Smart Pricing
Nov 29, 2014
Smart Pricing
Till Plant Weed Harvest
Farmer’s Harvest
Harvest Time!
Till Plant Weed Harvest
Farmer’s Harvest
Develop Create Market Sell
Business Cycle
8%
The 4 Levers- 1% better
Variable CostsSales Quantity
Fixed Costs
Price
The 4 Levers- 1% better
Fixed Costs 2.45% Increased Profits
The 4 Levers- 1% better
Sales Quantity3.28%Increased Profits
The 4 Levers- 1% better
Variable Costs6.52%
Increased Profits
The 4 Levers- 1% better
Price10.29%Increased Profits
A 1% difference..
Fixed Cost Sales Quantity Variable Costs Price0
2
4
6
8
10
12
increased profit
The 3 Simple Pricing Models
•Cost Plus•Competition Based or
“Strategic” Pricing•Consumer based pricing
Cost Plus
My Costs + 25%
‘Strategic’ Pricing
What is my competition charging for a similar
item?
Consumer Pricing
“What can I gouge this suckerCustomer for?”
Which Model are you using?
Why the traditional models
fail
Cost Plus• No incentive for Efficiency gains
• Price Floor
• Leaving money on the table
Strategic• Who’s saying that the competition is
pricing right?
• Moves your product to commodity
• Southwest vs Delta.
Consumer Based• Negotiation skills reign
• Bad Blood
• Biased based
Pay as you wish
4 Price Points for “Fries with that?”
Razors & Video Games
Price Wars
What Did Walmart do to win the retail game?
Think Small
98% of their skus sell less than 20 copies per year
Think Small1 Billion downloads @ $0.33 each= $330,000,000
Think Small1 Billion downloads @ $0.33 each= $330,000,000
Subscription Model
Fresh Videos, on demand
Subscription Model
Fresh Fruits, every month
Snob PremiumWhich sold (nearly 4x) better:
A Chinese silk scarf for $200-300or
A French silk scarf for $2000-3000
Same silk, similar designs, same manufacturer
Snob Premium
WHY?!?
Pay if it worksPay only if it works
model. No results, no pay.
So what’s the right way to price?