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How To: Pricing

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Everything you need to know about pricing from the marketing experts at Adashmore Creative. This slide deck will help figure the basics of a pricing strategy, such as figuring out your costs, how to charge more, pricing objectives, and factors to keep in mind.

Published in: Business, Economy & Finance
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How To: Pricing

  1. 1. MAKING SURE THE PRICE IS RIGHT
  2. 2. KNOWING YOUR COSTS Fixed & Variable costs
  3. 3. VARIABLE COSTS Anything that changes based on the unit sold ¡ Commission per unit ¡ Direct material per unit ¡ Shipping per unit ¡ Supplies per unit
  4. 4. FIXED COSTS (OVERHEAD) Things that stay the same regardless of volume ¡ Communications ¡ Tax ¡ Licenses ¡ Administrative staff ¡ Rent ¡ Utilities
  5. 5. BREAK-EVEN Number of units that need to be sold for total revenue to equal total costs (fixed and variable) Break-even point = Fixed costs / (unit selling price-variable costs)
  6. 6. BREAK-EVEN: GRAPH Break-even point Cost and/or Return ($ Thousands) 14000 12000 10000 Variable Costs Fixed Costs 8000 6000 4000 2000 0 Total Cost Income
  7. 7. BREAK-EVEN: EXAMPLE In a month, company sells 1,200 widgets for $10 each. Fixed costs total $5,000, with a cost of $5 per widget. Break-even point = $5,000 / ($10-$5) = 1,000 At 1,000 widgets, the company covers costs. Additional 200 widgets is profit.
  8. 8. BUT I WANT MORE… If you aren’t happy with your profit: ¡ I ncrease sales ¡ L ower costs § Fewer employers § L ess rent ¡ R aise your price
  9. 9. HOW DO YOU CHARGE MORE? Basics of pricing strategy
  10. 10. WHAT YOU NEED TO KNOW ¡ Who is buying your product? ¡ Who are your competitors ¡ How, or will, negotiations occur? ¡ What do customers think of your product? § Capabilities § Quality
  11. 11. PRICING PYRAMID Objective Strategy Model $
  12. 12. PRICING OBJECTIVES What does your price need to accomplish?
  13. 13. WHAT SHOULD YOUR PRICING DO? ¡ Maximize Profits ¡ Maximize Revenue ¡ Maximize Market Share ¡ Reinforce brand perception ¡ Stabilize the market ¡ Achieve return-on-investment ¡ Become the price leader ¡ Create product interest ¡ Discourage entry of new competitors
  14. 14. PRICING STRATEGY How are you going to accomplish the goal?
  15. 15. HOW DO YOU REACH YOUR OBJECTIVE? ¡ Cost Plus § Based on understanding measurable costs, plus profit ¡ Competition-based § What your competitors are doing ¡ Value-based § Price in relation to what product delivers § Hardest to quantify § Requires ongoing work
  16. 16. PRICE/QUALIT Y DIFFERENTIATION Low Quality/Differentiation High Low Economy Penetration Skimming Premium PRICE High
  17. 17. FACTORS IN PRICING (1 OF 2) ¡ Market maturity § Younger market = more flexibility § Mature markets = more pressure, limited flexibility ¡ Product category § Highly innovative products have limited barriers ¡ Demand § High demand = higher pricing § Lower demand = lower price ¡ Competition § Don’t be highest or lowest
  18. 18. FACTORS IN PRICING (2 OF 2) ¡ Value § Price = what buyer pays § Value = what buyer receives § Set by image, word-of-mouth ¡ Quality/Perception § Higher prices tend to signal higher quality § Customer ultimately decides ¡ Differentiation § Highly differentiated products = less price sensitive ¡ Brand Premium § High brand equity = higher prices
  19. 19. PRICING MODEL How is it sold?
  20. 20. COMMON PRICING MODELS ¡ Per unit ¡ Per user ¡ Per usage ¡ Per unit of infrastructure ¡ Subscriptions
  21. 21. ART OF PRICING What feels right?
  22. 22. FINDING BALANCE ¡ No 100% correct answer ¡ Difficult to optimize for all segments ¡ Find the equilibrium § Don’t leave money on the table § Don’t lose deals to competitors
  23. 23. NOW WHAT? Factors to keep in mind
  24. 24. YOU SET YOUR PRICE. NOW WHAT? ¡ Keep an eye on the competition § Pricing should align with positioning and functional differences ¡ Educate your sales team § Make sure they understand the differences and how they factor into pricing ¡ Make sure your market “gets it” § It needs to be easy to explain and understand ¡ Review regularly, adjust as needed
  25. 25. ASK AWAY It’s time for questions.

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