Download - TRANSACTION PRICING
TRANSACTION PRICINGDecember 11, 2002
Transaction Pricing
Developing unit prices for individual
products or services
Pricing ConsiderationsPricing Considerations
• Define unit of service or product
• Understand the market
• Customers
• Competitors
• Product/Service Life Cycle
• Volume Potential
• Barriers to Entry
Pricing ConsiderationsPricing Considerations
$-
$20
$40
$60
$80
$100
$120
0 1 2 3 4 5 6
Cost Revenue
Pricing Considerations - Cost BasePricing Considerations - Cost Base
• Fixed versus variable costs
• How quickly fixed costs can be avoided
• Individual product/service variable costs (if producing or rendering more than one)
• Marginal and incremental costs
• Target volumes and break-even points
• Sensitivity analysis on volume levels (market share)
• Capital investment
• Working Capital requirements
Pricing ConsiderationsPricing Considerations
$-
$10
$20
$30
$40
$50
$60
$70
0 1 2 3 4 5 6
Average Unit Cost Unit Price
Investment RiskInvestment Risk
• Achieving target volumes
• Competitor reactions
• Risk mitigation strategies
– Cost variability
– Sharing risk and rewards with suppliers/partners
Go Forward StrategyGo Forward Strategy
• Plan strategy before entry
• Position product/service as evironment changes
• Quickly adjust as competitiors’ react and customer values change
Key Decision DriversKey Decision Drivers
• Customers
• Competition
• Market Price
• Volume
• Costs
• Investment
• Strategy
• Willingness to Pay
• Our Advantage
• Winning price
• Break-even, Profit
• Fixed,Variable
• Return on Investment
• Drive market share
