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Fundamentals of Strategic Pricing

1

Ed Kless@edkless

Ed.Kless@Sage.com

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“The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.”

-Peter F. Drucker

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THE two (count ‘em two and only two) marketing strategies

• Be moderately appealing to a larger group of people

• Be intensely appealing to a smaller group of people

5/13/16 3

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THE three (yes, only three) pricing strategies

• Skim

• Penetration

• Neutral5/13/16 4

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Two Basic Pricing Methods

Cost-led pricingProduct à Cost à Price à Value à Customer

Value-led pricingCustomer à Value à Price à Cost à Product

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A 1% Improvement in:

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

- Fixed Costs + Revenue - Variable costs + Price

2.7%3.7%

7.3%

11.0%

1.5%2.5%

4.6%

7.1%

McKinsey AT Kearny

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

-Warren Buffet

© 2015 Sage Software, Inc. All rights reserved.

1%

© 2015 Sage Software, Inc. All rights reserved.

About Sage Summit 2016

http://sagesummit.comEd Kless’ Sessions

• Fundamentals of Strategic Pricing – Tuesday at 2pm

• The Invisible Handshake (with Ron Baker) –Tuesday at 4:45pm

• Communicating with Your Customers – Wednesday at 11am

• Asking Effective Questions – Wednesday at 2pm

• Again with the Trusted Advisor‽ – Thursday at 11am

• Innovating Beyond Technology – Thursday at 12:30pm

Dates and time subject to change5/13/16 9

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Factors affecting price sensitivity

• Perceived substitutes• Unique value• Switching costs• Difficult comparison• Price quality

• Expenditure• End benefit• Shared costs• Fairness• Inventory

5/13/16 10

© 2015 Sage Software, Inc. All rights reserved.

© 2015 Sage Software, Inc. All rights reserved.

Dan Ariely – The Economist sets price

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The Numbers

Two options Three options

Selected Price Revenue Selected Price Revenue

One year, print only 68 59 4,012 16 59 944

One year, web only - - - - 125 -

One year, print and web 32 125 4,000 84 125 10,500

Total Revenue 8,012 11,444 43%

Production costs 32 30 960 84 30 2,520

Profit 7,052 8,924 27%

© 2015 Sage Software, Inc. All rights reserved.

© 2015 Sage Software, Inc. All rights reserved.

© 2015 Sage Software, Inc. All rights reserved.© 2015 Sage Software, Inc. All rights reserved.

The majority of pricing mistakes are the result

of underpricing, not overpricing.