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MANA 3325 T-Th. Professor Thurburn. PRICING. Pricing Videos. Is Your Product Too Expensive? - 10:00 minutes http://www.youtube.com/watch?v=isZZ8NZ7vuk Marketing & Advertising: How to Price Your Product - 3:08 minutes http://www.youtube.com/watch?v=4phxRH6vk-I

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slide1

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing Videos

  • Is Your Product Too Expensive? - 10:00 minuteshttp://www.youtube.com/watch?v=isZZ8NZ7vuk
  • Marketing & Advertising: How to Price Your Product - 3:08 minuteshttp://www.youtube.com/watch?v=4phxRH6vk-I
  • Pricing Your Product - 5:04 minutes – Russell Brunson Youtubehttp://www.youtube.com/watch?v=9_2Hu1jQA_4
  • Roundtable Discussion: Structuring Profitable Products – Pricing 6:57 minuteshttp://www.youtube.com/watch?v=RSAe_Fr9AJY
slide2

MANA 3325 T-Th.

Professor Thurburn

PRICING

Value:

A perception of the intrinsic worth.

The importance of something.

Subjectively Measured

slide3

MANA 3325 T-Th.

Professor Thurburn

PRICING

Perceived Value:

the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering, in comparison to the perceived alternatives.

Value = Benefits / Cost

slide4

MANA 3325 T-Th.

Professor Thurburn

PRICING

Fair Market Value:

The price that an informed willing buyer who is not under any external pressure will pay for a product or service when purchased from an informed willing seller who is not under any external pressure to sell.

slide5

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing

Is governed both by art and science.

Requires balancing a multitude of complex forces.

Influences every aspect of a small company.

Is an important signal of a product’s or service’s value to customers.

Involves both math and psychology.

slide6

MANA 3325 T-Th.

Professor Thurburn

PRICING

Business Challenges that Drive Pricing Decisions

slide7

MANA 3325 T-Th.

Professor Thurburn

PRICING

Price Conveys an Image

Price sends important signals to customers: Quality, prestige, uniqueness, and others.

Common small business mistake: Charging prices that are too low and failing to recognize extra value, service, quality, and other benefits they offer.

Understand the target market and identify how much customers are willing to pay rather than how much to charge.

slide8

MANA 3325 T-Th.

Professor Thurburn

PRICING

Competition and Pricing

Must take into account competitors’ prices, but it is not always necessary to match or beat them.

Key is to differentiate a company’s products and services.

Price wars often eradicate companies’ profits and scar an industry for years.

Best strategy: Stay out of a price war!

slide9

MANA 3325 T-Th.

Professor Thurburn

PRICING

Increased Value

Uniqueness… the more the better

Reliability… high

Quality… high

Timeliness… timing is everything

Barriers to entry…

Others

slide10

MANA 3325 T-Th.

Professor Thurburn

PRICING

Decreased Value

Commodity… never good

Competition… high

Quality… low

Reliability… low

Technology Shift… structural shift

Timeliness… too late

slide11

MANA 3325 T-Th.

Professor Thurburn

PRICING

Focus on Value

  • The “right” price for a product or service depends on the value it provides for a customer.
  • Two aspects of price:
    • Objective value
    • Perceived value – determines the price customers are willing to pay.
  • Value is not synonymous with low price.
slide12

MANA 3325 T-Th.

Professor Thurburn

PRICING

Focus on Value

Add a surcharge

Explain the reasons behind price increases

Focus on improving efficiency

Consider absorbing cost increases

Modify the product or service to lower

its cost

Eliminate discounts, coupons, and freebies

slide13

MANA 3325 T-Th.

Professor Thurburn

PRICING

Focus on Value… continue

Diversify your product line

Anticipate rising costs and try to lock in prices of raw materials early

Emphasize the value of your company’s product or service to customers

Differentiate your product or service

Use cheaper raw materials

Raise prices incrementally and consistently

slide14

MANA 3325 T-Th.

Professor Thurburn

PRICING

Price Ceiling - What will the market bear?

?

?

?

?

?

?

Final Price -What is the company's desired "image?"

AcceptablePriceRange

?

?

?

?

?

?

?

?

?

?

?

Price Floor- What are the company's costs?

slide15

MANA 3325 T-Th.

Professor Thurburn

PRICING

Introducing a New Product

  • Three Goals:
  • 1. Getting the product accepted
    • Revolutionary products
    • Evolutionary products
    • Me-too products
  • 2. Maintaining market share as competition grows
  • 3. Earning a profit
slide16

MANA 3325 T-Th.

Professor Thurburn

PRICING

Introducing a New Product

  • 3 Basic Strategies:
    • Market penetration
    • Skimming
    • Life Cycle Pricing
slide17

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing Techniques

Odd pricing

Price lining

Leader pricing

Discounts (Markdowns)

Bundling

Geographic pricing

Dynamic pricing

slide18

MANA 3325 T-Th.

Professor Thurburn

PRICING

Customized or Dynamic Pricing

A pricing technique in which a company sets different prices on the same products and services for different customers using the information that it collects about its customers.

Horse Traders & Car Dealers… haggle

slide19

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing Techniques… continued

Optional-product pricing… Cars

Captive product pricing… Printers

Byproduct pricing… grease

Suggested retail prices… MSRP

Follow-the-leader pricing… Airlines

slide20

MANA 3325 T-Th.

Professor Thurburn

PRICING

Follow the Leader Pricing

Match competitor prices.

A “me too” pricing policy.

Robs a company of the opportunity to create a distinctive image in its customer’s eyes.

slide21

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing for Retailers: Markup

Dollar Markup = Retail Price - Cost of Merchandise

Dollar Markup

Percentage (of Retail Price) Markup =

Retail Price

Dollar Markup

Percentage (of Cost) Markup =

Cost of Unit

Example:

Dollar Markup = $30 - $14 = $16

$16

=53.3%

Percentage (of Retail Price) Markup =

$30

$16

Percentage (of Cost) Markup =

=114.3%

$14

slide22

MANA 3325 T-Th.

Professor Thurburn

PRICING

  • Below-Market Pricing
  • Attract a sufficient level of volume to offset the lower profit margins.
  • Trim operating costs by eliminating extra services such as:
    • Delivery
    • Installation
    • Credit granting
    • Sales assistance
  • Risky!
slide23

MANA 3325 T-Th.

Professor Thurburn

PRICING

  • Pricing for Manufacturers
  • Direct costing and pricing
    • Absorption costing
    • Variable or direct costing
  • Breakeven
slide24

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing for Manufacturers: Breakeven Selling Price

Totalfixed costs

Variable cost per unit

Breakeven

Selling

Price

{

Quantity

}

{

}

Profit

+

+

x

produced

=

Quantity produced

Example:

Breakeven

Selling

Price

$110,000

{

}

$0

+

x

50,000 unit

+

6.98/unit

=

50,000 units

=$9.18 per unit

slide25

MANA 3325 T-Th.

Professor Thurburn

PRICING

Pricing for Service Firms: Price per Hour

Price per Hour = Total cost per x 1

productive hour (1 - net profit target as a % of sales)

Example: Ned’s TV Repair Shop

Price per Hour = $18.59 per hour x 1

(1 - .18)

= $22.68 per hour

slide26

MANA 3325 T-Th.

Professor Thurburn

PRICING

  • Staff Markup in Service Fields:
  • Markup Staff Costs 3 x 4 times
  • Bill Client
slide27

MANA 3325 T-Th.

Professor Thurburn

PRICING

  • Consumer Credit
  • Credit cards – typical consumer has 7.7 credit cards.
    • Research: Customers who use credit cards make purchases that are 112% higher than if they had used cash.
    • On a typical $100 credit card purchase, cost to business = $2.20.
slide28

MANA 3325 T-Th.

Professor Thurburn

PRICING

A Typical Credit Card Transaction

slide29

MANA 3325 T-Th.

Professor Thurburn

PRICING

  • Consumer Credit
  • Credit cards – typical consumer has 7.7 credit cards.
    • Research: Customers who use credit cards make purchases that are 112% higher than if they had used cash.
    • On a typical $100 credit card purchase, cost to business = $2.20
  • Installment credit
  • Trade credit
slide30

MANA 3325 T-Th.

Professor Thurburn

PRICING

E-Commerce and Credit Cards

  • About 0.9% of online credit card transactions are fraudulent.
  • Steps:
    • Use an address verification system
    • Require a CVV2 number
    • Check customers IP addresses
    • Monitor Web site activity with analytics
    • Verify large orders
    • Post notices on Web site that your company uses anti-fraud technology
    • Contact the credit card company or bank that issued the card