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Setting Profitable Prices: A Step-by-Step Guide to Pricing Strategy--Without Hiring a Consultant, + Website

ISBN: 978-1-118-43076-7
186 pages
January 2013
Setting Profitable Prices: A Step-by-Step Guide to Pricing Strategy--Without Hiring a Consultant, + Website (111843076X) cover image
Time-tested strategies for making the best possible pricing decisions and gaining an unbeatable competitive advantage

Pricing is one of the most important—and difficult—marketing problems companies face when launching new products. Unfortunately, the research that goes into making optimal pricing decisions is a very time-consuming process—unless, that is, you can afford to pay a consultant or outside agency to do it for you. But if you're like most small- to medium-sized business owners and managers, time and money are two things you absolutely don't have to spare. Problem solved: Written by a nationally recognized pricing expert, this book arms you with proven strategies for guaranteeing that you'll never again leave money on the table when determining prices. And you'll spend the least possible time setting your more profitable prices.

  • Packed with valuable worksheets and other valuable tools to help guide your research and your pricing decision-making
  • A goldmine of expert tips for pricing in any specialty market, it offers a highly effective way to market your company's product more effectively and profitably
  • Shows you how to avoid making your competitors' pricing mistakes and gain a powerful competitive edge in the process
  • The author uses examples drawn from her years of consulting work with companies large and small, including Food Network, American Express Publishing, and Playboy
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Preface xv

Author Credentials xv

If You Can Afford a Pricing Consultant . . . xvi

Don’t Have the Cash to Invest? xvii

How Big of a Rush Are You In? xvii

Chapter Summaries xviii

Acknowledgments xxi

PART 1 HOW TO SET PRICES FOR MAXIMUM PROFITS 1

Chapter 1 Why Pricing Is the Key to Your Success 3

Raise Prices—or Sell More Products? 3

Big-Company Case History 5

Tiny-Company Case History 5

Chapter 2 Why Most Companies Stink at Pricing (and How You Can Do Better!) 7

The “Myth” of Creating Demand Curves 8

How Your Competitors Are Setting Prices 9

Cost-Plus Pricing 9

Match-Your-Competitors Pricing 11

PART 2 HOW THE MARKET WILL VALUE YOUR NEW PRODUCT 13

Chapter 3 Analyzing Your Competitors’ Prices 15

You Do So Have Competitors! 15

How to “Pick” Your Competitors 16

Direct vs. Indirect Competitors 16

How Consumers Evaluate Prices 18

How to Get Profitable Ideas from Your Competitors 19

Chapter 4 Environmental Factors That Can Affect Your Pricing 21

Environmental Factors Overview 21

The Economy 21

Competitors 24

Government Regulation and Legal 24

Social Trends 25

Technological Change 26

Chapter 5 Pick the Positioning of Your New Product 29

There Are Only 3 Choices! 29

The Psychology of Price Positioning 30

Penetration Price Positioning 31

Skimming (or Premium) Price Positioning 35

Competitive Price Positioning 38

Learning More about Competitive Pricing 40

Chapter 6 Analyzing Your Buyer Benefits/Drawbacks Relative to Your Competitors 43

Uncovering What Buyers Really Value/Hate about Products in Your Marketplace 44

Learn More about Calculating Buyer Valuation of Different Features 44

Chapter 7 Picking a “Ballpark” for Your Best Price 47

You Will Not Be “Stuck” with Your Decision! 48

Can’t Make a Profit at that Price Range? 49

Not Sure about Your Results? 49

Learn More about Buyers’ Reactions to Price Ranges 50

PART 3 YOUR COST ANALYSIS 53

Chapter 8 Evaluating Your Costs 55

The Ideas Behind “Target Costing” and “Target Engineering” 55

Types of Costs 56

The Hardest Part of Calculating Costs 57

Reasons for Launching a Product that Doesn’t Cover Overhead 58

PART 4 FINE-TUNING YOUR PRICE 59

Chapter 9 Is Your Profit Potential Acceptable? 61

If You’re Happy with Your Potential Profits 61

If You’re Not Happy with Your Potential Profits 62

Next Step 66

Chapter 10 Psychological Adjustments to Your Price 67

Understanding “Barriers” in Prices 68

Staying below Barriers 68

Increasing Prices up to Barriers 69

Numbers that Say “Discount” to Buyers 70

Test Your Knowledge! 71

Visually Appealing Prices 72

Selling to Businesses 73

Learn More about Thresholds 74

Learn More about the Effect of Numbers 75

PART 5 TESTING YOUR PRICES 77

Chapter 11 Testing Prices 79

The Psychology of You—in Setting Prices 79

Can You Test? 81

The Difference between Testing and Research 81

Chapter 12 Using Google to Test Prices for Free (or Almost Free) 83

Two Methods for Almost-Free Testing!! 83

Using Google Optimizer to Test Multiple Things 87

PART 6 PRICING IN SPECIAL SITUATIONS 91

Chapter 13 Pricing Services 93

Imagine No Chapter 13! 93

The Complications of Setting Prices for Services 94

The Myth of Pricing Based on “What You Want to Earn” 94

Pricing by the Hours versus the Job 94

Finding What Service Competitors Charge 96

Picking Your Price Positioning 97

What Your Price Says about Your Firm 97

How to Charge Higher Prices to Those Willing to Pay More 98

Chapter 14 Pricing New Products/Services, Part 1: When Your Brand Is Unknown 101

The Problems in Pricing Something New 101

Price Equals Quality Buyer Perception 102

Does Quality Equal Likelihood-to-Buy? 102

Understanding “Bargain Hunters” 103

Price Preferences by Product Type 103

Detailed Research on Buyer Price Position Preferences 104

Additional Research on Preferred Prices 107

Learn More about Risk and Pricing 110

Chapter 15 Pricing New Products/Services, Part 2: Competing with Established Brands 113

When Your Competitors Are Established Brands 113

Risk Avoidance 116

Price Premiums for Known Brands 117

Discounting Differences 120

What Causes Customers to Switch to a New Brand? 124

What Happens after Buyers Switch? 126

Shocking Findings on Brand Names 127

So What Does it All Mean for Pricing a New Product/Service? 127

Chapter 16 Pricing with Discounts 129

Discounts: A Double-Edged Sword 129

When Discounts Worry Consumers 130

Determining Best Discount Levels 136

Discounts’ Effect on Quality Ratings and Purchase 137

Concluding Thoughts on Pricing, and Especially on Testing Prices 139

Appendix of Worksheets 141

Bibliography 157

About the Author 171

About the Companion Web Site 173

Index 175

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Dr. MARLENE JENSEN is a pricing strategy and marketing/new business expert. Her decades of consulting work with companies, large and small–including the Food Network, American Express Publishing, and Playboy–are consolidated in this powerful book/website combo. In addition to consulting, Dr. Jensen has performed pricing tests for companies such as CBS Publishing, her own launches (Sportswoman magazine, Ancillary Profits and Media Marketing newsletters, and Jensen-Fann Publishers) and in numerous academic research studies. Dr. Jensen has taught marketing and pricing at Western Connecticut State University, and currently at Lock Haven University.

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