Lec 6 Pricing Strategies Stud

BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Lecture 6: Pricing Strategies

Overview 1. Pricing - Price Conveys Image - Competition and Pricing - Focus on Value - Pricing Techniques - Pricing for Retailers: Markup - Pricing for Manufacturers: Breakeven Selling Price - Pricing for Service Firms: Price per hour

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing

Pg 356-357

• Is governed both by art and science. • Requires balancing a multitude of complex forces. • Cuts across every aspect of a small company. • Is an important signal of a product’s or service’s value to customers. • Involves both math and psychology.

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Price Conveys Image

Pg 357-358

• Price sends important signals to customers – quality, prestige, uniqueness, and others. • Common small business mistake: Failure to recognize extra value, service, quality, and other benefits they offer and charging prices that are too low. • Study: Only 15 percent to 35 percent of customers consider price to be the chief criterion when selecting a product or service. 3

BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Competition and Pricing

Pg 358-359

• Must take into account competitors’ prices but it is not always necessary to match or beat them. • Key is to differentiate a company’s products and services. • Price wars often eradicate companies’ profits and scar an industry for years. • Best strategy: Stay out of a price war!

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Focus on Value

Pg 359-362

• The “right” price for a product or service depends on the value it provides for a customer. • Two aspects: – Objective value – Perceived value • Value ≠ low price, however.

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing Techniques • • • • • • • • • • •

Pg 369-378

Odd pricing Price lining Leader pricing Geographical pricing Opportunistic pricing Discounts Bundling Optional-product pricing Captive product pricing Byproduct pricing Suggested retail prices

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Retailers: Markup

Pg 369-378

Dollar Markup = Retail Price - Cost of Merchandise Percentage (of Retail Price) Markup = Percentage (of Cost) Markup =

Dollar Markup Retail Price

Dollar Markup Cost of Unit

Example: Dollar Markup = $25 - $15 = $10 Percentage (of Retail Price) Markup = Percentage (of Cost) Markup =

$10 $25 $10 $15

= 40% = 67% 7

BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Manufacturers: Breakeven Selling Price

Pg 369-378

Total { Variable cost Quantity } fixed Breakeven Selling Profit + { per unit x produced } + costs = Price Quantity produced

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BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Manufacturers: Breakeven Selling Price

Pg 369-378

Total { Variable cost Quantity } fixed Breakeven Selling = Profit + { per unit x produced } + costs Quantity produced Price Example: Breakeven Selling = Price

$ + { 6.98/unit x 50,000 unit} + $110,000 0 50,000 units

= $9.18 per unit 9

BEN2014 Introduction to Cyberpreneurship (by: TPL) Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Service Firms: Price per hour Price per Hour = Total cost per productive hour

Pg 369-378

x

1 (1 - net profit target as a % of sales)

Example: Ned’s TV Repair Shop Price per Hour = $13.44 per x hour

1 (1 -.18)

= $16.38 per hour

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