Johns Hopkins Business and Consulting Club Pricing and Growth Strategies March 7, 2006
Pricing Strategies Drug maker has developed a new drug that helps with smoking cessation and weight loss. How much should it cost? Step 1- Investigate the product. Step 2- Choose a pricing strategy Step 3- Supply and demand
Pricing Strategies Step 1: Investigate the product - What is special/proprietary? - How are similar products priced? - Growth phase of industry? - How big is the market? - What were R&D costs?
Pricing Strategies Step 2: Choose a pricing strategy Three Strategies: 1- Competitive Analysis 2- Cost-based pricing 3- Price-based costing
Pricing Strategies Competitive Analysis 1- Competitor’s prices 2- Competitor’s costs 3- Substitutions 4- Consumer buying habits
Pricing Strategies Cost-Based Pricing 1- Cost of goods sold 2- What is breakeven point? 3- How much profit margin can we add?
Pricing Strategies Price-Based Costing 1- What are customers willing to pay? 2- Will they pay what is costs to make it? 3- Supply and demand *profit margins will vary greatly
Pricing Strategies Step 3- Assess supply and demand *note- this is a great time to draw a graph What is the supply? How is demand? How will price affect market equilibrium? What are similar products selling for? Are there substitutions?
Growth Strategies Your client has a lot of cash on hand and wants to use it to grow the company. Step 1: Ask strategic planning questions Step 2: Choose a growth strategy
Growth Strategies Step 1: Ask strategic planning questions Is the industry growing? How are we growing relative to industry? How do our prices compare with competitor? How are competitors growing? Which business segments have highest future potential? Do we have funding for higher growth?
Growth Strategies Step 2: Pick growth strategy Increase distribution channels Increase product line Invest in major marketing campaign Diversify products and services Acquire competitors or company in different industry
Practice Case Question: A paging services company has been experiencing declining profitability. What’s driving their profitability problem? What should they do?
Practice Case Information: Company/ Product - Both local and national plans offered -Fixed monthly rate - # 3 company in industry in terms of number of customers
Practice Case Customers Business: -Buyer power leads to aggressive pricing -Dedicated sales/customer service group required by large businesses Retail: -Must pay incentives to retailers to generate sales -Short customer lifecycles -Both business and retail customers are currently unprofitable
Practice Case Competition Strong competition (pricing strategies) around both business and retail customers
Practice Case Solution: The company needs to focus on either business or retail customers, as the needs of the different groups are vastly different. In the interview, you could choose either segment and prove a case for it.
How many people will buy the new X-Box 360? Estimation How many people will buy the new X-Box 360?
Estimation Things to consider: How many people play video games? How much are they? Competition?