Full article: [[Lodish, L.M., Morgan, H.L., Archambeau, S. 2009. Entrepreneurial pricing- an often misused way to garner extraordinary profits|/static/files/MBI/Module%206/READINGS_Lodish_etal_Chapter3Pricing.pdf]]. Chapter 3 of “Marketing that works: How Entrepreneurial Marketing can add sustainable value to any sized company.” Pricing is typically the most difficult marketing decision for most firms. You not only have to price products that have significant manufacturing costs, or services with large human elements in delivery, but also intellectual property that can be replicated for essentially zero. Most managers only use one of two types of pricing: # [[Mark-up pricing]] # [[Competitive match pricing]] The problem with these "rules" is that they may leave lots of money on the table. The profitability of pricing decisions ''depends solely on revenue and variable costs''. Fixed costs are almost irrelevant to the decision because they don't change when the number of units sold changes. The only one exception to this rule that if the best price is not enough to cover the fixed costs associated with the product or service, then the product or service should not be introduced. Getting price right early is very important as it's hard to raise prices later! Customers do not consider such price rises as "fair." For taking the initial risk ''the first customers want (and deserve) special pricing treatment''. However, ''the prices should be structured as customer discounts or introductory discounts'' from a regular price that is publicized as what will be normal after the introduction. By having a regular price stated up-front, the entrepreneur is free to charge up to that level without generating market perceptions of unfairness. How can you get good estimates of the sales at charging alternative prices?" Two categories: # [[In-market price testing]] # [[Pre-market price testing]] The price you put on your product offering, by itself, creates a very important part of the perceptual position. If your price it too low, customers will associated with low quality. Attributes affecting perceived customer value (parentheses indicate negative attributes) ||''Immediate''|''Expected''|h |Product|Product performance Durability Serviceability Downstream performance (Current risks)|New technology Product flexibility Follow-on products (Long-run risks)| |Supplier|Supplier performance—delivery technology, sales, services, etc. (Promotional values, services)|Supplier relationship Technology access Security of supply Strategic (Supplier power)| |Switching|New capital Training Transitional quality Communications|| More favorable pricing strategies are: # [[Value based pricing]] uses a scheme where initial costs are low and maintenance / renewal of services is priced relatively high. By having the customer in control of renewal, the supplier is obliged to be very clear on the generated value. # [[Customer determined pricing]] lets the customer determine the price based on the perceived value.