1. P a g e | 1 Pricing Strategies and Tactics asirsi@schulich.yorku.ca

2. P a g e | 2 Agenda Why is price an under-utilized marketing mix variable? –The most common pricing mistake made by firms The best pricing strategy: value based pricing To be a price maker, not a price taker –You need to completely rethink your pricing approach

3. P a g e | 3 What are the main pricing challenges you face?

4. P a g e | 4 Your company produces sunglasses that sell for $10 Unit cost is $7 You are thinking of cutting price by 50 cents Best sales estimates reveal: –100% chance of selling 1,000 units if hold price (option A) –99% chance of selling 1,200 units at $9.50 (option B) Which option will you choose?

5. P a g e | 5 Studies reveal that managers routinely set their prices too low, sapping their companies’ profit

6. P a g e | 6 Why is This? Belief that buying market share through short term pricing leads to permanent increase in profitability Managers make pricing decisions based on current costs, projected short term share gains, current competitor prices, rather than long term profitability –Pricing is viewed as a tactic, not a strategy

7. P a g e | 7 “The fastest and most effective way for a company to realize its maximum profit is to get its pricing right” Marn and Rosiello

8. P a g e | 8 Comparison of Profit Levers 1% improvement in Creates operating profit improvement of Price Variable cost Volume Fixed cost 11.1% 7.8 3.3 2.3 Source: McKinsey, based on average economics of 2,463 companies

9. P a g e | 9 Why is price an under-utilized marketing mix variable?

10. P a g e | 10 Price is an Underutilized Variable Use seat of the pants approach to pricing Chase revenue at all costs Overemphasize cost when pricing Use smoke and mirror arguments –“We don’t have the brand awareness of the big boys” –“All our customers care about is price” –“We will lose sales”

11. P a g e | 11 Two Approaches To Pricing Product Cost Price Value Customers Value Price Cost Offer Internal Focus Customer Focus

12. P a g e | 12 Customers Value customers –Want the basic product, at the lowest price Performance customers –Are value customers –Willing to listen to value propositions Premium customers –Risk averse –Value the relationship

13. P a g e | 13 Value What do customers value? –In B2C markets? –In B2B markets? How do we communicate value? –Quantify, quantify, quantify –Train sales force –Be prepared to walk away from business