The art of pricing by Rafi Mohammed
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Transcript of The art of pricing by Rafi Mohammed
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The Art of PricingSubmitted by:Ankush GoyalAnshu Goyal
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IntroductionWritten By Rafi Mohammed.It teaches us how to find hidden profits to
grow your business.It lays emphasis on following the approach of
multi pricing.
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About the authorA graduate of Boston university, the London
school of Economics and Cornell University.Director of Simon-Kucher & Partner.Also authored books like 1% windfall and
Online Marketing.
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Three Keys to better Pricing
Profitabilit
yValue
’s roleDiffere
nt Perspectives
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ProfitabilityEmpower
your
employees to make you more money
.
Provide
consistent guidelines
on when to cut prices
.
Create confidence in
your
product.
Make it
possible
for you
r bes
t customers to
provide
you with additiona
l profits.
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Value’s RoleOffer enhanced Service •Quicker responsiveness perhaps or services customized just the way you want them rather than being limited to generic service bundles.
Provide peace of mind •It can be done by providing insurance, an extended warranty or a technician who can come to your office and fix any problem which arise.
Arrange Financing •Which makes it easier to buy by providing an extended period to pay.
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Different PerspectivesFor every product in the world, customers
will have different valuations. If you set just one offer, you are failing to take advantage of this fact.
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Ford Motor Company’s CaseLloyd Hansen analyzed Ford’s pricing
practices and found if he could generate an additional 1% of net profit margin, this would have the effect of boosting ford’s
net income by 33% its cash flow by incredible 45%Its market valuation by 45%
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Strategies adopted by Lloyed HasenEmpower the sales force. •By sharing with them information about which models were most profitable and providing incentives on sale of those models.
Use promotional discounts. •By providing discounts on high margin models.
Cross-sell financing •By linking special promotions to customers who would finance their vehicle purchases through Ford credit.
Restructure fleet sales mixes •So more sales were made to higher margin commercial and Government fleets while corresponding lower sales were made to the low-margin daily rental car companies.
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Decoding the true value of your product or service
Factors determining value a product in customer’s mind:
Substitutes
Competitors
Income
Demand
Environment
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Pricing StrategiesDifferential Pricing
Versioning
Segment
-based
Marke
t Conditions
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Differential PricingUse customer characteristics.Use delivery time differences.Offer Quality discounts.Charge differently based on where
customers are making purchase.Use mixed building.Negotiation.
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VersioningIt means having a line of products offered at
different prices to different customers.
Versioning works well because:1) It allows you to capitalize on different
valuations your customers have.2) Adding attributes to your basic product can
attract entirely new customers and open up new market.
3) Versioning is cost effective.
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Segment-basedInterval ownership
Bundling
Leasing
Prepaid
Rental
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Continued…Two-part pricing
Hurdles
Payment plans
Customizing pricing
All-you-can-eat pricing
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Psychological StrategyThe final step in pricing is to make your pricing
practices sparkle by tapping into the ways people think. Use the nine and zero effectUse a payment plan to enhance satisfactionSet your prices high for prestigious productsAnchor your products appropriatelyPrices to suggest a good quantity to purchasePose your pricing offer as a series of small
investments rather than one sizable transaction
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