The “PRICE” difference1c increase in price on a can of coke = $300MA 1% increase in price leads to an increase in net income of 6.4% for Coca-Cola 17.6% for Fuji 26% for Ford Motor CompanySmall Change Giant Impact
Do Exactly as I Say• Pick a paper and pen• Think of an offering youwant to price• Write it down• Come up with a criterionfor making that pricingdecision• Write it down
Cost Customer CompetitionCost + Margin Willingness-to-Pay Rival product price Any sale should I don’t want to Cannot let a rival cover costs lose a customer steal my At least I know All I need to do is customer the formula ask the customer Looking around Easy to justify Customer is god in the market is within the easy organization This is what the market will bear
The margin math How are you accounting for your costs? What if prices affect cost structure? What about opportunity costs?
What customers want? “everything for nothing” Do customers dictate your prices? Do they reveal their true willingness to pay? Do they understand your offering?
Competing to win What is your unique value proposition? Price: A fertile ground for a war? Should market share be your goal?
The relevant C’sCustomerCompetitionCost Create Value Calibrate Value Communicate Value Capture Value
What is Value?Does need drive value?What is Economic Value?
Estimating the economic value Negative Differentiation Value Positive Differentiation Value Total Economic Value Reference Value
The case of Zip CarCar sharing company: to provide reliable and convenient access to on-demand transportation.Existing modes of transportation: Subway/Bus, Taxi, Rental car, personal vehicleShare Fare includes: insurance, fuel, access
Value and Price Objective Value Perceived Negative Value Differentiation Consumer’s Value incentive toPositive buyDifferentiationValue Price Total Economic Incentive to sell Value Reference COGS Value
Price and the 3 C’sAre customers, competition and costs completely irrelevant to pricing? Not really Is that all then? Distribution, Product Life Cycle, etc..
Economic Value Negative Closest Alternative Differentiation Value Unique Value PropositionPositiveDifferentiation Cost of doing businessValue unique to you Total Economic Reference Value Value
The Start-Up ChallengeWill do anything What is the market need?Desperate to make a sale Flexibility/ less rulesToo much room for experimenting Start anywhereInexperience Nobody is watching you
Pricing Models Transactional (Product/Service) most Common Subscription used for recurrent transactions Free/mium popularized by the web, Ex: Dropbox Two-sided subsidies in exchange for the consumer info, Ex: Google Direct Subsidies the razor and blades model
Popular Myths: FREEly Available х Abundance drives free pricing х Free triggers adoption There is no such thing a free lunch Free has a negative effect on the psychology of consumption
Is Free Inevitable? Businesses that thrive on communities are communities first , businesses next indiaparenting.in, r2i.com In winner-take-all markets it’s a bet on the future every bet has risks Commoditized markets by definition you add no value