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Boost your bottom l ine by taking the guesswork out of pricingBy: Sean Bai ley and Joven Rasgo
IS IT TIME TO RAISE PRICES?
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Don’t go by your gutEntrepreneurs pricing too low
Price reflects Value
UNDERLYING THEMES
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“Basically, I’d throw a price out there and see what they’d take”
Always set his price too low.Based prices off of a “similar product”
Customers felt he was providing a superior serviceCorporate Clients didn’t take him seriously
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Objective Value RangeMost you can rationally charge for a product
Least you could rationally charge for a product. Break-even point
Perceived ValueWhat a person actually is willing to spend
Are you willing to walk for a beer if its lower priced?
TYPES OF VALUE
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Initially priced at $50 Dropped to $25
Owner unsatisfied “From our point of view, we’re charging only a fraction of the value we provide.”
Has not created enough perceived value to justify the higher price
How would you raise the price back to $50/month?
LADDERS.COM
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Revenue grew 54% in 2004- $8 millionCompetes with wine
Premium beer- $14 750ml wine bottleHosts “beer dinners”
Attracts early adopters to spread the wordMakes sure that there is not enough to satisfy the
demand. Scarce products demand a higher price
Wipes away reference price
DOGFISH HEAD CRAFT BREWERY
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Similar product to Microsoft Offered at $795 a year, boosted to $995 a year. Next 12 months increased to $2,295 a year. “We can push it higher”
Customers asked him to push it higher “…[not] very expensive. How are you going to make any
money?”
SCOPE IT
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Back door pricing Eliminate discounts, change terms and conditions
Charge for add-on servicesKeep price the same but reduce product or service
If done correctly, consumers won’t realize the differenceWipe away the reference point
WAYS TO PRICE HIKE
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25% increase in priceNo customers jumped shipUsed to close 80% of bids
Now closes 40% of bids, much better marginsAllows the owner to relax
FIRE EYE CONCLUSION
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Do your due diligence when developing your pricing strategy
Avoid a price warAvoid snowballing discountsPRICE REFLECTS VALUEPrice can open up new doors
TAKEAWAYS
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Who provides more value for their customers: PC’s or Mac? Why?
Why would you pay for a job site if you could just use others for free?
QUESTIONS
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http://www.inc.com/magazine/20050601/pricing_pagen_4.html
REFERENCES