenge the skim price competitor. They

17. may create greater efficiencies, which means their profit margins are the same, if not higher. The
value proposition to the customer remains strong, yet they undercut the leader on price.
It is only so long before the leader is forced to drop prices, refine their value proposition, or
collapse. Skim market pricing can lead to a rapid erosion of market share if the leader does not
stay well ahead of the market in terms of providing value. This happened to Apple in the 1980’s,
and we might be seeing this again on tablet devices.
Analysts expressed concerns that Apple risked losing ground to Nokia smartphones in China,
while failing to keep pace with Google in the tablets market.....Traders were also spooked by a
report from research firm IDC forecasting that Apple’s share of the tablet market will slip to
53.8pc this year from 56.3pc in 2011, while Google’s share will increase to 42.7pc from 39.8pc.
It added that Apple’s tablet share will slip below 50pc by 2016, as total global tablet sales more
than double to nearly 283m units in four years as consumers increasingly opt for them rather than
personal computers
Apple could skim price when they were early to market with a product no one else had i.e.
iphones and iPads. However, as competitors catch up, and make similar products at lower prices,
then Apple’s current pricing strategy may hit problems. Apple get around this, to some extent, by
using versioning.
Neutral Pricing
Neutral pricing is when you set your pricing at a comparable level to your competitors.
You’d use this pricing method if you want customers to consider other aspects, besides price,
when they contemplate a purchase i.e. they can get SEO software tools from company X, but
compay Y offers the same tools but with extra support. Neither company wants to engage in a
price war, so they will keep layering on more value in order to make their offer more compelling.
If these companies started cutting prices in order to compete, then they’ve got a “race to the
bottom” problem. If customers don’t want to pay for the services they provide, that’s fine, but
the customer is unlikely to get them somewhere else, so long as these services cost a certain
amount to provide. In so doing, this market sector retains value for all players, so long as they
deliver genuine value to customers.
This is an especially good pricing model to use if you want your customers to focus on the
features of the offer. If you offer more features for the same price, you will likely win.
Penetration Pricing
Penetration pricing is when you set a relatively low initial entry price, hoping people will switch
from a higher priced vendor.
Companies looking to gain market share tend to use penetration pricing. Penetration pricing has
been a popular pricing model for internet companies, reasoning if they build the audience, they’ll

18. figure out how to make money later. So long as customers place some value on the service, then
the company should build their customer base quickly.
There are obvious problems with acquiring customers on a low-price basis. The customers you
land are price-sensitive and will likely become non-customers the minute someone else lowers
their price, or you increase your price.
You’re still vulnerable to competitors who offer something better, who are more efficient, or
have more venture capital to blow through. Even if you set a low price, they can still undercut
you.
There’s More To Price Than Price
Some buyers accept that buying on price alone may be a poor strategy.
In the example I gave earlier, the buyer is screwing down the vulnerable vendor to the point
where he may go out of business. Let’s say she derives significant value from his company that
she can’t readily get somewhere else. Perhaps he’s been a supplier to the firm at which she works
for a few years and he really knows their systems. Any new supplier will have to spend time
coming up to speed, and this could affect the productivity of our buyer.
The buyer likely has a switching cost.
As a seller, he should have made more effort to understand his value to the buyer, and be able to
articulate it in such a way that she saw it, too. A buyer who understands long-term value is less
likely to focus exclusively on price. It is to their advantage to nurture the relationship for mutual
benefit.
Many buyers crave highly functional partnerships with vendors. If a search marketing vendor
invests significant effort to add value to the company to which they supply services, then it is
less likely they’ll be replaced on price alone. The longer the vendor works with the company,
and the more success they bring to that company, the less likely they are to be replaced.
Sometimes, these customers will still try to play you. They will try to get a lower price. They
know they need what you’ve got, they’re happy with the relationship, but they still want to see if
they can get you to move on price. They may say they are reviewing arrangements. They may
put you up against other suppliers in the form of a, RFP. Some of those suppliers will bid low
amounts, which the buyer will then put pressure on you to match.
The way to counter this is to know your value relative to the competition. You can always match
with a lower price, just so long as the customer accepts that you will be reducing your features to
match those on offer from your competitors. The buyer will either go for it it, meaning price
really was an issue, or accept your higher price, meaning value was the main issue. More on this
shortly.

19. You must also understand your bottom line and stick to it. Some customers simply aren’t worth
having. If you land them, and make little money or even a loss, with hopes you’ll raise prices
later - what happens? The minute you raise prices they go back out to tender again. They’ll just
find another low-priced bid.
This is what happens to vendors who can’t differentiate on value.
Make Your Offering More Flexible
If we don’t offer what the market values, then pricing strategies won’t help much.
Businesses must innovate in order to capture new markets and meet demand. Create new
products and services. Relying on price increases alone to drive growth is unlikely to work
unless people can’t get what you offer anywhere else, and what you’re offering remains in high
demand.
One solution is to provide multiple products or service levels. If some buyers are genuinely price
oriented, that’s fine, but they get the lower service level. Contrary to popular opinion, most
buyers are actually value oriented, and will choose higher value services, so long as they
perceive genuine value, or can be shown that by using you then profitability will be increased.
The "Choice Of Three" Strategy
One price methodology involves creating three levels. One low priced offer, one mid priced
offer, and one high priced offer. Many buyers, when faced with the “choice of three” will pick
the middle offer.
Appliance stores often price this way. They’ll stock two or three very high end, expensive
refrigerators. They’ll also stock some basic, cheap refrigerators. Most customers will use those
two points as price guides, and buy somewhere in the middle. If the store didn’t carry the high
end refrigerators for the purposes of comparison, then the mid-range refrigerators become the
highest price offering, and people’s price expectations will adjust - downwards - accordingly.
The middle is seen as the “sensible” choice.
So, try pricing your top level offering at skim pricing levels. Include all the bells-and-whistles.
Most people won’t pay this price, but between this and the lowest price offer, it helps set buyer
expectations. The middle bundle is actually your full price offering, possibly neutrally priced vs
competitors, but buyers may see it as the sensible middle ground compromise. Funnily enough,
you’ll be surprised at how many people still go for the bells-and-whistle option!
Getting Differentiation Right
Differentiation between bundles (product or service levels) also helps you identify price buyers
and value buyers. For this to work, you need to create clear and logical demarcation between
offerings, otherwise customers may try to pay the low price, but get you to include high price
features.

20. In service businesses, one way of preventing a customer from trying to get the expensive bundle
for the low-cost price is to be transparent about your pricing. Yes, they can have the extras, but
they involve X more hours. How many of those hours do they wish to purchase? This is
transparent. It makes logical sense. There is no arguing with this position, as everyone
understands that time is money.
However you do it, ensure that the transition between price points makes sense. The transition
can’t appear arbitrary. The more expensive bundle is more expensive because it has more input
costs, demonstrably delivers more value, or both.
Companies who get this wrong typically create arbitrary price settings between bundles. There
isn’t a lot of distinction in terms of value between the jumps, or the core offering is not included
at the low level.
Companies typically put their core offerings in every package, and add “nice-to-have” features at
higher price levels. All customers will want the core offering. Price sensitive customers will
settle for the core offering and nothing else. Value customers will likely add the nice-to-haves so
long as these extras provide the value they seek.
Once a customer is on board at the low-value level, then they may wish to add extras later, once
value has been demonstrated. Many software-as-a-service companies use this pricing strategy.
The core product, if it is commodity, is often free. This hooks you into using it, but doesn’t cost
the company much to deliver. It’s a loss leader sales-tool.
If you want to use it more - say, add more people or use advanced features - then you move up
the scale to higher price points. It’s very difficult for competitors to compete with this strategy,
because the core offering is free and the switching cost, whilst possibly not high, still exists. In
order to compete, competitors must offer better services or more features, and probably lower
prices. This is also the reason the first-mover needs to constantly innovate i.e. add and enhance
services in order to stay ahead of the game.
One way to make the middle tier offering even more compelling is to load it with features vs the
entry-price option.
The low price offering provides the core product and nothing else. The mid-priced offering,
however, is packed full of features. The buyer may not even use many of the features, but they
reason that there appears to be a lot more value at that level than the entry level, so opt for the
higher price. This is most effective when the low-price option and mid-price option are
reasonably close. You often see this approach used with “but wait, there’s more!” offers. They
keep loading on the features, so the buyer perceives more and more value.
Pricing Strategies For Software & Information Products
The very first copy of a Windows release costs billions. The customer pays around $40 for that
first copy.

21. Most of the costs in software development and information products are upfront, but the
advantage of these types of businesses is that the cost of producing each additional copy is
marginal. Microsoft can produce many millions of copies for a few cents each. How does a
software business, or information product, go about pricing a product?
Typically, these companies set a low price in order to build momentum, thus adopting a
penetration approach. Once the user is hooked in, they then add additional higher value services
on top. A good example of this type of strategy is used by the likes of WordPress and
Silverstripe. The core product is free, but if customers want enterprise hosting, support of custom
development, then they pay a fee.
Negotiating
It can be pretty difficult to stick to your guns, especially if you really need the business.
However, pricing is really a question of value. So long as you’re certain you provide the
customer with value they can’t get elsewhere, then you’re in a strong negotiating position.
Know what the customer values. If the customer values the same things from another competitor,
and you can provide no added value, then you are vulnerable on price. However, if you can
identify something you have the buyer values over the others, then that is your trump card.
You demonstrate your value to the customer. If the customer still refuses to see it, and still
screws you down on price, then you can play your trump card. Sure, they can have the lower
price, but they can’t have the high value aspects of your service. They can have the basic core
service. You could still make the sale, but you should remove valuable features.
For example, service level agreements tend to be structured at various levels and price points. If
the customer wants immediate attention 24/7, then they pay top dollar. If they don’t care about
receiving immediate attention, that’s fine - they pay the lower price. Give the customer options,
demarcated by obvious value, and they can decide for themselves. If you know they really need
high value service X, and can’t get it from somewhere else, then you’ll force them to buy on
value and drop their low price demand.
As customers, we value sellers differently, unless we’re buying pure commodity. Yet your
customers might try to convey the idea that sellers are all the same to them, it’s only about price.
It seldom is. Find out what they value most.
Be Flexible
If your primary purpose is to gain exposure in a market, it will be useful to acquire customers
who can help spread your message. I know of one SEO service provider who started out by
providing five large companies free search marketing services for a year simply so the SEO
service provider could be associated with those companies, thereby gaining credibility in the

22. market as a “leading supplier”. They then skim priced for 2-nd tier companies, which were their
real targets. The twist here is that the seller places a value on the buyer.
Pricing changes can depend on where in the product life-cycle you are, and what your
competitors are doing. If you are the market leader, and using skim pricing, but you competitors
overtake you, and offer more value, then it might be time to rethink your pricing. A shift to
neutral pricing might be in order, as well as a revision of the offer to match competitors.
If new entrants move into the market and offer low prices, then adopting a penetration strategy
might be useful in order to get rid of them i.e. make part of your offering low cost or free. This is
a strategy that has been used by airlines facing threats from low-cost competitors. They start up
their own subsidiaries and use these to starve the competitors out of the market as a rear-guard
pricing strategy.
Know Your Relative Value
Ensure you’re differentiated. List all the products, services and activities you offer. Make a note
of what your value is to the customer next to each product or service.
Next, identify your competitors. Identify those who are similar, those who are better and those
who are worse. Evaluate their offerings. What are their value propositions? If you can, find out
their price points. Where would a customer see value in their offering?
List your offerings in terms of value i.e. High value, medium, and low value. Then grade the
level of differentiation when compared with your competitors. i.e. high differentiated, similar, or
weaker. Anything high value and differentiated can likely be skim priced, anything similar can
be neutrally priced, and anything low consider penetration pricing, or dropping.
Review your margins. Is it even worth offering low priced services? Should you be focusing on
delivering more features at a higher pricing level? Should you be moving to a highly
differentiated offering? Only you know the answer to these questions, but it's a quick strategic
pricing assessment well worth doing.
But what, after all is said and done, the customer still wants a lower price?
Fire Customers
But what if the customer still wants to pay the lowest price, even after you’ve made certain they
value what you provide?
Some customers simply aren’t profitable. What is worse, they take up your time, meaning you’ve
got less time to dedicate to your profitable customers.
So cut them loose.