Pricing Products Partly Based on Ebert & Griffin Chapter 11

1

Pricing ProductsPartly Based on Ebert & Griffin Chapter 11

For My Friends in BSAD 101For My Friends in BSAD 101By Thomas HiltonBy Thomas Hilton

2

Key Topics• Pricing objectives

• Price-setting tools

• Pricing strategies and tactics

• Cost-Justifying Information Systems

3

Pricing to Meet Business Objectives• Profit maximizing objectives• Market share objectives

4

Price Setting ToolsCost Oriented PricingCost Oriented Pricing

Breakeven AnalysisBreakeven Analysisprice Sales

Markup percentage Markup

cost Variable - Pricecosts fixed Total units) (in point Breakeven

5

Breakeven Analysis

Figure 11–1

6

Pricing Strategies• Pricing existing products

• Pricing new products– Price skimming

– Penetration pricing

• Pricing e-commerce products– Dynamic vs. fixed

7

Pricing Tactics• Price lining

• Psychological pricing– Odd-even pricing

• Discounts

8

Justifying I.S. Projects

• Why Develop Information Systems

• Cost-Justification

• Non-cost Justification

9

Why Develop Information Systems?

• Information is the intended output• Data is the main input• Is there a difference?

• There had better be!

10

Data: Objective Measures of Traits of Real-World Objects• Objective

– Not subjective– Replicable

• Measures– Values– Quantitative– Qualitative

• Traits– Characteristics– Attributes

• Real-World Objects– Entities or Classes– Tangible– Intangible

11

Information: Data Aggregated and Placed in a Useful Context• Data

– see prior

• Aggregation– Groups– Calculations– Manipulations

• Context– Titles– Labels– Rows– Columns

• Usefulness– Decision-Making– Judged by User

12

Information QualitySix Traits• Accuracy• Timeliness• Relevance• Verifiability• Accessibility• Security

13

Cost-Justification

• “Is the system worth its cost?”• Compare “worth” with “cost”• Various Methods

– ROI– Present Value– Cost-Benefit Analysis

14

Cost-Benefit AnalysisConceptually Simple

• Quantify all Costs• Quantify all Benefits• Divide Costs by Benefits• If C/B Ratio < 1, then Proceed

15

Cost-Benefit AnalysisComplex in Practice

• System Lifespan

• Tangibles vs. Intangibles

• Future Orientation

16

Costs

PeopleFacilitiesSuppliesDataHardware

SoftwareTrainingProceduresOpportunitiesConfusion

17

Benefits• Cost Elimination

– Worker– Process– Carrying Cost

• Cost Reduction– Efficiency– Productivity– Maintenance

• Cost Shifting– Inventory– Labor– Debt

• Profit Generation– Product– Service

18

Cost-Benefit Analysis TableCosts Benefits

Tangible Intangible Tangible IntangibleName Quantity Name Quantity Name Quantity Name Quantity

Tangible Cost Subtotal

Intangible Cost Subtotal

Tangible Benefit Subtotal

Intangible Benefit Subtotal

Cost Subtotal Benefit Subtotal

Cost-Benefit Ratio:

19

An ExampleNetwork Design Proposal

20

Non-Cost Justifications• Cost-benefit analysis is not iron-clad• Often, detractors can discredit it• Therefore, it must be accompanied by

non-cost justifications– Organizational culture– Strategic direction– Potential competitive advantage– Environmental Imperatives– Top Management Support

21

Review• Putting a Price on Information involves

• Objectives: Profit? Market share?

• Strategies: Existing? New? E-Commerce?

• Tactics: Price-lining? Psychological? Discounts?

22

Now You Do It!

• Cost-justify an information system of your choice using the CBA table in this presentation

• Email it to me within 10 days