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Cheat Sheet

This document provides information on various pricing strategies and considerations. It discusses determining the target segment and desired position, calculating value-based pricing using consumer valuation, using surveys and conjoint analysis to understand consumer preferences, conducting field experiments to test different prices, considering competition and elasticities, and how psychological factors can impact price perceptions. Price discrimination is presented as a tool to capture more consumer surplus but requires carefully considering fairness. The document provides an overview of key pricing concepts.

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123 views1 page

Cheat Sheet

This document provides information on various pricing strategies and considerations. It discusses determining the target segment and desired position, calculating value-based pricing using consumer valuation, using surveys and conjoint analysis to understand consumer preferences, conducting field experiments to test different prices, considering competition and elasticities, and how psychological factors can impact price perceptions. Price discrimination is presented as a tool to capture more consumer surplus but requires carefully considering fairness. The document provides an overview of key pricing concepts.

Uploaded by

curious
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Pricing Kanishka Misra: kamisra@ucsd.

edu
Price to extract value. Your pricing strategy must be an implementation of your overall Marketing Strategy. Before
Pricing you must know you target segment and the position you want to achieve with this segments.

Value Pricing
Price does not depend on product features, but on consumer value (perceived benefits versus perceived costs).
Calculating Economic Value to the Consumer (EVC) is an input into the pricing process - it provides a feasible range. It
is easy to understand, but can be a challenge to implement. EVC can be powerful in B2B settings where differentiated
value can be clearly communicated to end consumers. Pricing must cover costs - the relevant costs for pricing decisions.
Incremental: Costs that change with prices (Can include some fixed costs)

Consumer Survey Price Discrimination


Surveys can be useful for new products/new markets. Price discrimination can be a powerful tool to increase
However are likely to be imprecise! Conjoint analysis revenue from charging consumers their valuation for the
is a better form of survey that can be used when the product. This can capture consumer surplus (extra value
product be seen as a bundle of attributes (e.g., product created for some consumers) and dead-weight loss (value
features). A conjoint measures consumers preferences from low value consumers who are currently not buying).
for hypothetical products and there can be used to Many type of price discrimination: (a) First Degree – charge
place a $ value on an attribute or a bundle of attributes every consumers their valuation. This is costly to implement
(product). Can be used for product design and pricing. as need to price differently for each consumer; (b) Third
Degree (direct) - consumers to reveal some information
Field Experiments (e.g., student cards) and charge consumers based on the
Conceptually straightforward way to learn about price segment’s valuation. Need to carefully think of when this is
as experiments measure consumer preferences when profitable and fair; (c) Second Degree (indirect) – all
faced with different prices. You need to be careful consumers shown all options and consumers self-select based
when designing field experiments to minimizing on their preferences. Many versions of this – fences, quality
randomization error. When analyzing experiment tiers, quantity discounts, and differences based on consumer
remember to consider “unanticipated” differences. valuations. Consider fairness of your price discrimination.
Online price experiments can use real time data. In Two strategies for new products: Skimming (start high) or
online settings, prices can be changed frequently. Penetration (start low). Skimming allows you gain most
Online experiments are adaptive. That means the surplus from innovators while penetration allows you to gain
experimental conditions change as new information is market share fast.
obtained.
Channel Pricing
Field Data (and Competition) Distribution channels are used to bring a product or service to
Consider natural experiments in for estimating the customer. E.g., selling a product through a distributor or a
demand effects. A natural experiment is one where retailer. When pricing though a distribution channel consider
there was an unexpected variation in price (could be the incentives for all channel members. You can coordinate
due to a natural shock e.g. weather, or a technical incentives for channel members by using prices, pricing
shock e.g. delivery failure). When given secondary policies (e.g., Minimum Advertised Price) or promotions
data remember to consider what is causing the (temporary discounts) to your channel partners.
variation in prices. Elasticity is a measure of how
sensitive demand is to changes in price. Elasticity = % Psychology and Pricing
change in demand with a 1% change in price. This Consumers form their preferences or their valuations for
allows us to calculate optimal monopoly prices. In products based on the environment. “Human thinking is
competitive markets remember to consider the cross- relative, not absolute”.
price elasticity. Vulnerability is the sum of how We can assess a consumer’s psychological response to a
others’ prices impact your demand. Clout is the sum of price that might be different to the pure number (e.g., 9
how your price impact others’ demand. Dominance ending). Price perceptions often relative to “reference price”,
ratio = Clout/Vulnerability. The higher ratio the changing the reference changes the valuation. As contexts
greater the pricing power. Consider competitive vary attention, valuation change. A consumer’s perceived
responses. Use data as a “Compass and not GPS! fairness can make price discrimination unprofitable.

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