University:
Massachusetts Institute of Technology
Course:
15.818 | Pricing
Academic year:

2023
Views:

350

Pages:

3
Author:

litesderbyshire

SUMMARIZING PRICING Contents 1. 2. Pricing Aim Pricing Menu 1 2 3. 10 Challenges to Pricing Intuition 3 1. Pricing Aim Pre-emptive Pricing Use of Pricing Data -Complex Price Segmentation -Novel Pricing Metrics -Experimentally driven pricing approach Adaptive Pricing Primitive Pricing -Gut Feel -Cost Plus Reactive Pricing -Competition based -Some Excel -Fact based pricing approach -Reactive to customers Pricing Sophistication Figure 1. A taxonomy of pricing strategies 1 2 SUMMARIZING PRICING 2. Pricing Menu New product to price B2B B2C EVC Analysis with Benchmarking Open ended price questioning Strategic Analysis of EVC discount Monadic/Conjoint tests Limited field tests framed as introductory pricing Figure 2. Pricing a new product Improving pricing for existing product Use EVC as initial diagnostic Obtain broad historical data Calculate price elasticities for different products/customers Develop price segmentation fences Figure 3. Pricing an existing product SUMMARIZING PRICING 3 3. 10 Challenges to Pricing Intuition (1) If we use cost-plus pricing, we will make a proﬁt • Only if you are incredibly accurate with your sales projections (2) Our customers always prefer low prices • Customers will always say they like lower prices. However, in many markets price serves as a guide to quality, and pricing too low can send out a negative signal. (3) Our customers do not know prices, so our pricing strategy is unimportant. • Lack of customer price knowledge makes how you present the price even more important. This is where strategies such as good-better best and price ending cues are key. (4) Simpler pricing structures are better. • You always want three prices. Simplifying pricing structures means giving away money. Due to the taxi-meter eﬀect, customers may not always appreciate it when ﬁrms do price simply. (5) If we are proﬁtable, we do not need to price-discriminate. • On the contrary: Price segmentation is actually going to be most eﬀective for already-proﬁtable ﬁrms, because eﬀective segmentation requires the market power implied by proﬁtability. (6) Razor Blade pricing works because our customers are stupid • Razor blade pricing works because it is actually subtle price segmen tation. High-value, high-usage customers pay more. Low-value, lowusage customers pay less. (7) Our product has network eﬀects, so we need to set a low price • Your product may well not have network eﬀects at all. • Even when a product has network eﬀects, price segmentation is key. The crucial questions for network goods are: Whom do I set a low price to and whom do I set a high price to? (8) Firms need to adjust prices until I ﬁll capacity. • It can be more proﬁtable to have unused inventory or capacity. (9) Industries need to work together to ensure that they avoid harmful price wars • Statements like this lead to jail time. It is the responsibility of the ﬁrm, and the ﬁrm alone, to avoid a price war. (10) Our competitors understand our pricing strategy • Firms have to actively manage perceptions of their pricing by com petitors, regulators and other stakeholders.

Summarizing Pricing

Related Documents

Recommended Documents

Description

Related Documents

Free up your schedule!

Take 5 seconds to unlock