Raising PricesMatthew Noack and Stephanie Ferris
By PresenterMedia.com
• Increasing prices will increase profit margin
• Increase price without alienating existing customers
• Consumer Price Index increase 3% in 2011
Raising Prices and Profit Margin
• “Going with your gut”• Priced too low
• Cost-based pricing• Leaves room for more profit
margin• Competitor-based pricing
• Not bad if identical, but can cause price war
• Salespeople-based pricing
• Incentive for too low of price• Video
How Not to Set Prices
Eliminate discounts or change terms and conditions
Raising PricesCost increases = price increases
Test price increase
Charge for add-on services
Redesign or re-launch
“Premium” version
• Customer behavior• Cash? Pay back early?
• Don’t let one time deals turn into company policy
Discounts
• “Price buyers”• Only do business when profitable• Excess inventory• Lower price, take away value• They rarely change and are not loyal customers
• Example:• AT&T sells iPhone 3gs for $49
Avoiding Price Wars
• In 2011 increased prices from $1 to $1.20• Right as Netflix increased prices and lost customer• Do you still use RedBox even after price increase?• If yes, would you pay $1.50/night?• If no, what would you be willing to pay per night?
Redbox
• Increased prices by splitting up services• Didn’t add value• Drastically raised prices from reference price (Huge %
increase)• Perceived value was reference price• http://www.youtube.com/watch?v=s4d-di_n3QE
Netflix
• ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
• http://www.huffingtonpost.com/2011/10/27/redbox-price-to-increase_n_1062628.html
References
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