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Maximizing Profit: The Art of Strategic Pricing

Discover the effective strategies to optimize pricing and boost your profits. Learn from real-world examples and expert advice by Sean Bailey and Joven Rasgo. Uncover the importance of setting the right price based on value and customer perception. Avoid common pitfalls and unlock the potential of your pricing strategy to enhance your business bottom line.

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Maximizing Profit: The Art of Strategic Pricing

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  1. Is it Time to Raise Prices? Boost your bottom line by taking the guesswork out of pricing By: Sean Bailey and JovenRasgo

  2. Underlying Themes • Don’t go by your gut • Entrepreneurs pricing too low • Price reflects Value

  3. “Basically, I’d throw a price out there and see what they’d take” • Always set his price too low. • Based prices off of a “similar product” • Customers felt he was providing a superior service • Corporate Clients didn’t take him seriously

  4. Types of Value • Perceived Value • What a person actually is willing to spend • Are you willing to walk for a beer if its lower priced? • Objective Value Range • Most you can rationally charge for a product • Least you could rationally charge for a product. • Break-even point

  5. Ladders.com • Initially priced at $50 • Dropped to $25 • Owner unsatisfied “From our point of view, we’re charging only a fraction of the value we provide.” • Has not created enough perceived value to justify the higher price • How would you raise the price back to $50/month?

  6. Dogfish Head Craft Brewery • Revenue grew 54% in 2004- $8 million • Competes with wine • Premium beer- $14 750ml wine bottle • Hosts “beer dinners” • Attracts early adopters to spread the word • Makes sure that there is not enough to satisfy the demand. • Scarce products demand a higher price • Wipes away reference price

  7. Scope It • Similar product to Microsoft • Offered at $795 a year, boosted to $995 a year. • Next 12 months increased to $2,295 a year. • “We can push it higher” • Customers asked him to push it higher • “…[not] very expensive. How are you going to make any money?”

  8. Ways to price hike • Back door pricing • Eliminate discounts, change terms and conditions • Charge for add-on services • Keep price the same but reduce product or service • If done correctly, consumers won’t realize the difference • Wipe away the reference point

  9. Fire Eye Conclusion • 25% increase in price • No customers jumped ship • Used to close 80% of bids • Now closes 40% of bids, much better margins • Allows the owner to relax

  10. Takeaways • Do your due diligence when developing your pricing strategy • Avoid a price war • Avoid snowballing discounts • PRICE REFLECTS VALUE • Price can open up new doors

  11. Questions • Who provides more value for their customers: PC’s or Mac? Why? • Why would you pay for a job site if you could just use others for free?

  12. References • http://www.inc.com/magazine/20050601/pricing_pagen_4.html

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