Is it Time to Raise Prices? Boost your bottom line by taking the guesswork out of pricing.
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Transcript of Is it Time to Raise Prices? Boost your bottom line by taking the guesswork out of pricing.
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Is it Time to Raise Prices?
Boost your bottom line by taking the guesswork out of pricing.
Written by Alison Stein Wellner
Presentation: Prescott Jarrell, Michael JoosBA 499 February 27th, 2012
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Fire Eye Company
• 2004 Young Entrepreneur of the Year Award by Tennessee's small-business administrationo Company struggling within
Not enough time Erratic cash flows Consistent hiring and laying off
• Price Hikeo Too high, too low?
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Raising Prices
• "If you're holding prices steady at a time when they are generally increasing nationwide, you may be surrendering more of your margin than you need to. "This is a very important time for everyone to review their prices," says Brent Lippman, CEO of Khimetrics, a pricing consultancy in Scottsdale, Ariz."
• Raising prices does not always mean you will lose customers.
• Not raising prices can actually be a disadvantage if everyone else is raising prices.
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Don't Rip Yourself Off
•When determining your prices:o How much would a rational consumer be
willing to pay for your product, assuming the consumer had a perfect understanding of its actual worth?
• Increase prices making a customer feel there is a reason (need) for the increase.
Poor example: Netflix
• Not showing value to customers for the "price increase"
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How Much is Your Product/Service Worth?
• Objective Value Vs. Perceived Value
• Objective Value:o The most that you could rationally charge
for a product.
• Perceived Value:o What a person is actually willing to spend
on the product. Somewhere between the actual break-
even cost of the product and the objective value of the product.
http://youtu.be/EHtaek38Erg
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Setting Prices
• Reference pricing:
• Shopping competitors prices and setting your price off of their prices.
• Reference prices starting at zero are the most difficult to overcome.o Targeting select groups and proving the
value in your product above competitors "free pricing" Failure Example: PS3 Price Cuts
• Set prices to maintain profitability with money and resources.
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Sell Your Price Increases
• Determining your price hike is one thing, selling your price increases is another.o When costs increase, and companies explain
the reasoning behind the increase, people usually react better.
• Some companies even urge you to increase prices.o "We want you to stick around"o "You're too cheap to be taken seriously"
• Raising prices through the back door by getting rid of discounts or fringe benefits can be easier than price increases.
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Get the Price you Want
• Do not get carried away with discounts to bring in customers.o Control the discounts you offer before they
control you. Grandfathering discounts Multiple discounts Customers relying on Discounts
• Get the price you want- avert the price war. o Don't be afraid to walk away from low-ball
offers.o Your clientele prices can determine your
company reputation.
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Questions?
• Have constant price discounts, or benefits ever influenced you on when to buy a product?o Ex.- Apple offering 'free iPod' with MacBook
purchase before school year. o Macy's offering consistent multiple deals.
• Do extremely low prices for a product ever make you second guess the product quality?o Compared to that of competitors product
prices in the same product category.
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References
• Wellner, Alison Stein. "Subscribe to
•Inc.com's Free Newsletters." Inc.com. Inc.com, 01 July 2005. Web. 25 Feb. 2012. <http://www.inc.com/magazine/20050601/pricing.html>.