Table Of ContentAm I Pricing Right?
IMPACT
I
M
Strategy
P
A
Every business owner is haunted by this fundamental question. Expert pricing C Value
strategist Mark Stiving draws upon more than 15 years of experience in T
profi table pricing and delivers a practical plan to help you confi dently answer.
Segmentation
P
Price—it’s the most powerful marketing tool you have—and the least R PRICING
understood. Zeroing in on the areas where your efforts will generate the I Portfolio
greatest impact, Stiving breaks down critical pricing concepts and provides C
the blueprint to integrate proven pricing strategies into your growth plans. I
N Dynamics
Be empowered to strengthen your pricing structure to withstand any
G
conditions, dramatically elevating your company performance, position, and
profi ts for long-term success. Costs
Learn how to:
Your Blueprint for Driving Profi ts
Set prices that drive your market position
Implement value-based pricing to charge what customers are willing to pay
Use price segmentation to leverage value and capture new business S
T
Cash in on complementary products and product versions with portfolio pricing I
V
I
Prepare for changing conditions by pricing strategically now N
G
Correctly use costs to make profi table pricing decisions
Following in the footsteps of sited examples including Apple, BMW,
McDonalds, Mercedes, and other market leaders, learn how to create a
powerful price strategy that does more than cover costs.
Mark Stiving, www.markstiving.com, is a respected price strat-
egist with a Ph.D. in Marketing (Pricing) from U.C. Berkeley and
more than 15 years of experience helping companies implement
value-based pricing strategies to increase profi ts. A speaker,
coach, and consultant, Stiving has worked with esteemed com-
panies such as Cisco, Procter and Gamble, Grimes Aerospace,
and Rogers Corporation, as well as many small businesses and
entrepreneurial ventures. Read more from Stiving on his blog,
www.PragmaticPricing.com.
ISBN 13: 978-159918-431-9
ISBN 10: 1599184311
$20.00 Mark Stiving, Ph.D.
Business / Management /
Entrepreneurship
Cover design by
Andrew Welyczko entrepreneurpress.com
IMPACT
PRICING
IMPACT
PRICING
Your Blueprint for Driving Profits
Mark Stiving
PragmaticPricing.com
Publisher: Jere Calmes
Cover Design: Andrew Welyczko, CWL Publishing Enterprises, Inc.
Editorial and Production Services: CWL Publishing Enterprises,
Inc., Madison, Wisconsin, www.cwlpub.com
Copyright © 2011 by Mark A. Stiving. All rights reserved.
Reproduction of any part of this work beyond that permitted by
Section 107 or 108 of the 1976 United States Copyright Act with-
out the express permission of the copyright owner is unlawful.
Requests for permission or further information should be
addressed to the Business Products Division, Entrepreneur
Media, Inc.
This publication is designed to provide accurate and authorita-
tive information in regard to the subject matter covered. It is sold
with the understanding that the publisher is not engaged in ren-
dering legal, accounting, or other professional services. If legal
advice or other expert assistance is required, the services of a
competent professional person should be sought.
—From a Declaration of Principles jointly adopted
by a Committee of the American Bar Association
and a Committee of Publishers and Associations
ISBN 13: 978-1-59918-431-9
10: 1-59918-431-1
15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
For Carol
(and True Love)
Contents
Preface xi
Part One. Pricing Fundamentals:
What You Need to Know 1
1. Vision: See Where Your Pricing Needs to Go 3
Strategy Is a Communication Tool 4
Market Cap Pricing 6
Nonfinancial Objectives 10
Low Price as a Corporate Strategy: Don’t Do It! 11
Summary 14
2. Pricing Strategies: A First Glance 17
Neutral, Penetration, and Skimming 18
Value-Based Pricing 21
Negotiated vs. TIOLI Pricing 22
Summary 24
3. Value: What Is Your Product Worth? 27
Customers Buy Perceived Value 28
Choice Value, Value in Use, and Deal Value 31
Will I? Which One? 33
Your Customer’s Brain: Value-Based Buying 38
Summary 39
vii
Contents
4. Value-Based Pricing: Mandatory to Maximize Profits 41
Value Accounting 42
Identify Your Customer’s Second-Best Option 45
Determine the Price of the Second-Best Option 46
List Your Advantages and Disadvantages Relative
to the Second-Best Option 47
Estimate in Dollars the Value of Each
Advantage and Disadvantage 49
Calculate Your Price 50
Summary 51
5. Create Value: Let Pricing Guide You 53
Create Real Value with Differentiation 54
Increase Perceived Value 56
Influence the Second-Best Option 58
Influence the Perceived Price of the
Second-Best Option 60
Use Price to Signal Quality 60
Summary 62
6. Costs Matter: But Not How You Think 65
Fixed Costs Are Irrelevant to Pricing 66
Variable Costs Are Relevant 68
Standard Costs Can Be a Mistake 70
Observable Costs 72
Cost-Plus Pricing 73
Summary 74
Part Two. Pricing Segmentation: The Most
Profitable Strategies 77
7. Introduction to Price Segmentation: Rich and Poor 79
How to Segment on Price 81
Is This Fair? 82
Summary 84
8. Customer Characteristics: Who Are You? 87
Age 88
Local vs. Tourist 88
Geography 89
Market Segment 89
viii
Contents
Historical Purchase Behavior 89
Summary 90
9. Customer Behaviors: Jump This Hurdle 93
Coupons (Effort) 94
Rebates (Effort) 95
Sales Events (Patience) 95
End-Aisle Displays (Thoroughness) 96
Purchase Ahead (Foresight) 97
Loyalty Clubs (Investment) 97
Channel/Internet 97
Pay as You Wish 98
Summary 99
10. Transaction Characteristics: At Point of Purchase 101
Volume 102
Weather 103
Time of Day 104
Location 104
First-Time Buyer 104
Number of Quotes 105
Summary 105
11. Loyalty and Price Segmentation: Treat Your
Best Customers the Best 107
Part Three. Portfolio Pricing: No Product Is an Island 111
12. Versioning: Develop the Right Product Line 113
Versioning 114
Good, Better, Better ... 116
Good, Better, Best 121
Version by Market 122
Summary 123
13. Complementary Products: Linking and Leveraging 125
Loss Leader 126
Durables and Consumables 127
Accessories 128
Captive Customers 128
De-Bundling 129
Bundling 130
ix
