what is a pricing strategy and why do you need one?
DESCRIPTION
Many businesses price on “cost plus” basis, sometimes combined with a “What they think they can get away with” approach. This session looks to apply some ‘Science’ to this mechanism without getting too complicated; the aim being to help businesses establish prices that are right for them and for their customers.TRANSCRIPT
What Is A Pricing Strategy and Why Do You
Need One?
Date:17th June 2010
Facilitator: Sammy Rose MBA, MCIMChartered Marketer
Mentor: Richard Mooney DipM, Chartered Marketer, FCIM
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ROUND UP:-
•Product Proposition – What About This Makes Us Different?
•Target Audience – Know Who This Is And Address Them Instead Of Everyone In General
•Competitors – How They Affect Our Product Proposition And Sales & Marketing Approaches
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FACTORS AFFECTING PRICE?
?
FACTORS AFFECTING PRICE
Legal
ConstraintsCosts Objectives
Consumer
Attitudes
Company’s
Market Profile
DifferentialsPotential
CompetitorsCompetitors
PRICE
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Quick Break Even Chart
£Sales
Break evenProfit
Costs
Loss
VOLUME
SA
LE
S/C
OS
TS
Quick Break Even Calculation: Fixed Costs
G.P%
Where G.P% = Gross Profit
Sales
RELATIONSHIP BETWEEN PRICE DISCOUNTING & SALES INCREASING
Existing % Gross Margin% Price
Reduction 5 10 15 20 25 30 35 40 50
% Volume increase required for same gross margin
2.0 67 25 15 11 9 7 6 5 4
3.0 150 43 25 18 14 11 9 8 6
4.0 400 67 36 25 19 15 13 11 9
5.0 100 50 33 25 20 17 14 11
7.5 300 100 60 43 33 27 23 18
10.0 200 100 67 50 40 33 25
15.0 300 150 100 75 60 43
Copyright Durham University Business School
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RELATIONSHIP BETWEEN PRICE INCREASES & SALES DECREASES
Existing % Gross Margin% Price
Increase 5 10 15 20 25 30 35 40 50
% Volume decrease to generate same gross margin
2.0 29 17 12 9 7 6 5 5 4
3.0 37 23 17 13 11 9 8 7 6
4.0 44 29 21 17 14 12 10 9 7
5.0 50 33 25 20 17 14 12 11 9
7.5 60 43 33 27 23 20 18 16 13
10.0 67 50 40 33 29 25 22 20 17
15.0 75 60 50 43 37 33 30 27 23
Copyright Durham University Business School
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ARE WE MAKING A PROFIT?
BRAND MAPPING
High Price
Low Price
Low
Quality
High
Quality
Rip off & false economy strategy High Value Strategy
Premium Strategy
Average Strategy
Economy Strategy
Superb Value Strategy
Good Value Strategy
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V
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Relationship Between Market Position, Price & Sales
Economy Average Premium
Sales
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Routes To Market
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BRAND MAPPING
High Price
Low Price
Low
Quality
High
Quality
Rip off & false economy strategy High Value Strategy
Premium Strategy
Average Strategy
Economy StrategySuperb Value Strategy
Good Value Strategy
12
Pricing For Volume
PRICING
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VOLUME
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ROUND UP:-
•Price For Profit
•Bundle Instead Of Discount
•Play on Customer's Vanity
•Remember Your Branding Proposition
•Consider Your Stance on Margin v Volume
•Keeping Playing Chess
•Consider Your Distribution Channels
•Use Incremental Prices To Help Negotiate Best Deals