TRANSACTION PRICINGDecember 11, 2002

Transaction Pricing

Developing unit prices for individual

products or services

Pricing ConsiderationsPricing Considerations

• Define unit of service or product

• Understand the market

• Customers

• Competitors

• Product/Service Life Cycle

• Volume Potential

• Barriers to Entry

Pricing ConsiderationsPricing Considerations

$-

$20

$40

$60

$80

$100

$120

0 1 2 3 4 5 6

Cost Revenue

Pricing Considerations - Cost BasePricing Considerations - Cost Base

• Fixed versus variable costs

• How quickly fixed costs can be avoided

• Individual product/service variable costs (if producing or rendering more than one)

• Marginal and incremental costs

• Target volumes and break-even points

• Sensitivity analysis on volume levels (market share)

• Capital investment

• Working Capital requirements

Pricing ConsiderationsPricing Considerations

$-

$10

$20

$30

$40

$50

$60

$70

0 1 2 3 4 5 6

Average Unit Cost Unit Price

Investment RiskInvestment Risk

• Achieving target volumes

• Competitor reactions

• Risk mitigation strategies

– Cost variability

– Sharing risk and rewards with suppliers/partners

Go Forward StrategyGo Forward Strategy

• Plan strategy before entry

• Position product/service as evironment changes

• Quickly adjust as competitiors’ react and customer values change

Key Decision DriversKey Decision Drivers

• Customers

• Competition

• Market Price

• Volume

• Costs

• Investment

• Strategy

• Willingness to Pay

• Our Advantage

• Winning price

• Break-even, Profit

• Fixed,Variable

• Return on Investment

• Drive market share

eds.comMary Bundy

613-787-4630

mary.bundy@eds.com