BEN2014 Introduction to Cyberpreneurship (by: TPL)

Original Source: Zimmerer & Scarborough (Pearson)

Lecture 6: Pricing Strategies

Overview

1. Pricing

- Price Conveys Image

- Competition and Pricing
- Focus on Value
- Pricing Techniques
- Pricing for Retailers: Markup
- Pricing for Manufacturers: Breakeven Selling Price
- Pricing for Service Firms: Price per hour

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing Pg 356-357

• Is governed both by art and science.

• Requires balancing a multitude of complex
forces.
• Cuts across every aspect of a small company.
• Is an important signal of a product’s or
service’s value to customers.
• Involves both math and psychology.

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Price Conveys Image Pg 357-358

• Price sends important signals to customers –

quality, prestige, uniqueness, and others.
• Common small business mistake: Failure to
recognize extra value, service, quality, and
other benefits they offer and charging prices
that are too low.
• Study: Only 15 percent to 35 percent of
customers consider price to be the chief
criterion when selecting a product or service.

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Competition and Pricing Pg 358-359

• Must take into account competitors’ prices but

it is not always necessary to match or beat
them.
• Key is to differentiate a company’s products
and services.
• Price wars often eradicate companies’ profits
and scar an industry for years.
• Best strategy: Stay out of a price war!

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Focus on Value Pg 359-362

• The “right” price for a product or service

depends on the value it provides for a
customer.
• Two aspects:
– Objective value
– Perceived value
• Value ≠ low price, however.

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing Techniques Pg 369-378

• Odd pricing
• Price lining
• Leader pricing
• Geographical pricing
• Opportunistic pricing
• Discounts
• Bundling
• Optional-product pricing
• Captive product pricing
• Byproduct pricing
• Suggested retail prices

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Retailers: Markup Pg 369-378

Dollar Markup = Retail Price - Cost of Merchandise

Dollar Markup
Percentage (of Retail Price) Markup = Retail Price

Percentage (of Cost) Markup = Dollar Markup

Cost of Unit
Example:
Dollar Markup = $25 - $15 = $10
$10
Percentage (of Retail Price) Markup = = 40%
$25
$10 = 67%
Percentage (of Cost) Markup =
$15
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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Manufacturers: Pg 369-378

Breakeven Selling Price

Total
Breakeven { Variable cost Quantity } fixed
Selling Profit + { per unit x produced } + costs
=
Price Quantity produced

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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Manufacturers: Pg 369-378

Breakeven Selling Price

Total
Breakeven { Variable cost Quantity } fixed
Selling = Profit + { per unit x produced } + costs
Price Quantity produced

Example:

Breakeven
Selling = $ + { 6.98/unit x 50,000 unit} + $110,000
Price 0 50,000 units
= $9.18 per
unit
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BEN2014 Introduction to Cyberpreneurship (by: TPL)
Original Source: Zimmerer & Scarborough (Pearson)

Pricing for Service Firms: Pg 369-378

Price per hour

Price per Hour = Total cost per x 1

productive hour (1 - net profit target as
a % of sales)

Example: Ned’s TV Repair Shop

Price per Hour = $13.44 per x 1 = $16.38 per hour

hour (1 -.18)

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