1. PRICING STRATEGY FOR SMALL BUSINESS
PETER KRAAN / @kraanp
TSiBA IGNITION CENTRE / www.tsiba.org.za
MAY 24, 2012

2. PRICING STRATEGY FOR SMALL BUSINESS
THE TWENTY-TWO STRATEGIES OF PRICING
1. Cost-plus pricing 12. Dynamic pricing
2. Creaming or skimming 13. Price leadership
3. Limit pricing 14. Target pricing
4. Loss leader 15. Absorption pricing
5. Market-oriented pricing 16. High-low pricing
6. Penetration pricing 17. Premium decoy pricing
7. Price discrimination 18. Marginal-cost pricing
8. Premium pricing 19. Value-based pricing
9. Predatory pricing 20. Pay what you want
10. Contribution margin-based pricing 21. Freemium
11. Psychological Pricing 22. Odd pricing
Source: www.wikipedia.com

3. PRICING STRATEGY FOR SMALL BUSINESS
PENETRATION PRICING
Setting the price low in order to attract customers
and gain market share.
The price will be raised later once this market share
is gained.
Source: www.wikipedia.com

4. PRICING STRATEGY FOR SMALL BUSINESS
LOW PRICES AND SMALL BUSINESS
• Low prices are the final refuge of the marketer who has run out of ideas
and is left with nothing but a commodity.
• Organizing your business around lowering prices through efficiency,
mass scale and smart choices is a powerful way to grow. Doing this is
really quite difficult [and not something small business is usually good
at].
• If all you're doing is writing a lower number on the price tags, you're
probably playing the first game. [How long can you keep that up?]
Source: adapted from Seth Godin, www.sethgodin.typepad.com/seths_blog/2012/04/low-prices.html

5. PRICING STRATEGY FOR SMALL BUSINESS
COST-PLUS PRICING
Cost-plus pricing is the simplest pricing method.
Calculate the cost of producing the product and add
on a percentage to that price to give the selling price.
This method takes no account of demand and no
account of the customer.
 COSTING, yes! COST-PRICING, careful!
Source: www.wikipedia.com

6. PRICING STRATEGY FOR SMALL BUSINESS
MARKET-ORIENTED PRICING
Setting a price based upon analysis and research
compiled from the target market. This means that
marketers will set prices depending on the results from
the research.
Source: www.wikipedia.com

7. PRICING STRATEGY FOR SMALL BUSINESS
PREMIUM PRICING
Premium pricing is the practice of keeping the price of
a product or service artificially high in order to
encourage favourable perceptions among buyers,
based solely on the price. This exploits the tendency
for buyers to assume that expensive items enjoy an
exceptional reputation, are more reliable or desirable,
or represent exceptional quality and distinction.
 Beware of ARTIFICIALLY!
Source: www.wikipedia.com

8. PRICING STRATEGY FOR SMALL BUSINESS
VALUE-BASED PRICING
Pricing a product based on the perceived value
and not on any other factor.
 PERCEPTION = REALITY!

9. PRICING STRATEGY FOR SMALL BUSINESS
NINE LAWS OF PRICE SENSITIVITY
AND CONSUMER PSYCHOLOGY
1. Reference Price Effect 6. End-Benefit Effect
2. Difficult Comparison Effect 7. Shared-cost Effect
3. Switching Costs Effect 8. Fairness Effect
4. Price-Quality Effect 9. The Framing Effect
5. Expenditure Effect
Source: www.wikipedia.com

10. PRICING STRATEGY FOR SMALL BUSINESS
REFERENCE PRICE EFFECT
Buyer‟s price sensitivity for a given product increases
the higher the product‟s price relative to perceived
alternatives.
 DIFFERENTIATE! Make sure it‟s about the whole
PACKAGE, not just the PRODUCT.
Source: www.wikipedia.com

11. PRICING STRATEGY FOR SMALL BUSINESS
DIFFICULT COMPARISON EFFECT
Buyers are less sensitive to the price of a known or
more reputable product when they have difficulty
comparing it to potential alternatives.
 DIFFERENTIATE some more!
Source: www.wikipedia.com

12. PRICING STRATEGY FOR SMALL BUSINESS
PRICE-QUALITY EFFECT
Buyers are less sensitive to price the more that
higher prices signal higher quality.
Source: www.wikipedia.com

13. PRICING STRATEGY FOR SMALL BUSINESS
FAIRNESS EFFECT
Buyers are more sensitive to the price of a product
when the price is outside the range they perceive as
“fair” or “reasonable” given the purchase context.
Source: www.wikipedia.com

14. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

15. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
“Fleece
Turns sales into
Low Value „em complaints.
Cheap stuff. Junk. and Don‟t go there.
run”
Source: adapted from www.authenticpromotion.com

16. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
“Let the
Turns sales into
Low Value Cheap stuff. Junk.
buyer Don‟t go there.
complaints.
beware”
Source: adapted from www.authenticpromotion.com

17. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary“Info- and value are
Price
Overpriced. The
Medium Value measure to raise uninformed will buy
mercial”
revenue, clear stock
in balance.
only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

18. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
“Tourist
Turns sales into
Low Value Cheap stuff. Junk.
complaints. trap” go there.
Don‟t
Source: adapted from www.authenticpromotion.com

19. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The “What‟s
Attractive pricing that Premium pricing
High Value product value is is ideal for market wrong
suggests prestige
undercut . penetration. and prominence.
with this?”
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

20. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Temporary measure “Inventory
Overpriced. The
Price and value are
Medium Value to raise revenue,
in balance.
Sale”
uninformed will buy
clear stock. only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

21. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
“Square
Bargain, temporary
Price and value are
Overpriced. The
deal!”
Medium Value measure to raise
in balance.
uninformed will buy
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

22. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
“MoreUnderpriced. The
for Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
your
undercut . penetration. and prominence.
money”
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

23. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The “The
Attractive pricing that Premium pricing
High Value product value is
discerning for market
is ideal suggests prestige
undercut . penetration. and prominence.
customer”
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

24. PRICING STRATEGY FOR SMALL BUSINESS
Low Price Medium Price High Price
Underpriced. The Attractive pricing that Premium pricing
High Value product value is is ideal for market suggests prestige
undercut . penetration. and prominence.
Bargain, temporary Overpriced. The
Price and value are
Medium Value measure to raise uninformed will buy
in balance.
revenue, clear stock only once.
Turns sales into
Low Value Cheap stuff. Junk. Don‟t go there.
complaints.
Source: adapted from www.authenticpromotion.com

25. PRICING STRATEGY FOR SMALL BUSINESS
NOW DO YOUR COSTING:
 Still making money? PROCEED
 Not worth your while? REPACKAGE, REPOSITION

26. PRICING STRATEGY FOR SMALL BUSINESS
Access to Networks Facilities and Infrastructure
Market Linkages Technology Infrastructure
Newsletter, Website, Blog Meeting Rooms
Quarterly Breakfast Forums Company Address
Market Days Virtual Web Space
Office Space
Business Mentorship
Experienced Entrepreneurs
Seasoned Business Executives
Business and Finance Graduates
Basic and Advanced Innovative
Business Training Financial Instruments
Business Essentials Course
Loan Scheme
Computer Literacy & Careers Workshop
Bridging Finance
Personal Financial Literacy Course
Micro-Equity Fund
Business Plan Writing
Micro-Finance

27. PRICING STRATEGY FOR SMALL BUSINESS
BRIEFING SESSIONS EVERY THURSDAY MORNING
FROM 9AM – 10AM. NO APPOINTMENT NECESSARY.
TSiBA Education Peter Kraan
Ignition Centre 021 532 2750
Mupine Campus @kraanp
307 Forest Drive Ext. peter@tsiba.org.za
Pinelands 7405, Cape Town www.tsiba.org.za