MM8- 5.Pricing Strategy.
It is short and long term monitization plan. At the high level, clear intent, quanitifiable goal and a time frame for execution.
Over next two years, we plan to increase the revenue by 40%, we will do it by establishing a premium price vs the market leader and discount price for growth consumer segment. This is beacause we believe in following.
- we can’t take drastic price move, market leader set the price accptance.
- we won’t lose core consumer as they are slightly price insensitive.
- we can communicate price advantage in growth group.
Clear objective, time frame, firm market position, how firm will treate each consumer segment.
The company best develop new products take the time to painstakingly document their pricing strategy and continually update it.
THE FOUR BUILDING BLOCK.
1.set clear goal - without a clear goal, you won;t have an effective pricing strategy, if you want to maximise market share you need to choose strategy and price level for that and it is different than maximazing total profit. You can not maximaize all of them in once. In setting your goal you must make trade-off. And you won’t know how to act at the face of compition and customer pressure.
Use 100 points and allocate. Use this exercise along with other member otherwise ceo has different priority and market head different.
2.pick the right type of marketing strategy - there is 3 main types
MAXIMIZATION- this strategy maximize your goal in short term. Company adopt it when gaining a huge market share is not woth the lower revenue or profit. There is clear co-relation between price and volume, and profit.
- PENETRATION- in this strategy you intentionally set price lower than maximization to rapidly gain market share. Specially where there is a strong network effect. Or you plan to hike price later. Or your high volume create profit from low margin, and create barrier to market entry. But it is riskiest from profit and revenue standpoint. A lot of Silicon Valley company justify it but never come close to realise anything.
- SKIMMING- here you first serve customer with high WTP, early adopter, at higher than maximising price. Then systematically lower the price for low wtp. Movies. It allow them the bragging rights. Lauch higher end first and then lower end.
3.Developing price setting principles -
- select montizing model for different customer segments.
- price differentiation.
- price floors. Below which you will never sell.
- price ending. .99|.50|.95
- price increase. Will you increase over time.
4.Develop principle for reactions - how would you react based on consumer and customer reaction.
- promotional reaction - whether or how, who and when receive that pramotion. What you will not resort to. Your pricing strategy document should clearly lay out your pramotional principles.
- comptative reaction - you should anticipate the compitior move. And prepare for possible counter reaction.
- how might competitor react and why?
- are comptetior likely to react only once?
- if we match a competitor price, what will be the impact on our revenue.
- what counteraction do we expect to our reaction.
PRICE OPTIMIZATION AND ELASTICITY.
Price elasticity curve tells you: change in sales/change in price. Every product from rolls royace to chewing gum has elasticity curve.