Pricing Strategies
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- Date Submitted: 07/01/2014 04:34 AM
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Value Based Pricing
6 February 2013 Tallinn Harry Macdivitt
Axia Value Solutions
1
What we will look at…
Conventional Pricing Methods – Pros and Cons What is Value? What is Value Based Pricing? What companies use Value Based Pricing? Value Based Pricing – A Journey or a Destination?
2
Conventional Pricing Methods
Cost Based Based on our costs
Competition Based
Based on competitors’ prices
Market Based
Based on what we think the market will accept
“OOTA”
3
Based entirely on a guess
Cost-Based Price Structure
4
Critique of Cost Based Pricing
+
Easy to calculate Minimal information requirements Easy to administer Tends to stabilize markets insulated from demand variations and competitive factors Should insure seller against unpredictable, or unexpected later costs Fair and transparent 5
largely ignores the role of consumers and competitors Ignores opportunity costs Uses historical accounting costs - not replacement value Includes sunk costs rather than just incremental costs Contractors may not focus on performance because the cost is always covered by the client Uses “normal” or “standard” output level to allocate fixed costs
6
Critique of Competition-Based Pricing
+
Competitive data are generally available in the public domain. Relatively easy to position our product Permits focus on the purchase decision attributes Maintains market stability. Guarantees we will win some share of the market Enables us to collect the price and specification data
The available data may be wrong, out of date or irrelevant. Positioning may not take account of different segmental priorities These may not be the right attributes …at the cost of conservative pricing. Suggests that there are few differences between competitors Encouraging point by point comparisons on price and specification. Does not take into account economic elements of value-in-use. Completely ignores psychological or emotional qualities of our offer.
7
8
To understand Value Based Pricing...
6 February 2013 Tallinn Harry Macdivitt
Axia Value Solutions
1
What we will look at…
Conventional Pricing Methods – Pros and Cons What is Value? What is Value Based Pricing? What companies use Value Based Pricing? Value Based Pricing – A Journey or a Destination?
2
Conventional Pricing Methods
Cost Based Based on our costs
Competition Based
Based on competitors’ prices
Market Based
Based on what we think the market will accept
“OOTA”
3
Based entirely on a guess
Cost-Based Price Structure
4
Critique of Cost Based Pricing
+
Easy to calculate Minimal information requirements Easy to administer Tends to stabilize markets insulated from demand variations and competitive factors Should insure seller against unpredictable, or unexpected later costs Fair and transparent 5
largely ignores the role of consumers and competitors Ignores opportunity costs Uses historical accounting costs - not replacement value Includes sunk costs rather than just incremental costs Contractors may not focus on performance because the cost is always covered by the client Uses “normal” or “standard” output level to allocate fixed costs
6
Critique of Competition-Based Pricing
+
Competitive data are generally available in the public domain. Relatively easy to position our product Permits focus on the purchase decision attributes Maintains market stability. Guarantees we will win some share of the market Enables us to collect the price and specification data
The available data may be wrong, out of date or irrelevant. Positioning may not take account of different segmental priorities These may not be the right attributes …at the cost of conservative pricing. Suggests that there are few differences between competitors Encouraging point by point comparisons on price and specification. Does not take into account economic elements of value-in-use. Completely ignores psychological or emotional qualities of our offer.
7
8
To understand Value Based Pricing...