Raising Prices

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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