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PRICING STRATEGY FOR SMALL BUSINESS PETER KRAAN / @kraanp TSiBA IGNITION CENTRE / www.tsiba.org.za MAY 24, 2012
PRICING STRATEGY FOR SMALL BUSINESS
PETER KRAAN / @kraanp
TSiBA IGNITION CENTRE / www.tsiba.org.za
MAY 24, 2012
PRICING STRATEGY FOR SMALL BUSINESS
1. Cost-plus pricing
2. Creaming or skimming
3. Limit pricing
4. Loss leader
5. Market-oriented pricing
6. Penetration pricing
7. Price discrimination
8. Premium pricing
9. Predatory pricing
10. Contribution margin-based pricing
11. Psychological Pricing
THE TWENTY-TWO STRATEGIES OF PRICING
12. Dynamic pricing
13. Price leadership
14. Target pricing
15. Absorption pricing
16. High-low pricing
17. Premium decoy pricing
18. Marginal-cost pricing
19. Value-based pricing
20. Pay what you want
21. Freemium
22. Odd pricing
Source: www.wikipedia.com
PRICING STRATEGY FOR SMALL BUSINESS
Setting the price low in order to attract customers and gain market share.
The price will be raised later once this market share is gained.
PENETRATION PRICING
Source: www.wikipedia.com
PRICING STRATEGY FOR SMALL BUSINESS
• Low prices are the final refuge of the marketer who has run out of ideas and is left with nothing but a commodity.
• Organizing your business around lowering prices through efficiency, mass scale and smart choices is a powerful way to grow. Doing this is really quite difficult [and not something small business is usually good at].
• If all you're doing is writing a lower number on the price tags, you're probably playing the first game. [How long can you keep that up?]
LOW PRICES AND SMALL BUSINESS
Source: adapted from Seth Godin, www.sethgodin.typepad.com/seths_blog/2012/04/low-prices.html
PRICING STRATEGY FOR SMALL BUSINESS
Cost-plus pricing is the simplest pricing method. Calculate the cost of producing the product and add on a percentage to that price to give the selling price.
This method takes no account of demand and no account of the customer.
COST-PLUS PRICING
Source: www.wikipedia.com
COSTING, yes! COST-PRICING, careful!
PRICING STRATEGY FOR SMALL BUSINESS
Setting a price based upon analysis and research compiled from the target market. This means that marketers will set prices depending on the results from the research.
MARKET-ORIENTED PRICING
Source: www.wikipedia.com
PRICING STRATEGY FOR SMALL BUSINESS
Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favourable perceptions among buyers, based solely on the price. This exploits the tendency for buyers to assume that expensive items enjoy an exceptional reputation, are more reliable or desirable, or represent exceptional quality and distinction.
PREMIUM PRICING
Source: www.wikipedia.com
Beware of ARTIFICIALLY!
PRICING STRATEGY FOR SMALL BUSINESS
Pricing a product based on the perceived value and not on any other factor.
VALUE-BASED PRICING
PERCEPTION = REALITY!
PRICING STRATEGY FOR SMALL BUSINESS
1. Reference Price Effect
2. Difficult Comparison Effect
3. Switching Costs Effect
4. Price-Quality Effect
5. Expenditure Effect
NINE LAWS OF PRICE SENSITIVITY AND CONSUMER PSYCHOLOGY
Source: www.wikipedia.com
6. End-Benefit Effect
7. Shared-cost Effect
8. Fairness Effect
9. The Framing Effect
PRICING STRATEGY FOR SMALL BUSINESS
DIFFERENTIATE! Make sure it’s about the whole PACKAGE, not just the PRODUCT.
REFERENCE PRICE EFFECT
Source: www.wikipedia.com
Buyer’s price sensitivity for a given product increases the higher the product’s price relative to perceived alternatives.
PRICING STRATEGY FOR SMALL BUSINESS
Buyers are less sensitive to the price of a known or more reputable product when they have difficulty comparing it to potential alternatives.
DIFFICULT COMPARISON EFFECT
Source: www.wikipedia.com
DIFFERENTIATE some more!
PRICING STRATEGY FOR SMALL BUSINESS
Buyers are less sensitive to price the more that higher prices signal higher quality.
PRICE-QUALITY EFFECT
Source: www.wikipedia.com
PRICING STRATEGY FOR SMALL BUSINESS
Buyers are more sensitive to the price of a product when the price is outside the range they perceive as “fair” or “reasonable” given the purchase context.
FAIRNESS EFFECT
Source: www.wikipedia.com
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“Fleece ‘em and
run”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“Let the buyer
beware”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“Info-mercial”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“Tourist trap”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“What’s wrong
with this?”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueTemporary measure to raise revenue, clear stock.
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“InventorySale”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“Square deal!”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“More for your
money”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
“The discerning customer”
PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
High ValueUnderpriced. The product value is undercut .
Attractive pricing that is ideal for market penetration.
Premium pricing suggests prestige and prominence.
Medium ValueBargain, temporary measure to raise revenue, clear stock
Price and value are in balance.
Overpriced. The uninformed will buy only once.
Low Value Cheap stuff. Junk. Turns sales into complaints. Don’t go there.
Source: adapted from www.authenticpromotion.com
PRICING STRATEGY FOR SMALL BUSINESS
Still making money? PROCEED
NOW DO YOUR COSTING:
Not worth your while? REPACKAGE, REPOSITION
PRICING STRATEGY FOR SMALL BUSINESS
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PRICING STRATEGY FOR SMALL BUSINESS
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Peter Kraan021 532 2750@[email protected]
