How to successfully price your new product or service

1. Pricing

2. Todays objectives
• To gain an understanding of why price is important to your business
• To gain an understanding of how price affects your business
• To learn the difference between price and value
• A knowledge of the three different methods of pricing a product or service
• An understanding of how to use full cost pricing for your product based business
• To learn how to look at different competitors to price your product or service
• To learn how to use negotiation skills when discussing price
• A knowledge of some useful tips and tactics for the before, during and after phases
of a negotiation.

3. Price is a key marketing tool
• It is the odd one out in the marketing mix
• It’s a revenue earner rather than a cost
• Setting prices is therefore an essential skill
• Too higher price might lead to lost sales
• Too lower price losing margin
• Price however should not be set in isolation
• It should be set with other aspects of the marketing mix to achieve overall
superior customer value.

4. Cost and value
• Knowing the difference between cost and value is important
• The cost of your product or service is the amount you spend to produce or
deliver it
• The price is your financial reward for providing the product or service
• The value is what your customers believe the product or service is worth.

5. Creating value

6. Price and quality relationship
Price often sends quality cues to customers
High
High
Low
Low Price
Quality

7. Price and quality relationship
High
High
Low
Low Price
Quality
Aldi
Asda
Tesco
Sainsbury
M&S
Waitrose

8. How have you or how
could you set the prices
for your products /
services?

9. How do we price?
Pricing
methods
Cost
MarketingCompetition

10. Cost orientated pricing
Cost Orientated Pricing
• Full cost pricing
• A way of including all the costs that
are directly and indirectly
associated with the product or
service
• Increase cost with decreasing
sales
• Sales are estimated before a price
is set
• Focuses on internal costs rather
than customers and customer
value
• It does however give an indication
to the minimum cost to make a
profit.
Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
Year 2
Expected sales 50,000
Cost per unit
Direct costs £2
Fixed costs £4
Full costs £6
Mark up 10%
Price plus profit £6.60

11. Competitor orientated pricing
• Focus on the competitor rather than the costs
• Going rate pricing
• In situations where there is little product differentiation a producer may
have to look at going rate pricing.
• Goes against traditional marketing theory which seeks to deploy differential
advantage, such as delivery time, after sales service and price accordingly.

12. Identifying competition
Who are they?
What do they sell?
Where do they sell it?
How do they sell it?
When do they sell it?
How are YOU different?
You
Who
What
WhereWhen
How

13. Identifying competition
• Who offers the same products or services and delivers them in exactly the same
way as you propose to do? (direct competition)
• Who offers similar products or services as you but delivers them in a different way?
(indirect competition)
• Who offers slightly different products or services as you but delivers them in the
same way? (indirect competition)

14. Competitors - incumbents
Can you identify existing competitors?
• Who are your competitors?
• Who are the dominant players in your sector?
• What are their advantages or disadvantages?
• Describe their main offers?
• Which customers do they focus on?
• What is their cost structure

15. Competitors – new entrants
Identifies new insurgent players and determines whether
they compete with a business model different from yours
• Who are the new entrants in your market?
• How are they different
• What competitive advantages or disadvantages do they have?
• Which barriers must they overcome?
• Which customers do they focus on?
• What is their cost structure?

16. Competitors - substitutes
Describes potential substitutes for your offers – including
those from other markets and industries
• Which products or services could replace yours?
• How much do they cost compared to yours?
• How easy is it for customers to switch to these substitutes?

17. Factor Competitor 1 Competitor 2 Competitor 3 Competitor 4 Your business Your customers
Quality
Range
Price
Reliability
Expertise
Reputation
Location
Service
Brand Image
Competitor benchmarking

18. Pricing tip
Complicated price
points and conditional
discounts lead to
consumer confusion,
anger and loss of
business.
If a prospect cannot
understand your pricing
they will likely walk
away.
Be simple and clear

19. • Technology allows for
• Dynamic pricing
• Easier and closely monitored promotional pricing campaigns
• Orange Wednesday, Pizza Express
• Loyalty cards / loyalty bonus
• Contactless payments / mobile payments
• Non technology based
• For example
• Promotional pricing
• Boots 3 for 2, Waterstones
• Psychological pricing
• Referral bonuses
• Subscriptions
Innovation in pricing

20. No matter what pricing tactic you use you are establishing your basis of value to the
customer and your competitors.
The customer has to see the relative value of the product or service and the price
needs to match that relative value.
You therefore need to make sure you are not charging too much or indeed not
charging too little

21. Negotiating margins
• In some instances customers expect a price reduction
• Price paid is therefore very different from list price
• The difference can be accounted for by
• Order size
• Competitive discount
• Fast payment discount
• Promotional allowances
• Many organisations therefore build in a negotiating margin.

22. What is negotiation?
Simply put...
• the process of getting what you want from another person.
The truth is we negotiate every day, everyone in their every day
lives is a negotiator.
• Children negotiate with their parents for things they want
• Spouses negotiate with each other over things they should buy or do this
weekend e.g. go to the funeral, the wedding or take the children to their friend’s
party?
• Subordinates negotiate with their bosses over deadlines
• Workers negotiate with their clients over services they can offer them.

23. Before negotiation begins...
• Avoid negotiating unless you have had
an opportunity to fully present your
products and services
• Understand the objections raised by
your prospect and identify what your
prospect or customer’s main points of
interest may be based on these
objections
• Be prepared to illustrate how your
offering will benefit them and quantify
the value they will get (if possible).
• Be prepared to be patient (which can lead
to higher trust between you and your
prospect)
• Be confident in the value your product or
service will provide your prospect
• Be prepared to work toward a solution that
works for both you and your prospect
• Know in advance at what point the
negotiation is no longer beneficial to you
and your organisation and be prepared to
walk away.

24. During negotiation...
• Use open ended questions to confirm
your understanding of their needs
• Be prepared for tactical responses
from prospects and customers – such
as exclamations after you explain the
terms of your service (eh, aba! etc) or
silence – don’t react and instead
respond with more questions
• Don’t rush to fill pauses with more talk
– be comfortable with moments of
silence.
• Listen
• Be prepared to make slight adjustments
for your prospect if possible e.g. Adjust the
product/service offering, loan payment
terms etc.
• Try to identify small things you have both
agreed on to help develop positive
momentum – summarize these
agreements periodically.

25. After the negotiation...
If you are able to make a sale…
• Summarize verbally and/or in
writing the details of what you and
the customer have agreed on as
the terms of the service
• Thank the customer/ prospect for
their time and reinforce the
purchase decision
• For your next negotiation, review
the points that seemed to help
move the negotiation process
forward – study them, know them,
use them.
• If you did not make a sale…
• Sincerely thank the prospect for their
time
• Avoid appearing annoyed or
disappointed
• Give the prospect an “out” or an
opening for them to come back to
you/your organisation in the future
(have this statement prepared)
• For your next negotiation, review the
points that seemed to prevent the
negotiation process from moving
forward – study them, know them, and
act accordingly.

26. Common mistakes to be avoided in negotiation
• Inadequate preparation
• Use of intimidating behavior
• Impatience
• Loss of temper
• Talking too much, listening too little, and remaining indifferent to body language.
• Arguing instead of influencing.

27. Summary
• Getting the price right for your products or services is key to your business success
• Price is all about creating value for your customers
• For products start with full cost pricing to provide you with a bear minimum you can sell at.
• Then compare this with your competitors price and what the market is likely to accept
• For services – do your research find out what competitors charge and ask customers what
their budgets may be
• Planning before a negotiation process starts is important to success
• Try not to consider the process as win / lose try and find wins for both parties
• After every negotiation reflect on the experience and try and understand what you can
improve on next time