BY:JOSH MILLER

ADAM OPOIEN

IS IT TIME TO RAISE PRICES

Results of a Price Raise

Good:Larger profitHire more employeesBuy new EquipmentWork Less (owner)

Bad:Alienate longtime customersClose the store

How Prices are currently set Entrepreneurs respond:

“we go by our gut”○ Result: Price is low

Cost + (%) margin of profit○ Which is great! However, if you

set 20% but could make 40% you LOSE!

Competitors price – (%) = Price○ Good: if product is identical○ Bad: if competitors do not know

how to price correctly

Correct way to price

Smart Pricing consist:CostsCompetitorsCustomersSales people

The Value of a product or serviceHow much would a rational consumer be

willing to pay for your product

Value Objective

The most that you could rationally charge for a product

Perceived What person is willing to spend

Gap between value of product and perceived value

Willing to Pay

Calculator StudyTravel 20 minutes to save $5

Jacket Study$125

People are irrational in purchase decisions

Setting Prices Reference price

Shop your competitors Cenedella’s price

$50/month to $25/monthFar from satisfied

Sam Calagione, President of Dogfish Head Craft BreweryUses fine wine as reference pricePurposely doesn’t meet demand to create

demandAligned prices with objective value

Selling Your Price

Fire Eye raised prices by 25%Sold the increase to his clients

Henk Keukenkamp, CEO of ScopeProduct similar to MicrosoftCustomers urged him to raise pricesStarted at $795 per user per year now at

$2,295

Back Door Price Hike’s

Eliminating discounts Eliminating 2% discount within 30 day

payment is easier than raising prices 2% Start charging add on services that are

free Reduce amount of product but keep

priceDogfish Head sells 4 pack instead of 6 pack

Questions

How do you guys perceive value in products? Use reference prices?

How much farther are you willing to travel for a product that’s cheaper?

If you were a business would you tell your supplier to rise their prices?