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BCEN 2900 Entrepreneurship

BCEN 2900 Entrepreneurship. Chapter 10 Pricing In Your New Business. Pricing. Very difficult Customer seek low prices, BUT You’ve got to cover your costs! Reflects value and utility Pricing is part psychology and part mathematics.

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BCEN 2900 Entrepreneurship

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  1. BCEN 2900Entrepreneurship Chapter 10 Pricing In Your New Business

  2. Pricing • Very difficult • Customer seek low prices, BUT • You’ve got to cover your costs! • Reflects value and utility • Pricing is part psychology and part mathematics. • Want to capture all of the value the customer perceives, plus you want to make certain you produce a margin. • Compounded by low volume sold in early years. Example: Bud Light prices In London, UK

  3. The Power of Price • Attracts customers • Signals to customers • More important to profitability than cost control • When a company that has a 10% profit margin raises its prices by 1%, its profits increase by 10%. • Monetary value of the benefits versus the sacrifices a customer gives up to use the product. • Consider a pair of jeans from Kohl’s and a pair of jeans from a boutique on Rodeo Drive

  4. Remember… • Unless a small company can differentiate itself by creating a distinctive image in its customers’ minds or by offering superior service, quality, design, convenience, or speed, it must match its competitors’ prices or risk losing sales!” • However, THAT’S A LOT OF “UNLESS!” • What can we do to base ourselves in nonprice competition??

  5. Pricing versus Competitors • Competitors’ prices should be considered, but not considered the final say • May have different strategy • May have different cost structure • May lure customers, but they will leave you quickly • May start a price war that you cant finish! • Need great differentiation point of value

  6. The Concept of a Fair Price • What do consumers think is a fair price? • Price that consumer paid in the past • What competitors may charge for something similar • Some relationships to your actual costs It’s all about value – real AND perceived!

  7. To Introduce a New Product… • Two Strategic Options: • Skimming • Penetration pricing • Need to get it in initial customers’ hands • Need to maintain market share after initial selling period • Need to earn a profit

  8. Other Pricing Tactics • Odd Pricing • $12.99 • Price Lines • Good, better, best • Leader Pricing • Turkeys at Thanksgiving • Geographic pricing • Zone • Delivered • FOB pricing • Bundling • Captive product and optional product

  9. Pricing Based Upon Cost • Markup • Based on retail price and cost levels • Cost-plus pricing • Importance of contribution margin • Absorption costing versus direct costing • Breakeven price

  10. Other Pricing Issues • Pricing for service firms • Price per hour • Price per hour plus materials • Taking credit cards for payment • Could eat 2-3% of your total revenue • Increases probability, speed, and total amount of transaction – probably worth your investment!

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