"Pricing for Profit" – Presentation by Michelle Villalobos

pricing for proﬁt
strategies to consider to increase proﬁts...
even in (especially in!) a tough economy

what is price?

All Content Copyright Michelle Villalobos, Mivista Consulting, Inc., 2009. All Rights Reserved.To reprint or
repurpose for commercial use, please contact Michelle at http://www.mivistaconsulting.com

what is price?
price = value to buyer

amount of money a buyer is willing to give up
to obtain what he/she wants, needs or desires.
takeaway: If you can determine the item or service’s value
to your buyer, you can optimize price.

If you cannot identify what clients are willing to pay, a rule of thumb estimate
for services is that you are leaving 20% to 50% of gross revenue on the table!


Q: how can you
determine price?


A: determine value


what determines value?
(discuss)


target return cost-plus

how are you
setting price?
competition-based value-based

cost-plus: cost determines price
target return: seller’s goals determine price
competition-based: competition determines price
value-based: buyer’s perceptions determine price

takeaway: only ONE is based on BUYER’S perception (value-pricing),
how can you introduce buyer value into your pricing structure?

Value-based pricing is usually the most profitable
method - but often the hardest to set. The up-
front difficulty will likely be compensated by profits.

strategy #1
What’s the big picture?


know your big picture goals
your long-term strategy and competitive advantage
will determine which pricing strategy makes sense.
takeaway: trying to capture market share? volume? move
inventory? increase proﬁts? revenues? survive?

“If your competitive advantage derives from a low-cost
structure, cost cutting can pump up market share,
positioning your firm for a payoff when the economy
improves. But... don’t use price as a competitive
advantage for high-value products by giving away
services or discounting your best customers. You
erode the base of profitable customers and reduce the
potential for profitability when the downturn ends."
- Reed K. Holden, President & CEO, Strategic Pricing Group


strategy #2
Pareto Principle (80/20 rule)


80% of revenue comes from 20% of clients
& those clients are usually less price elastic
(this can be somewhat counterintuitive)

takeaway: crunch your numbers: revenues, costs & time taken,
identify your top clients, create products or services that will solve a
problem or address a need, and offer them - at a premium.

Beware of “sucker pricing” which just tarnishes
your brand and your relationships. Value-based
pricing is good, price-gouging is bad.

use leverage to get the highest price

set price when the need is the greatest (without
exploiting); that’s when you have the most leverage.

takeaway: Set price at the outset of work (rarely, if ever, hourly);
set when urgency, need and scarcity are peak

When you set price at the OUTSET, not only do
you increase trust, but you also have an
opportunity to generate the most profits -
especially if your competition is charging for
time. This gets easier and better with experience.

strategy #4
Price Discrimination


price discrimination is GOOD

AKA “price segmentation” if you can determine
how different segments value your item or service
differently, you can maximize proﬁts & capture
more of the “consumer surplus.”
takeaway: what segments do YOU have & how do they value
your offering differently?

If you can price discriminate effectively, you can capture the
“consumer surplus” that is usually written off as “theoretical”


price discrimination 101
1. charge each customer the most they are willing to
pay for each item or service they buy.

2. charge the same customer different prices for
identical items. i.e., giving volume discounts for multiple
orders, cell-phone companies charging you “peak” and “off-
peak,” hotel rates that ﬂuctuate with the seasons, rush fees.

3. charge different prices to different markets. Like
when you charge lower rates to a non-proﬁt, or when you
provide coupons to certain consumers.


strategy #5
dress it up


dress it up
to maintain price (but give breaks) consider creative
payment options or performance guarantees.
takeaway: breaking things into smaller, more manageable
chunks will decrease “sticker-shock;” also, keep or raise prices
but reduce risk with a guarantee

Instead of bulk pricing or one-time pricing,
offer more payments in smaller amounts. Or
institute free trials with no cancellation
penalty - if you’re delivering on your promise,
you won’t have to worry about it.

strategy #6
bundle


if you’re feeling pressure from clients who want
discounts, added value, special treatment... try bundling
services or UNbundling services

takeaway: how can you combine services and bundle them together?

Consider bundling low-margin items with high-
margin ones so you can strategically add and
remove items when people request discounts.
You can play with how much the “price
reduction” is without losing face.

strategy #7
Evaluate the Competition


create a price-value matrix

know where you stand with respect to your
competitors, and price accordingly.
takeaway: create your own price-value matrix to determine where
you are or want to be based on your aforementioned goals

Make sure you get an unbiased and honest
outside opinion when you construct this. Most
of us just don’t have the neutrality to do one
of these by ourselves...

recap
1. know your big-picture goals
2. price discriminate. Determine URGENCY. NEED. SCARCITY.
3. know your proﬁtable clients. Cater to them.
4. set price when the need is greatest
5. consider changing payment structure or options.
6. train sales properly, consider incentives for proﬁtability
7. determine where you are on the Price-Value matrix


7 signs you need to consider a
new pricing strategy
1. excess capacity - downtime
2. too little capacity - bottlenecks
3. not getting the business you want
4. you use cost exclusively to set price
5. you charge the same thing no matter the client
6. your salespeople are the only ones talking price
7. you’re discounting a lot


resources
• Harvard Business School Working Knowledge Archive: How to Think
About Pricing Strategies in a Downturn - Your Best Downturn Strategy? Think
Twice About Price Cuts. http://hbswk.hbs.edu/archive/2884.html

• The 2001 Professional’s Guide to Value Pricing, by Ronald J. Baker
(http://www.MivistaConsulting.com/articles/michelle_recommends/)

• Tim Williams, Ignition Consulting, Take a Stand for Your Brand, and
several online free articles: http://www.IgnitionGroup.com

• Pay For Performance Pricing: http://www.mivistaconsulting.com/articles/
pay-for-performance_pricing.html


Michelle Villalobos
Mivista Success Skills Training, Inc.
michelle@mivistainc.com
www.MivistaInc.com
http://twitter.com/mivi

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"Pricing for Profit" – Presentation by Michelle Villalobos

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"Pricing for Profit" – Presentation by Michelle Villalobos