ws6

1. Industry Studies 1
Make, Take and Sell Challenge:
How would you price your
product?
Topic Number: 6

2. Overview
By now you all should have a clear idea about how
you would develop your product and take it to market.
Now its time to ensure that it is appealing to
customers.
This workshop is focused on determining and
developing the right pricing strategy for your product
to ensure its commercially viable and at the right
price point for customers.
You will consider the various ways a product is priced
across the CGI and thereafter give you time to
consider your own approach. You will be expected to
draw up a cost analysis and come up with an
appropriate pricing structure.

3. Learning outcomes for these workshops
• Develop and determine the optimal pricing structure
for your product
• Conduct a cost analysis to determine your break
even point for your product
• Critically evaluate the various pricing approaches
adopted by the CGI

4. Importance of pricing
The bitterness of poor quality
remains long after the
sweetness of low price is
forgotten
Aldo Gucci
Price is what you pay. Value
is what you get.
Warren Buffett

5. Have you heard of pay what you want pricing?
View video: https://www.youtube.com/watch?v=PzvNXI2pkGA

6. Why is pricing important?
Enables a
company
to make a
profit
Signals
product
standard
Influences
purchase
decision
Captures
value back
from
customers

7. Task 1: What are the key influences you should
consider when pricing your product?
In your groups take 10 minutes to consider the key
influencing factors when developing your product
price.
Take
10
minutes

8. Task 1: What are the key influences you should
consider when pricing your product?
Marketing objectives
Government regulations
Customer perceptions
Market demand
Competition

9. Different Pricing Approaches
Today we will consider 3 strategies…
Cost-based
Pricing
Value-based
Pricing
Psychological
Pricing

10. What is cost based pricing?
• Using the cost of production as the basis for
pricing a product
• Here the selling price of a product A will be
the cost to produce it plus a margin
• It includes:
• Direct and indirect costs
• Additional amount to generate a profit

11. Types of Costs
Fixed Variable
Direct Indirect
Direct costs can be
defined as costs which
can be accurately traced
to a cost object with little
effort.
Costs which cannot be
accurately attributed to
specific cost objects are
called indirect costs.
Fixed costs are costs that are
independent of output. These
remain constant throughout the
relevant range and are usually
considered sunk for the relevant
range (not relevant to output
decisions).
Variable costs are costs that
vary with output. Generally
variable costs increase at a
constant rate relative to
labor and capital. Variable
costs may include wages,
utilities and materials

12. Task 2: Considering your costs
In your groups take 10 minutes to consider the key
costs that you will encounter when developing your
product. Also consider the amount of profit you
would like to make and come up with a final price.
Take
10
minutes

13. Task 2: Considering your costs
Each group
has 5
minutes to
feedback

14. Value-based pricing
Card Players-Paul Cezanne
How much
did this
cost to
produce?

15. Value-based pricing
Value-based pricing (also value optimized pricing) is a pricing
strategy which sets prices primarily, but not exclusively, on the
value, perceived or estimated, to the customer rather than on the
cost of the product or historical prices. Where it is successfully
used, it will improve profitability due to the higher prices without
impacting greatly on sales volumes.
The approach is most successful when products are sold based on
emotions (fashion), in niche markets, in shortages (e.g. drinks at
open air festival at a hot summer day) or for indispensable add-ons
(e.g. printer cartridges, headsets for cell phones).

16. Value-based pricing
Pricing on planes
How much is the popcorn?!

17. What is psychological pricing?
Psychological pricing (also price ending, charm
pricing) is a pricing/marketing strategy based on the
theory that certain prices have a psychological
impact. The retail prices are often expressed as "odd
prices": a little less than a round number, e.g. $19.99
or £2.98. Consumers tend to perceive “odd prices” as
being significantly lower than they actually are,
tending to round to the next lowest monetary unit.
Thus, prices such as $1.99 are associated with
spending $1 rather than $2. The theory that drives
this is that lower pricing such as this institutes
greater demand than if consumers were perfectly
rational.

18. An example in action

19. Task 3: Your pricing strategy
In your groups take 10 minutes to consider the
pricing strategy that you adopt and the final cost of
your product
Take
10
minutes
Cost-based
Pricing
Value-based
Pricing
Psychological
Pricing

20. Task 3: Your pricing strategy
Each group
has 5
minutes to
feedback

21. End of Workshop
Note: This recording is for your
personal use only and not for further
distribution or wider review.
© Pearson College 2013