Boost your bottom line by taking the guesswork out of pricing By: Sean Bailey and Joven Rasgo IS IT TIME TO RAISE PRICES?

Boost your bottom l ine by taking the guesswork out of pricingBy: Sean Bai ley and Joven Rasgo

IS IT TIME TO RAISE PRICES?

Don’t go by your gutEntrepreneurs pricing too low

Price reflects Value

UNDERLYING THEMES

“Basically, I’d throw a price out there and see what they’d take”

Always set his price too low.Based prices off of a “similar product”

Customers felt he was providing a superior serviceCorporate Clients didn’t take him seriously

Objective Value RangeMost you can rationally charge for a product

Least you could rationally charge for a product. Break-even point

Perceived ValueWhat a person actually is willing to spend

Are you willing to walk for a beer if its lower priced?

TYPES OF VALUE

Initially priced at $50 Dropped to $25

Owner unsatisfied “From our point of view, we’re charging only a fraction of the value we provide.”

Has not created enough perceived value to justify the higher price

How would you raise the price back to $50/month?

LADDERS.COM

Revenue grew 54% in 2004- $8 millionCompetes with wine

Premium beer- $14 750ml wine bottleHosts “beer dinners”

Attracts early adopters to spread the wordMakes sure that there is not enough to satisfy the

demand. Scarce products demand a higher price

Wipes away reference price

DOGFISH HEAD CRAFT BREWERY

Similar product to Microsoft Offered at $795 a year, boosted to $995 a year. Next 12 months increased to $2,295 a year. “We can push it higher”

Customers asked him to push it higher “…[not] very expensive. How are you going to make any

money?”

SCOPE IT

Back door pricing Eliminate discounts, change terms and conditions

Charge for add-on servicesKeep price the same but reduce product or service

If done correctly, consumers won’t realize the differenceWipe away the reference point

WAYS TO PRICE HIKE

25% increase in priceNo customers jumped shipUsed to close 80% of bids

Now closes 40% of bids, much better marginsAllows the owner to relax

FIRE EYE CONCLUSION

Do your due diligence when developing your pricing strategy

Avoid a price warAvoid snowballing discountsPRICE REFLECTS VALUEPrice can open up new doors

TAKEAWAYS

Who provides more value for their customers: PC’s or Mac? Why?

Why would you pay for a job site if you could just use others for free?

QUESTIONS

http://www.inc.com/magazine/20050601/pricing_pagen_4.html

REFERENCES