Three Pricing Lenses

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En provenance du cours de University of Virginia

Cost and Economics in Pricing Strategy

186 notes

University of Virginia

Cost and Economics in Pricing Strategy

186 notes

Cours 1 sur 4 dans Specialization Pricing Strategy Optimization

How much should you charge for your products and services? Traditionally, businesses have answered this question based on the cost to produce or provide their goods and services. This course shows you the economic factors behind pricing based on cost and the pros and cons of a cost-based pricing approach. Led by Darden faculty and Boston Consulting Group global pricing experts, the course provides the practical and research-based models and methods you need to set prices that maximize your profits. By the end of this course, you’ll be able to: --Apply knowledge of basic economics to make better pricing decisions --Recognize opportunities for price discrimination—selling the same product at different prices to different buyers—and recommend strategies to maximize sales and profits --Calculate three types of price elasticities to determine the impact of price on demand --Analyze and apply different pricing models -Cost-plus pricing -Marginal cost-plus pricing -Peak-load pricing -Index-based pricing --Evaluate the impact of channel intermediaries and customer lifetime value on pricing

À partir de la leçon

Pricing Fundamentals

Welcome to the first week of Cost and Economics in Pricing Strategy course! We'll begin our study of pricing by looking at some basic economic principles relevant to pricing, such as cost and cost variations and what that implies about the supply curve. Then we'll take a closer look at one pricing mechanism: auctions. You will never look at eBay the same!

Introduction to the Specialization2:37

Three Pricing Lenses4:58

Rencontrer les enseignants

Jean Manuel Izaret
Senior Partner and Managing Director, Leader of BCG’s Global Pricing Practice
Thomas Kohler
Associate Director, Pricing
Marketing, Sales & Pricing Practice
Ronald T. Wilcox
NewMarket Corporation Professor of Business Administration & Senior Associate Dean for Degree Programs
Marketing

Hello, my name is JMI,

and I would like to talk to you today, a bit about how to think about pricing.

How to set the price can be a really overwhelming experience, you have

to think about what is the right price points where you're going to make money.

But you also have to think about how many customers are going to buy your product?

Will you reach the volume you're trying to get to?

You have to consider where your competitors are pricing

which sometimes is easy to know if you could see the prices on the market.

Sometimes can be really complicated and you'll do not know where competitor are.

You have to think about customer value and

how does that value depend on different customer segments.

And therefor should you have a way to price for

different segments at the same time.

There's a lot of things to take into accounts, as we worked with our clients we

found there was an easy way to think through pricing.

And we have structured our courses according to that way and

I'm going to explain this in a really simple way now.

The first thing you need to think about, think about pricing is your cost and

the economics.

In other words, what does it cost for

you to serve particular customer, to have a product?

And what is the margin that you can have on top of this?

You need to think about supply and demand.

You need to think about the incentives you give

your customers to buy a little more volume, what discount do you give?

This is all in the frame of economics,

the second thing you need to think about is the value that your customers will get.

What is their willingness to pay?

You need to think about whether you have different customer segments or not.

You need to think about, how will they make decisions?

How will they compare you product to other products?

And I just talked about other products.

Of course in the market there is also a lot of competitors and

you need to understand where these competitors price.

Think about their share, think about their strategy,

think about how your product compares to what we call the next best alternative.

What the other competitors are charging?

Now, as I talked to these three elements,

there is obviously some overlap between each other.

First, there is an overlap between the economics and the customer value.

Essentially between the supply and demand and

how customers value things differently, that overlap is all about the elasticity.

Elasticity is going to be how much will your volume depend on your price

and that depends on how much the customers do value your products.

But also where your costs are so you can really optimize the volume

you want to have for the margins you're going to get.

The second overlap is the overlap about how much you can

discriminate price points between customer segments.

And to understand how you do this, you need to understand of course the customer

segments and where customers come from.

You also need to understand what competitors are offering.

Very often different competitors will tailor to different customer segments.

It gives you an indication about what you can do to discriminate

price points between different customer segments.

The final overlap is between the economics and competitors.

Game Theory is a discipline that tries to help

companies decide whether or not to match competitors prices,

it considers every market as a gain.

Where companies go against each other on an ongoing basis.

And what is the optimum price points given that you know competitors are going to

react to your price changes, whether price up or price down.

So we've decided to structure the course in three

sub-courses, one around each lenses.

The first one's going to talk about economics, and

it's going to also include elasticity.

The second one is going to talk about customers, their value, and

is also going to talk about segmentation and discrimination of pricing.

And the last one is going to be about competitive, competitive strategy,

the game theory aspects of it, that is a bit more complicated that I talked about.

Now, after you've seen all these three lenses and

the overlap between each of them, you have an overlap in the middle.

And this is pulling everything together to make a pricing decision

that will take into account all of the three lenses, what the customers want?

What's your cost and what the competitors do?

If you know how to balance these three forces,

you will know how to set your price ideally and will maximize your profits.

That will be the purpose of the fourth course you'll go through.

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