The Art of PricingSubmitted by:Ankush GoyalAnshu Goyal

IntroductionWritten By Rafi Mohammed.It teaches us how to find hidden profits to

grow your business.It lays emphasis on following the approach of

multi pricing.

About the authorA graduate of Boston university, the London

school of Economics and Cornell University.Director of Simon-Kucher & Partner.Also authored books like 1% windfall and

Online Marketing.

Three Keys to better Pricing

Profitabilit

yValue

’s roleDiffere

nt Perspectives

ProfitabilityEmpower

your

employees to make you more money

.

Provide

consistent guidelines

on when to cut prices

.

Create confidence in

your

product.

Make it

possible

for you

r bes

t customers to

provide

you with additiona

l profits.

Value’s RoleOffer enhanced Service •Quicker responsiveness perhaps or services customized just the way you want them rather than being limited to generic service bundles.

Provide peace of mind •It can be done by providing insurance, an extended warranty or a technician who can come to your office and fix any problem which arise.

Arrange Financing •Which makes it easier to buy by providing an extended period to pay.

Different PerspectivesFor every product in the world, customers

will have different valuations. If you set just one offer, you are failing to take advantage of this fact.

Ford Motor Company’s CaseLloyd Hansen analyzed Ford’s pricing

practices and found if he could generate an additional 1% of net profit margin, this would have the effect of boosting ford’s

net income by 33% its cash flow by incredible 45%Its market valuation by 45%

Strategies adopted by Lloyed HasenEmpower the sales force. •By sharing with them information about which models were most profitable and providing incentives on sale of those models.

Use promotional discounts. •By providing discounts on high margin models.

Cross-sell financing •By linking special promotions to customers who would finance their vehicle purchases through Ford credit.

Restructure fleet sales mixes •So more sales were made to higher margin commercial and Government fleets while corresponding lower sales were made to the low-margin daily rental car companies.

Decoding the true value of your product or service

Factors determining value a product in customer’s mind:

Substitutes

Competitors

Income

Demand

Environment

Pricing StrategiesDifferential Pricing

Versioning

Segment

-based

Marke

t Conditions

Differential PricingUse customer characteristics.Use delivery time differences.Offer Quality discounts.Charge differently based on where

customers are making purchase.Use mixed building.Negotiation.

VersioningIt means having a line of products offered at

different prices to different customers.

Versioning works well because:1) It allows you to capitalize on different

valuations your customers have.2) Adding attributes to your basic product can

attract entirely new customers and open up new market.

3) Versioning is cost effective.

Segment-basedInterval ownership

Bundling

Leasing

Prepaid

Rental

Continued…Two-part pricing

Hurdles

Payment plans

Customizing pricing

All-you-can-eat pricing

Psychological StrategyThe final step in pricing is to make your pricing

practices sparkle by tapping into the ways people think. Use the nine and zero effectUse a payment plan to enhance satisfactionSet your prices high for prestigious productsAnchor your products appropriatelyPrices to suggest a good quantity to purchasePose your pricing offer as a series of small

investments rather than one sizable transaction