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What are the Most Popular Pricing Strategies by Industry Sector?

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Page 1: What are the Most Popular Pricing Strategies by Industry Sector?

BLACKCURVE

www.blackcurve.com  @blackcurveHQ  

GET  SMARTER  AT  PRICING  BlackCurve  helps  businesses  fine  tune  their  pricing  

Page 2: What are the Most Popular Pricing Strategies by Industry Sector?

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What  are  The  Most  Popular  Pricing  Strategies  by  Industry  Sector?  

Page 3: What are the Most Popular Pricing Strategies by Industry Sector?

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Most  Popular  Pricing  Strategies  

Price  se(ng  requires  discipline,  not  luck.  Companies  differ  substanKally  in  their  approach,  but  most  (whatever  the  industry)  use  of  these  three  strategies:  

Cost-­‐based  Pricing  

Dynamic  Pricing  

Value-­‐based  Pricing  

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Manufacturing  

The  most  popular  pricing  strategy  used  within  manufacturing  is  cost-­‐based  pricing.    

COST-­‐BASED  PRICING  CAN  BE  OF  THREE  TYPES    1.  Cost-­‐plus  pricing  is  a  strategy  whereby  you  add  

together  the  direct  material,  labour  and  overhead  costs  for  a  product,  and  add  to  it  a  markup  percentage  (to  create  a  profit  margin)  in  order  to  derive  the  price  of  the  product.  

2.  Mark-­‐up  pricing  is  the  pracKce  of  adding  a  constant  percentage  to  the  cost  price  of  an  item  to  arrive  at  its  selling  price.  

3.  Planned  profit  pricing  is  very  suited  to  manufacturing  businesses.  A  manufacturer  oWen  has  the  ability  to  increase  or  lower  producKon  depending  upon  the  demand  or  profit  available.  

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The  Advantages  of  Cost-­‐based  Pricing  

Ensures  a  steady  and  consistent  rate  of  profit  generaKon.  

It  allows  the  manufacturer  to  consider  how  various  levels  of  output  can  affect  the  product  

price.  

A  straighXorward  and  simple  strategy.  

Ensures  that  all  producKon  and  overhead  costs  are  covered  before  profits  are  calculated.  

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The  Disadvantages  of  Cost-­‐based  Pricing  

It  ignores  the  customer  demand  for  the  product,  as  well  as  how  scarcity  could  drive  up  prices.  

It  encourages  compeKtors  to  enter  the  market  with  a  lower  

price.  

It  does  not  account  for  the  value  the  product  gives  the  customer.  

If  costs  are  reduced,  it  encourages  prices  to  be  reduced  as  well.  

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Travel,  Hospitality,  Ecommerce,  Retail  

The  most  popular  pricing  strategy  used  in  these  industries  is  dynamic  pricing.    

THERE  ARE  THREE  BASIC  WAYS  TO  DO  THIS    1.  Use of price intelligence to re-price based on the

prices of competitors.

2.  A drop in prices when demand is low.

3.  An increase in prices when demand is high.

“The  goal  is  to  find  the  highest  price  that  consumers  are  willing  to  pay”.  

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Examples  of  Dynamic  Pricing  in  PracKce  

Sports  Ackets  have  to  factor  weather,  date  of  the  game,  date  of  purchase,  and  opponent.  When  a  team  is  on  a  

winning  streak  for  example,  fans  will  be  willing  to  pay  more.  

Theatre  Ackets  can  be  reduced  if  a  show  has  not  proved  to  be  as  popular  as  others  on  offer  –  and/or  staged  at  less  

popular  Kmes.  

Taxi  companies  regularly  apply  higher  rates  during  peak  Kmes  or  when  booking  is  higher  e.g.  when  it’s  raining.  

Airlines  change  prices  depending  on  the  day  of  the  week,  Kme  of  day,  advanced  booking,  how  many  seats  a  flight  has,  

and  average  cancellaKons  on  similar  flights.  

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Price  PercepKon  @  The  Online  Retailer  Amazon  

According  to  an  analysis  by  Boomerang  Commerce,  a  dynamic  pricing  company:  

 "Amazon  may  not  actually  be  the  lowest-­‐priced  seller  of  a  

par9cular  product  in  any  given  season,"  the  report  reads,  "but  its  consistently  low  prices  on  the  highest  viewed  and  best-­‐selling  

items  drive  a  percep9on  among  consumers  that  Amazon  has  the  best  prices  overall."  

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Other  Industries  

Value-based pricing sets prices on the value, perceived or estimated, to the customer rather than on the cost of the product or historical prices. Where it is successfully used, it will improve profitability due to the higher prices without impacting greatly on sales volumes. WHERE IT IS MOST USED

Necessity    

e.g.  medical  supplies  

Emo9ons    

e.g.  the  latest  fashion  

Shortages    

e.g.  drinks  at  a  fesKval  

Indispensible    

e.g.  mobile  phones  

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Conclusion  

Businesses can use a variety of pricing strategies when selling a product or service. To stay ahead of the competition, it’s important to constantly be tweaking, testing, and striving to reach an optimum price point for your goods and services. One strategy that worked one month or one year, may not be suitable for the next year. Collect data, analyse whether pricing changes are making a positive impact on your business, keep abreast of the competition and market changes, and remember pricing is a journey. There will always be quick wins as well as longer term decisions.

Page 12: What are the Most Popular Pricing Strategies by Industry Sector?

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their  prices.  

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Page 13: What are the Most Popular Pricing Strategies by Industry Sector?

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