Price Structure and Segmented Pricing MK814 Gerald Smith
The Pricing Strategy Pyramid Price Level Price setting Pricing Policy Negotiation Tactics & Pricing Setting Procedures Value Creation Economic Value, Offering Design, Segmentation Value Communication Communication, Value Selling Tools Price Structure Metrics, Fences
Pricing Menus Map Price Structure, Help Customers Trade Up or Trade Down Economy (85% of standard) Fast Turn-around Special Processing Long-term Contract Unbundled Service Standard Premium (130% of standard) +25% +15% -10% -15% Required - 15% Included Not Available Not Available Base Offer Service A + 3% Service B + 7% Service C + 12 % A,B,C Included * Service D + 9% Service E + 6% Offerings Available A “Fixed Price, Flexible Offer” Menu
Steinway, a tiny but well regarded New York piano maker in the 1850's grew quickly after Doretta Steinway, the founder's daughter, got the idea of offering free piano lessons with the sale of each piano
Can you explain this as a segmented pricing tactic?
What are the segments and why would their price sensitivities be different?
Non-Segmented Price-Offerings Missed Opportunities High Med Low Segments Value Received One size fits all offering During the recession, the trend was to bundle value-added services into core offering to defend price points and close deals A B C D p1 Unharvested value Missed Opportunities
Tiered Offerings Map to Value to Improve Profitability High Low Value Segments A B C D Prod. 4 Differences in value can be captured with product variations or service augmentation that creates natural fences between segments Prod. 3 Prod. 2 Prod. 1
Other Examples of Product Variations Basic SRP $199.95 Pro SRP $279.95 All in Basic + Create Customized forms, Tools to Track add’l items Premier SRP $399.99 All in Pro + Daily Sales Summary, Retail Specific Reports Standard SRP $219.99 Professional SRP $299.99 All in Standard + MS Access Developer SRP $529.99 Development Tools to Build Own Applications
Sometimes the Offering Can’t be Unbundled… High Med Low Segments Value Received One size fits all offering … in these instances, look to pricing metrics to capture value differences - p1 - - p2 - - p3 - - p4 - A B C D
Examples of Value-based Pricing Metrics Market Traditional Metrics Value-based Metrics Real Estate Want Ads $ / column inch $ / property value Aircraft Engines $ / engine $ per hour of use Information service $ / minute $ / download
Segmented Pricing Fences: Tactics For Separating Markets
A deli in a college town has an interesting pricing strategy for students. The dinner specials at the restaurant are normally $4.95. Students, however, can buy weekly "meal tickets" that give them three meals for $13.90, 5 meals for $22.25, or seven meals for $29.90. The tickets expire at the end of each week and they are not transferable
The local outlet of a fast food chain charges $2.60 for a salad from its salad bar if ordered a la carte. When ordered with a sandwich, however, the salad bar costs only $1.99. In either case, the customers are permitted to fill their bowls just once
Can you explain this segmented pricing technique?
Hotel Service Policies
Most hotels will lend guests an iron and an ironing board free of charge, despite the fact that this service competes with the hotel's valet service, for which it does charge. Those same hotels usually charge outrageously to supply glasses, ice, and mixers for those who wish to have alcoholic drinks in their rooms.
Can you explain this anomaly?
Bundling for Automobile Sports Package Racing Stripes and Hubcaps Right Mirror Heavy Suspension Racing Enthusiast Outdoor Enthusiast Segment $200 $100 $150 $300