This document discusses pricing strategy and key considerations for setting prices. It covers: 1) The importance of pricing in determining revenue and profitability. Pricing balances value for customers and financial returns. 2) Elements of pricing including cost-based vs value-based approaches, and understanding a product's true economic value versus perceived value. 3) Customizing prices based on customer and transaction characteristics to maximize value and sales.

1. PRICING STRATEGY
HBS reading by Robert J Dolan and John T Gourville
Presented by Raj Kattimani

2. Agenda
What’s pricing and why is it important?
The Elements of Pricing
Understand Price customization
Know the price sensitivity indicators
1
3
2
4

3. What is Pricing and why?
Determines revenue
Relates to Bottom-line
Value for money vs. Money on the table
Pricingisthefunctionofdeterminingthechargevalueoftheproductafterconsideringthehostoffactorslikecost, competition,economicvalue,functionalvalueandtheperceivedvalue

4. Agenda
What’s pricing and why is it important?
The Elements of Pricing
Understand Price customization
Know the price sensitivity indicators
1
3
2
4

5. Cost-based vs. Value Pricing
COGS
Price
Perceived Value
True Economic Value
Firm’s incentive
Consumer’s incentive
Marketing efforts
Cost-based Pricing
Value Pricing

6. What’s True Economic Value? TEV = Cost of next-best alt + Performance differential
Why PV is generally less than TEV?
Lack of awareness
Skepticism
Low probability of realization

7. Pricing function and marketing
High
High
Low
Low
Price
Mktg exp
No/low Unit Sales
Feasible
(desired)
Feasible
(not desired)
No Unit Contribution

8. Agenda
What’s pricing and why is it important?
The Elements of Pricing
Understand Price customization
Know the price sensitivity indicators
1
3
2
4

9. Price customization
Tastes
Nature of use
Intensity of use
Competition
Controlling availability of prices
Pricing on buyer characteristics
Pricing on transaction characteristics
Manage Product line offering

10. Agenda
What’s pricing and why is it important?
The Elements of Pricing
Understand Price customization
Know the price sensitivity indicators
1
3
2
4

11. Assessing Price sensitivity
Using Managerial judgment
ThroughMarket Research
Type of data
Qualitative
Quantitativebut…
When to use
Genericproduct or
You know the product
Complement your assessment
Methods
Spot the sensitivity indicators
Customer surveys
Experiments
Analysisof data

12. Price sensitivity Indicators
Product
Buyer
Price
$Performance prediction
$Mission critical?
$Differentiation
$Comparability
$Knowledge
$Comparability
$Relative sense
$Reference prices
$No clue of quality
$Bearing cost
$Switching easy?
$Not motivated by Prestige

13. Other factors to consider
Relationship bet’n price and demand
Price elasticity of demand
Understanding the drivers of profitability
Breakeven Analysis