everything is marketing second pillar pricing

Dan Strongin, ManageNaturally.com’s Uncorporate Academy

Everything is Marketing The Second Pillar: Pricing

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Four Pillars of Marketing

Product Management

Pricing Distribution

Promotion


The MarketThe ultimate reality test, the marketplace gives us direct and immediate feedback

To succeed you have to fill a real or imagined need. It is almost entirely driven by perception

Changing perception costs more than you can afford

You don’t set your price, the market does


Perception is RealityWhat is your perceived value? (from the customers point of view, silly)

What are they willing to pay for it?


How much profit do you make?

People always tell me things like “it costs a dollar in materials and 2 in labor plus everything else maybe the cost is 4 dollars, and I charge six so I make 2.”


WRONG!!You don’t even begin to make money until all your bills

are paid. Its called breaking even.

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And if you have capital investments

Like buildings, equipment, trucks, a store

Are you making money if your original investment has not been paid?


Often, only as you near 71% of capacity of production of your location does your capital investment start to make sense

So the goal is to get to 71% as quickly as humanly possible


To Get ThereYou have to price and promote accordingly


Note: It would take 100 pages like this to cover the terminology and links in the chain of every industry, so use your imagination… for distributor, if selling online classes, use affiliate… if an author of ebooks, perhaps

“electronic publisher.” What do you call those people who make it

possible for your customer to get your product or service along with many other peoples in

your industry. Write it in the comments below!


Popular Pricing Strategies Competition based pricing Cost plus pricing Loss leader Penetration Pricing Predatory Pricing Market orientated pricing Price discrimination


Competition Based Pricing

Setting the price based upon prices of the similar competitor products.

and what makes you think they have any better idea what they are doing than you do?


Cost Plus Pricing

- Calculate the cost of producing the product and adds on a percentage (profit) to that price to give the selling price.

- Although simple, it has two flaws; it makes no account for demand and there is no guarantee customers will purchase the product at that price


Loss Leader

- A product which is sold at a loss to attract customers to buy other full priced products sold by the business.

- How do you win a race to the bottom?


Take the Turkey Effect. Everyone sells turkey at a loss at thanksgiving. Why?

Because everyone else does. The theory is that you get new customers, or that they buy more of the stuff you can make money on. But is it true? Or do most people, not really

giving a darnfangled tweet about you except as to what is to their personal advantage, and just cherry pick the

bargains? Show me the Money!


So year after year supermarkets blow their brains out because everyone else does. While the customers that buy on price

remain loyal only to low price. In my day, we did not give the turkey away, we made a great one, and made money, lots of money. You might have

been able to buy a cheaper turkey, but not a better one.


Penetration PricingSetting an initial low price at the stage of deployment of the product to attract initial customers. The price is likely to rise later as the product gains a market share.


Predatory PricingAggressive pricing designed or intended to drive out competitors from a market.

Usually one is a victim of this, not the perpetrator… that is the prerogative of big boys


Market Orientated PricingSetting a price based upon analysis and research compiled from the targeted market.

Better than the others, but again, who says the players know what they are doing?


Price DiscriminationSetting a different price for the same product in different segments of the market. For example, this can be for different regions based on the cost of getting your product to market.

But be careful...


TRUST

The Robinson-Patman Act, a part of US Anti-Trust law, requires that producers offer a level playing field, to all customers, including short term promotions.

In other words what you offer to one customer you must offer to others, as long as they meet the same requirements.

Even if not the law of your land, it undermines trust, the foundation of long term success.


Best Practice

Calculate in advance what you are going to offer in price breaks based on a solid reason.

Be able to justify your reasoning with hard numbers to show a level playing field


One supplier mistakenly sent the wrong invoice, and the price was lower. We were their biggest customer

by far. They had to pay us tens of thousands of dollars to maintain their account, and we never

trusted them again. Their sales plummeted as they lost favor at the stores. Seemingly little decisions

have big consequences over time.


Reward What You Want

Volume is usually the best benchmark


Finally, Street Smart Pricing“You don’t pay bills with percentages, but with profit dollars” John Andronico

Price Pragmatically to maximize Profit Dollars (throughput).

Test Reality, to find…


The Break PointsBreakpoints are the retail prices beyond which volume is adversely affected.

The aim being to get the right value/price balance to be able to maximize both sales and profits.

Easier when you have an established flow, but still important.


If selling through middlemen, control the Retail

By knowing what is added to your price, at each leg of the journey from producer to consumer, you can set your price to control the retail, maximizing your dollar profits.


Effects of Freight fyiYour Price freight delivered dist 22% Retailer

60%10 $0.75 $10.75 $13.78 $34.46

9 $0.75 $9.75 $12.50 $31.25

8 $0.75 $8.75 $11.22 $28.04

7 $0.75 $7.75 $9.94 $24.84

6 $0.75 $6.75 $8.65 $21.63

5 $0.75 $5.75 $7.37 $18.43

4 $0.75 $4.75 $6.09 $15.22

3 $0.75 $3.75 $4.81 $12.02


Why Leave Money on the Table?


Get what the Market will Bear.


the only real way to do that is through trial and error, or PDSA


Use or know of another strategy? Share it in the

Comments. Everyone who offers up a truly new, actually in practice strategy will get something free from me.

everything is marketing second pillar pricing

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