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Pricing Strategy & Tactics V.2
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  • This is slide introduces the audience to the subject being presented by Nick Ursini.   Much of the information is from the book, The Strategy and Tactics of Pricing, 1995, by Thomas T. Nagle and Reed K. Holden and their University of Chicago Business School course’s work book. Nick Ursini has taken the liberty to modify some of the work done by Drs. Nagle and Holden for clarity and completeness.

Pricing Strategy & Tactics V.2 Pricing Strategy & Tactics V.2 Presentation Transcript

  • Pricing Strategy and Tactics © By Nick Ursini Customer Driven Marketing, LLC Copyright 2003, all rights reserved Customer Driven Marketing, LLC
  • What is Pricing – Really! Pricing is the moment of truth -- all marketing efforts, product design, and service development comes to focus on the pricing decision. Professor Raymond Corey Harvard Business School As modified by Nick Ursini Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Pricing Decisions
    • Profitable pricing depends less on precise measurement than on effective marketing to reflect the true value of your products and services.
    • Traditional Method:
    • Product/Service-Focused: Product/Service  Cost  Price  Value  Customers
    • Modern Method:
    • Customer-Focused: Customers  Values  Prices  Costs  Product/Service
    Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Unspoken Needs & Wants This is the Marketing Challenge Customer Delight Customer Disappointment Excitement Quadrant Mediocrity Quadrant Significant Time or Money Limited Time or Money Insightful Market Input Mail/Phone Questionnaires Internal Perspective Only Failure Quadrant Surprise Quadrant Copyright 2003, all rights reserved Customer Driven Marketing, LLC Kano Chart
  • Key Pricing Questions
    • What price can you convince customers are anchored by the value they receive?
    • How can you better segment the market to reflect differences in value to different customer wants/needs?
    • What tradeoffs among your costs, your customer’s value, and your competitive position will let you maximize profitability ?
    Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Challenges in Pricing Decisions The 5-Cs of Pricing  Comprehend the key value drivers for customers  Create value for customers  Communicate the value that you create 1. Tangible features 2. Intangible features  Convince customers that they must pay for value  Capture value with effective pricing tactics Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Guidelines to Profitable Pricing
    • Create unique pricing for each product or service to reflect
    • costs, customers, and competition in specific markets.
    • 2. Price for economic value not the customer’s willingness to pay.
    • 3. Price sensitivity reflects factors other than value. Use those
    • factors to anticipate and influence price sensitivity.
    • 4. Know profitability from pricing decisions based on profit
    • contributions not from “full cost” accounting.
    Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Guidelines to Profitable Pricing 5. Make price changes to achieve sales growth & to grow profits. 6. If you must cut prices to gain sales, do so selectively , not across every product and service element. 7. Avoid cutting price to defend or gain market share unless you have a real cost advantage . 8. Always work to improve price competitiveness by lowering costs and increasing the customer’s perception of value . Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Achieving More Profitable Pricing
    • Cost Analysis: Identify the customer’s incremental &
    • avoidable cost from using the product or service.
    • 2. Financial Analysis: Identify the volume tradeoffs necessary
    • to increase profits with potential price differentials.
    • 3. Customer Analysis: Determine the factors that influence price
    • sensitivity and establish a strategy to influence them.
    Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Achieving More Profitable Pricing 4. Competitive Analysis: Evaluate the likely competitive responses then establish a strategy to minimize their adverse impact on profitability. 5. Segmentation Scheme : Implement tactics to segment the market by price where justified by incremental profits. 6. Judgment: Make price changes when customer & competitor responses are likely to generate sales in excess of breakeven levels. Copyright 2003, all rights reserved Customer Driven Marketing, LLC Adapted from the book, Strategy and Tactics Of Pricing, 1995 by Thomas T. Nagle & Reed K. Holden
  • Breakeven Analysis (simplifying model assuming linear relationships) Profits ($) Sales Volume ($) + _ S Profit Loss P Profit/Volume Ratio Fixed Costs Breakeven Sales Volume P/V Ratio = (FC + P)/S P/V Ratio = (S-VC)/S P/V Ratio = FC/BE Sales P = S -VC – FC P = S * P/V Ratio -FC Margin of Safety