The ten things you must consider before pricing your products and services.

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10 Principles of Pricing

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#1 Pricing has Broad Strategic Impact
Business Model
• Financials
• Volume
Portfolio Strategy
• Product Focus
• Growth Objectives
Differentiation
• Leadership
• Innovation
Brand
• Positioning
• Customer Targets
Customer

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#2 Look for a Win-Win
Changes in pricing structures and approaches can be a win
for consumers and a win for your company.
Walmart gave a $75 gift
certificate with a holiday
iPad purchase (side-
stepping Apple’s pricing
restrictions). Price-
sensitive consumers saw
it as a rare $75 iPad
discount. Walmart got
repeat visits plus the
efficiency of slippage
common to gift cards.

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#3 Find the Right Pressure Points
Every company should know the competitive pressure points
for its products.
However, it’s a risk to cater to these exclusively and make
up the margin elsewhere with “bad profits.”
The airline industry has
gotten very sophisticated
at competitive fare
pricing. But now profits
come from fees
(baggage, seats, snacks,
cancellations, etc.) that
sour customers and
create competitive
vulnerabilities.

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#4 Pricing is Branding
Pricing is one of the most impactful touchpoints that
establish what your brand stands for in the hearts and minds
of your customers.
Customers often perceive price as an indicator of quality.
While other airlines
increase ancillary fees,
Southwest uses its
pricing simplicity to
establish its brand. It
contrasts itself as the
good guy with pricing
integrity vs. fee-grubbing
competitors.

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#5 Technology Can Change Everything
Technology can often provide significant benefits to
customers and open up new opportunities for companies to
differentiate.
Snapshot Pricing from
Progressive Insurance
places a monitor in the
car and offers pricing
based on driving habits.
This is a benefit to good
drivers and also provides
valuable data (and
profitable segmentation)
to Progressive.

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#6 E-Commerce is the new Baseline
Web-based ordering/pricing offers substantial benefits to the
customer (convenience, better information) and the
company (lower costs, bundling opportunities, etc.).
Companies like
Salesforce.com steer
small businesses to
online purchases. This
necessitates different
pricing structures and
information pathways. It
also opens new sales
opportunities. Live
support is a phone call
away.

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#7 Take a Long-Term Perspective
Price increases always pay out in the short term. That
doesn’t mean they’re right. Price reductions never pay out
in the short term. That doesn’t mean their wrong.
Pricing needs to be viewed as a mission-critical long-term
strategy and approached with caution and discipline.
The math for pricing
demand curves is
straightforward. With
sufficient data, it’s not hard
to theoretically maximize
profits. But we should
always view our decisions
in light of a long-term
competitive strategy.

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#8 Prices Should Make Sense
Your pricing should have an inherent logic that the customer
can readily understand.
Generally, the simpler
the better. Starbucks is
a good example. The
bigger the size, the more
it costs. Contrast this to
airfare pricing, which is
often ineffable. (One of
the few industries that
has brazenly applied
absolute discretionary
pricing for profit
maximization.)

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#9 Implementation is Important
How a pricing change is implemented can be as impactful as
what the change actually is.
Netflix suffered
substantial membership
loss when it suddenly
split its pricing between
online and DVD, along
with a 60% price
increase. The same
thing should have been
accomplished in stages,
and with compensating
benefits.

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#10 Be Innovative
There are extensive opportunities for pricing innovation,
which can differentiate your product.
Pricing innovation can help establish market leadership.
Amazon Prime is
essentially a bundled
price strategy with a
twist. It minimizes
customer concerns about
shipping costs, drives
faster deliveries and
encourages heavy users.

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About The SagePoint Group
The SagePoint Group works with leading companies to find innovative
solutions to sales opportunities. Our work tends to fall into three groups:
• New Market Growth—Which direction should you go to generate
growth? What adjacencies will most likely be successful and profitable?
• Product Innovation—How can we breathe renewed energy and vitality
into existing products through innovation? How can we develop new
products and services that will win in the marketplace?
• Customer-Driven Opportunities—What growth opportunities, e.g.
marketing strategies, pricing approaches, licensing programs or business
development opportunities can strengthen our company?
SagePoint Group partners are highly seasoned C-Level executives with
extensive experience in general management, marketing and innovation with
some of the world’s leading companies.

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Contact:
Bill Aho, Partner
bill@sagepointgroup.com
Brad McLaws, Partner
brad@sagepointgroup.com