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Pricing 101

Pricing 101. Foundation for building a pricing strategy. Agenda for today. Pricing game. Your role: Use your pricing expertise to make as much money as possible in the marketplace. Pricing Game : Group 1. Look at items on the table

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Pricing 101

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  1. Pricing 101 Foundation for building a pricing strategy

  2. Agenda for today

  3. Pricing game • Your role: Use your pricing expertise to make as much money as possible in the marketplace

  4. Pricing Game : Group 1 • Look at items on the table • Document what you think each item is worth in the form provided • Bring the form to us • Congratulations you going to be the Buyers

  5. Pricing Game : Group 2 • Congratulations you going to be the Sellers • We are going to auction the items on the table and you can bid on every item. • Bids start at $1.00 and go up by $0.25 • Remember you need to turn around and sell these items so be careful on what you pay • After you buy and item from the auction pick up a form from us

  6. Pricing Game : Buyers and sellers • Seller you can sell to any buyer and vice versa • Everyone needs to do 1 transaction • Buyers be careful to not pay more than what you valued an item • Sellers try to get the best price • Sellers after you sell your item fill up your form and bring it to us

  7. Pricing game : What did you learn? • In every transaction both sides need to make a profit • Good Pricers try to understand Value to set prices rather than focus on cost • Great Pricers try to maximize value to get higher prices Buyers Profit = Value-Price Sellers Profit = Price- Cost Price Price Customer Value Product Cost

  8. Pricing is critical “The single most important decision in evaluating a business is pricing power.” Warren Buffett, 2011 Source: Warren Buffett in an interview with FCIC, May 2011

  9. Why is pricing critical? 1% Improvement Impact to operating profit Price Variable Cost Unit Volume Fixed Cost

  10. Different approaches to pricing The Cost-based Pricing Approach PRODUCT COST PRICE VALUE CUSTOMERS The Value-based Pricing Approach CUSTOMER VALUE PRICE COST PRODUCT

  11. APPROACHES and tools TO MEASURE customer VALUE

  12. VALUE MAP : pricing based on perceive value

  13. VALUE waterfall: pricing based on economic value

  14. Value based segmentation can lead to improved pricing and market share

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