PRICING STRATEGY

HBS reading by Robert J Dolan and John T Gourville

Presented by Raj Kattimani

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

What is Pricing and why?

Determines revenue

Relates to Bottom-line

Value for money vs. Money on the table

Pricing is the function of determining the charge value of the

product after considering the host of factors like cost,

competition, economic value, functional value and the

perceived value

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

Cost-based vs. Value Pricing

COGS Price Perceived Value True Economic Value

Firm’s incentive Consumer’s incentiveMarketing efforts

Cost-based Pricing Value Pricing

What’s True Economic Value?

TEV = Cost of next-best alt + Performance differential

Why PV is generally less than TEV?

Lack of

awarenessSkepticism

Low

probability of

realization

Pricing function and marketing

High

HighLow

Low

Price

Mktg exp

No/low Unit

Sales

Feasible(desired)

Feasible(not desired)

No Unit

Contribution

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

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

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

Assessing Price sensitivity

Using Managerial

judgment

Through Market Research

Type of data Qualitative Quantitative but…

When to use Generic product or

You know the product

Complement your assessment

Methods Spot the sensitivity

indicators

Customer surveys

Experiments

Analysis of data

Price sensitivity Indicators

Product BuyerPrice

$ Performance

prediction

$ Mission critical?

$ Differentiation $ Comparability $ Knowledge

$ Comparability $ Relative sense

$ Reference prices

$ No clue of

quality

$ Bearing cost

$ Switching easy?

$ Not motivated

by Prestige

Other factors to consider

Relationship bet’n price and demand

Price elasticity of demand

Understanding the drivers of profitability

Breakeven Analysis