"Product Pricing strategy" @ the 11th Prod.active meetup
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Pricing strategy": Key pricing principles and methods, how should a company adapt prices to meet varying circumstances and opportunities? What do consumer perception has to do with all the above?
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"Product Pricing strategy" @ the 11th Prod.active meetup
- 1. 11th Prod.Active Meetup “Pricing strategy” Iasonas Antonopoulos 11th Prod.Active Meetup: “Pricing Strategies”
- 2. The purchase funnel 11th Prod.Active Meetup: “Pricing Strategies”
- 3. There’s nothing better than pricing Independent studies confirmed that: 1% increase in pricing affects a company’s profits more than any other change. From all the things you can spend time tweaking, pricing will yield the best return. 11th Prod.Active Meetup: “Pricing Strategies”
- 4. Definitions Product / Service Price Is the amount of money at which a product or service can be bought Market Price Is the converging point where amount of money at which a product or service can be bought Price cue A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices. 11th Prod.Active Meetup: “Pricing Strategies”
- 5. Price synonyms & adjectives Synonyms Rate Subscription Licence fee Commission Adjectives Premium Lower end Other? 11th Prod.Active Meetup: “Pricing Strategies”
- 6. Consumer price referencing Fair price Standard price Last price paid Upper /lower bound price Benchmarked price (competitor pricing) Usual discount price Expected price 11th Prod.Active Meetup: “Pricing Strategies”
- 7. “True” customers characteristics True customers WANT to spend money with you. True customers reciprocate the value if the product/service that they receive. True customers understand that you have a business to run here, with bills & salaries to pay – If they’re not willing to pay you, then they’re not your customers. Sorry…. 11th Prod.Active Meetup: “Pricing Strategies”
- 8. Common Pricing Mistakes Determine costs and take traditional industry margins Neglect the product positioning strategy – Set the price independently of the rest of the marketing mix Failure to revise price to capitalize on market changes Failure to vary price by product item, market segment, distribution channels, and purchase occasion Target breaking even the fastest and neglecting the prosperity of the product 11th Prod.Active Meetup: “Pricing Strategies”
- 9. Steps in setting up a price #1: Price objective #2: Demand Estimate #3: Cost estimation #4: Benchmark competition #5: Pricing strategy #6 : Final price Product positioning 11th Prod.Active Meetup: “Pricing Strategies”
- 10. #1: Price objective Maximum profit Maximum market share Market skimming Survival Product quality leadership (dependant of Product positioning) 11th Prod.Active Meetup: “Pricing Strategies”
- 11. #2: Estimate demand Price sensitivity: how sensitive are customers on your price? Estimating demand curves: how much money are customers willing and able to pay for your product? Price elasticity on demand (PED): the percentage change in quantity demanded in response to a one percent change in price. Revenue is maximized when price is set so that the PED is exactly one (=0,01%/0,01%). 11th Prod.Active Meetup: “Pricing Strategies”
- 12. Factors lowering price sensitivity The product/brand is distinctive The product is assumed to have high quality and prestige The expenditure is a smaller part of buyer’s total income The expenditure is small compared to the total cost of end product Buyers are less aware of substitutes/ Buyers cannot compare the quality of substitutes Part of the cost is paid by another party The product is used with previously purchased assets 11th Prod.Active Meetup: “Pricing Strategies”
- 13. #3: Cost estimation Fixed costs Variable costs Total costs Average costs Cost at different level of production 11th Prod.Active Meetup: “Pricing Strategies”
- 14. #4: Benchmark competition Pricing objectives Pricing method Actual Prices Price cues 11th Prod.Active Meetup: “Pricing Strategies”
- 15. #5: Selecting a pricing strategy Markup pricing: Adding a constant percentage to the cost price of an item Target-return pricing: starting from the desired rate of return objective, price is arranged based on when the above rate should be met (used by market leaders or monopolists) Perceived-value pricing: the price that consumer perceives or estimates as good for these features/functionality (effective in pricing of premium goods and services with a large intangible component - good for skim pricing and penetration pricing strategies) Value based pricing: sets prices primarily, but not exclusively, in the value, perceived or estimated, to the customer rather than on the cost of the product or historical prices. 11th Prod.Active Meetup: “Pricing Strategies”
- 16. When to use price cues o Customers purchase item infrequently o Customers are new o Product designs vary over time o Prices vary seasonally o Quality or sizes vary across stores 11th Prod.Active Meetup: “Pricing Strategies”
- 17. #6: Selecting the final price Impact on other marketing activities Company pricing policies Total costs Average costs Impact on pricing by other companies 11th Prod.Active Meetup: “Pricing Strategies”
- 18. Price scaling High price: no possible demand on the price Ceiling price: the best possible price consumers are willing to pay > Customer’s assessment of product uniqueness > Competitor prices and prices of substitutions > Costs Floor price: no possible profit on the price Low price: no possible profit on this price 11th Prod.Active Meetup: “Pricing Strategies”
- 19. Price adaptation strategies How to adapt your pricing 11th Prod.Active Meetup: “Pricing Strategies”
- 20. Price adaptation Strategies Geographical pricing Discount /Allowances (Cash / Quantity /Functional /Seasonal discount) Promotional pricing Differentiated pricing 11th Prod.Active Meetup: “Pricing Strategies”
- 21. Responding to competitive price cuts Maintain price Maintain price and add value Increase price and improve quality Launch a low-price fighter line Reduce price 11th Prod.Active Meetup: “Pricing Strategies”
- 22. Promotional pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting 11th Prod.Active Meetup: “Pricing Strategies”
- 23. Differentiated/Discriminatory pricing Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing 11th Prod.Active Meetup: “Pricing Strategies”
- 24. Increasing pricing Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts 11th Prod.Active Meetup: “Pricing Strategies”
- 25. Cost driven vs Price driven costing Drucker considered cost-driven pricing ridiculous and blamed the loss of the consumer-electronics industry and the machine-tool industry in the U.S. directly on this deadly sin. Instead of cost-driven pricing Drucker suggested price-driven costing (start with the right price, and then to work back from price to determine your allowable costs) Then you start working to make those costs. We are talking about marketing after all! 11th Prod.Active Meetup: “Pricing Strategies”
- 26. How psychology affects pricing 11th Prod.Active Meetup: “Pricing Strategies”
- 27. Pricing: a judgment problem Michael Dearing says that “Pricing is a judgment problem, not a math problem” Many start-ups have a new product for which there aren’t competitors for customers to benchmark against. Setup a hypothesis, A/B test it and use other analytics to refine it. Take into account competition and your intuition. 11th Prod.Active Meetup: “Pricing Strategies”
- 28. Higher price = Better product There’s an amazing phenomenon in pricing… An increase in price leads to an increase in sales because: when something costs more we assume that it is better. … “The above association is Pavlovian” 11th Prod.Active Meetup: “Pricing Strategies”
- 29. Too many options can harm you People would rather buy nothing than choose the wrong option. Prices must: – be straight forward – help people select the proper product usage – avoid people making future calculations Variable pricing sliding upwards with more usage can scare potential customers. 11th Prod.Active Meetup: “Pricing Strategies”
- 30. Contextual pricing People evaluate decisions on a relative scale so paying attention to the context of a price is crucial People happily pay 2 € for a cup of Twinning's tea to take away in a paper cup. They pay roughly ~20c€ for a Twinning's tea bag. Why? The cup of tea you purchased from is 100 times more enjoyable (hide no dangers of failure) and easy to prepare than doing it on your own 11th Prod.Active Meetup: “Pricing Strategies”
- 31. Tips Figuring out what goes through a customer’s mind when she first sees your product can help you set a price. Note down all the things customers might associate with your product. (include things like whether it’s cool or expensive, other products that someone might already own) Logic kicks in eventually, so your price needs to stand up to scrutiny. If priced too low, someone will try to figure out why. If cheap but dressed up with expensive imagery people will figure that out, too. 11th Prod.Active Meetup: “Pricing Strategies”
- 32. Take aways Set a product position & pricing objective Do the math but do not forget psychology Customers are analytical, but prone to leaps of logic; Customers love bargains But also hate to make wrong choices 11th Prod.Active Meetup: “Pricing Strategies”
- 33. References Marketing Management: by Philip T. Kotler, Kevin Lane Keller https://hbr.org/2003/09/mind-your-pricing-cues http://upliftroi.com/blog/post/10-examples-of-great-pricing-strategies Estimating Demand Functions Price Cues and Customer Price Knowledge. January 2008. Eric T. Anderson. Kellogg School of Management. Duncan I. Simester. Conceptualization of perceived value pricing in strategic marketing, Conceptualization of perceived value pricing in strategic marketing, Nagasimha Balakrishna Kanagal, Journal of Management and Marketing Research http://www.investopedia.com/ http://www.marketingbinder.com/ The Strategy and Tactics of Pricing: A Guide to Growing More Profitably Hardcover – April 18, 2016, Tom Nagle, John Hogan, Joseph Zale 11th Prod.Active Meetup: “Pricing Strategies”
- 34. Thank you Iasonas Antonopoulos 11th Prod.Active Meetup: “Pricing Strategies”