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Is it Time to Raise Prices?

Is it Time to Raise Prices?. Boost your bottom line by taking the guesswork out of pricing By: Sean Bailey and Joven Rasgo. Underlying Themes. Don’t go by your gut Entrepreneurs pricing too low Price reflects Value. “Basically, I’d throw a price out there and see what they’d take ”

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Is it Time to Raise Prices?

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  1. Is it Time to Raise Prices? Boost your bottom line by taking the guesswork out of pricing By: Sean Bailey and JovenRasgo

  2. Underlying Themes • Don’t go by your gut • Entrepreneurs pricing too low • Price reflects Value

  3. “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 service • Corporate Clients didn’t take him seriously

  4. Types of Value • Perceived Value • What a person actually is willing to spend • Are you willing to walk for a beer if its lower priced? • Objective Value Range • Most you can rationally charge for a product • Least you could rationally charge for a product. • Break-even point

  5. Ladders.com • 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?

  6. Dogfish Head Craft Brewery • Revenue grew 54% in 2004- $8 million • Competes with wine • Premium beer- $14 750ml wine bottle • Hosts “beer dinners” • Attracts early adopters to spread the word • Makes sure that there is not enough to satisfy the demand. • Scarce products demand a higher price • Wipes away reference price

  7. Scope It • 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?”

  8. Ways to price hike • Back door pricing • Eliminate discounts, change terms and conditions • Charge for add-on services • Keep price the same but reduce product or service • If done correctly, consumers won’t realize the difference • Wipe away the reference point

  9. Fire Eye Conclusion • 25% increase in price • No customers jumped ship • Used to close 80% of bids • Now closes 40% of bids, much better margins • Allows the owner to relax

  10. Takeaways • Do your due diligence when developing your pricing strategy • Avoid a price war • Avoid snowballing discounts • PRICE REFLECTS VALUE • Price can open up new doors

  11. Questions • 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?

  12. References • http://www.inc.com/magazine/20050601/pricing_pagen_4.html

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