Setting price points

Do you have a question? Post it now! No Registration Necessary

Translate This Thread From English to

Threaded View
I suspect most of us routinely deal with determining product
*costs*.  And, have little say (or interest) in *prices*.

Having said that...

I'm hosting an offsite and one of my colleagues has asked to
have a review of a pricing policy (that has been recommended
to him) placed on the agenda.

I, frankly, don't see how any of us will be qualified to
comment on it's accuracy as we're not expert in the application
domain he's targeting.  (If it was "yet another" product
similar to those that he's already brought to market, I
suspect he wouldn't have needed such an analysis!)

But, what are the sorts of issues that we should challenge
in that analysis?

Obviously, the qualifications of the folks who prepared the
analysis.  Their knowledge of the market today -- as well as
predictions for the future.  Their knowledge of The Competition
in terms of motivation and capability.  Impact on my colleague's
existing business and product lines.  Size of investment (and
risk to recovery) Etc.

I can't imagine we'll come up with anything that a /capable/
analysis hasn't already taken into account.  So, the exercise
will likely be one of assuaging (or aggravating!) his fears
as to the analysis's competency.

Re: Setting price points
On Wed, 25 Nov 2020 09:29:27 -0700, Don Y

Quoted text here. Click to load it

Pricing is the least precise thing that we do. There is in economic
theory a curve of net profit vs selling price, an inverted parabola,
and we have no clue where the peak might be. We guess.

What data do you have for analysis?



--  

John Larkin      Highland Technology, Inc

The best designs are necessarily accidental.


  

Re: Setting price points
On 11/25/20 11:58 AM, snipped-for-privacy@highlandsniptechnology.com wrote:
Quoted text here. Click to load it

Plus it isn't that linear or symmetric--people use price as an estimator  
for quality, so if you drop the price below some poorly-defined  
threshold, unit sales will go _down_.

One mistake I've see people make is to set their prices too low, based  
on BOM cost times some constant multiplier, and thus destroy the market  
when they could have made a metric buttload of money by just  
undercutting the existing players by 20% or so.

Cheers

Phil Hobbs

--  
Dr Philip C D Hobbs
Principal Consultant
We've slightly trimmed the long signature. Click to see the full one.
Re: Setting price points

Quoted text here. Click to load it

And, things become even more complicated when you combine these two
factors, with the effect of pricing feedback between competitors.

I suspect that, at best, the resulting play of price-and-demand looks
like a highly rippled sheet, with multiple profit-maxima and
profit-minima for various parties scattered across a warped plane.

At worst (and I think this likely) it's chaotic, and not solvable
in a closed form.

Re: Setting price points
On 11/25/2020 11:41 AM, Dave Platt wrote:
Quoted text here. Click to load it

You don't have to "solve" it.  What you want to do is come up with
a reasonable estimate of the amount of volume you can push at a particular
price point.  Then, decide if that is profitable, for you.

I recall seeing a televised interview with a guy (?) selling cupcakes
for $4.  (if you've ever baked cupcakes, you realize $4 is outrageously
inflated price).  The video showed a block-long line of folks (NYC?)
waiting to purchase one.

The interviewer asked why he didn't raise his price to $5!  The guy pointed
to that line and said, "At $5, the line would likely be shorter.  The
LONG line is an effective marketing tool!"

There seem to be special price points for "personal indulgences".  $5
seems to be one as folks will pay that for a cup of coffee, cupcake,
etc.

There similarly seems to be a price point for charitable donations as
you see an increasing number of folks looking for "just $19 per month".
It's hard to believe the needs of these different groups all hinge
on $19/monthly.  Rather, it seems that someone has determined that
they have a decent chance of coaxing "< $20" monthly from people
than they would $20 or more!

As with other pricing strategies, they are trying to figure out what the
market will pay for their product (even if their product is "feel goodism").


Re: Setting price points
On 2020-11-25 20:44, Don Y wrote:
Quoted text here. Click to load it

Obviously, most product and services are priced that way, or there
wouldn't be so many nines in them.

Jeroen Belleman

Re: Setting price points
On 11/25/2020 2:00 PM, Jeroen Belleman wrote:
Quoted text here. Click to load it


Porter's _The Price of Everything_ gives some interesting insights as
to how/why we accept certain prices for products -- and not others.
This is especially interesting as so many products have no real,
discernible "intrinsic value" -- so, an artificial valuation can
be *imposed*.

Re: Setting price points
On 11/25/2020 10:48 AM, Phil Hobbs wrote:
Quoted text here. Click to load it

Yup.  "It must be cheap (crappy) to sell for such a low price"

Quoted text here. Click to load it

The goal of *pricing* should always be to determine what the market WILL pay
for the product (which is a continuous function).

My other half has an occasional drink at bedtime.  I watch the price
vary almost weekly at the store where I typically purchase it.  You KNOW
their cost isn't changing weekly.  So, they are trying to "feel" what
folks are willing to pay for it.  When the price drops to my sweet spot,
I'll buy half a dozen bottles.

I see the same sort of price variation in many other items.  I use a lot
of balsamic vinegar.  I never pay the retail price so MY portion of
their sales is nonexistent -- until it goes on sale at a particular
price point.  At which time, I buy a few gallons.  So, anyone watching the
sales figures sees lots of traffic at that price and relatively less at
the "other".  When they try to entice me at some intermediate price,
I simply don't bite -- eventually the price I *want* returns.


Re: Setting price points
On Wednesday, November 25, 2020 at 12:48:52 PM UTC-5, Phil Hobbs wrote:

Quoted text here. Click to load it
  
Quoted text here. Click to load it
  
Quoted text here. Click to load it

A good many years ago I helped a guy whose business was fishing rods.   Fly
 rods used less material but were the highest priced rods. He tried to pric
e his rods  about 20 % below his competitors.  But they did not sell at tha
t price.  So he changed the price to about 5%  more than the highest priced
 competitor, Sage.  Sales picked up.

                                                                            
  Dan

Re: Setting price points
torsdag den 26. november 2020 kl. 03.16.34 UTC+1 skrev snipped-for-privacy@krl.org:
Quoted text here. Click to load it
  
Quoted text here. Click to load it
r  
Quoted text here. Click to load it
  
Quoted text here. Click to load it
  
Quoted text here. Click to load it
 rods used less material but were the highest priced rods. He tried to pric
e his rods about 20 % below his competitors. But they did not sell at that  
price. So he changed the price to about 5% more than the highest priced com
petitor, Sage. Sales picked up.  
Quoted text here. Click to load it

when men(and women) buy toys to show off to their friends they don't want t
o be the one with  
the cheap stuff ;)



Re: Setting price points
On Thursday, November 26, 2020 at 1:36:01 PM UTC+11, snipped-for-privacy@fonz.dk wrote:
Quoted text here. Click to load it
  
Quoted text here. Click to load it
tor  
Quoted text here. Click to load it
d  
Quoted text here. Click to load it
et  
Quoted text here. Click to load it
ly rods used less material but were the highest priced rods. He tried to pr
ice his rods about 20 % below his competitors. But they did not sell at tha
t price. So he changed the price to about 5% more than the highest priced c
ompetitor, Sage. Sales picked up.  
Quoted text here. Click to load it
 to be the one with  
Quoted text here. Click to load it

If the toy is bought purely to show off, this matters. Since smart phones a
ll seem to do much the same job, and Apples products cost about half again  
more than the less showy competitors, they should have become a monopoly. W
hat you are showing off may not be just your capacity to pay through the no
se - owning a Samsung smart phone might be seen as a claim that you can see
 through marketing hype. I use a Samsung Galaxy A20. I didn't want to spend
 even that much money since my old phone - a Galaxy S5 - did pretty much ev
erything I wanted except exchanging secure identity information with the Au
stralian Tax Office, who had decided that anybody owning anything that had  
 an operating system below Android 7 wasn't worth talking to.

--  
Bill Sloman, Sydney

Re: Setting price points
On Wednesday, November 25, 2020 at 9:36:01 PM UTC-5, snipped-for-privacy@fonz.dk wrote:
Quoted text here. Click to load it
  
Quoted text here. Click to load it
tor  
Quoted text here. Click to load it
d  
Quoted text here. Click to load it
et  
Quoted text here. Click to load it
ly rods used less material but were the highest priced rods. He tried to pr
ice his rods about 20 % below his competitors. But they did not sell at tha
t price. So he changed the price to about 5% more than the highest priced c
ompetitor, Sage. Sales picked up.  
Quoted text here. Click to load it
 to be the one with  
Quoted text here. Click to load it

I do not think that is the reason.  I think it is because the cost of a fis
hing rod is small compared to the cost of a fishing vacation.

                                                                            
            ;Dan

Re: Setting price points
On 11/26/2020 1:10 PM, snipped-for-privacy@krl.org wrote:
Quoted text here. Click to load it


Actually, your more likely to be ridiculed for buying expensive kit
and thinking that will make up for your lack of SKILL!

Quoted text here. Click to load it

It's more likely that consumers have no realistic way of determining
the (monetary) "value" of an item without comparing it to some OTHER
item's stated value.  (of course, THAT item's value was only determined
by a consensus of consumers opting to pay it's asking price -- "Turtles
all the way down!")

Look at most of the items that you encounter in a given day and
ask yourself to put a price tag on them.  Then, try to recall what you
actually PAID for them!

Sometimes, I carry a PMP when I take my daily walks.  As the device that
I use is pretty small, it's easy to clip to my lapel or even wrap my
fist around.  So, *wired* earphones are no big deal.

I recently opted to move my music archive onto a rescued Droid MAXX 2
as it has a considerably nicer user interface (to select the pieces
I want to hear) and larger capacity (so I can put more of my collection
on the device instead of having to pick smaller subsets of it)

The MAXX2, however, is MUCH larger than the tiny PMP that I was using.
It's not possible to clip to my lapel and tedious to hold in my hand.
Slipping it into a pocket means I'm always wary of getting entangled in
the cord.

Solution:  wireless earbuds!

Wait.  You want HOW MUCH for the convenience of cutting the cord???
Really???  And people are willing to PAY that much??  Sorry, Charlie.
I'll find a compromise solution that will allow me to spend that
hour a day comfortably without parting with all that cash...

Re: Setting price points
On 26/11/20 20:45, Don Y wrote:
Quoted text here. Click to load it

Gliding aphorism: there is no substitute for (wing) span
Retort: there is, but you can /buy/ span.

Re: Setting price points
On 11/25/20 9:16 PM, snipped-for-privacy@krl.org wrote:
Quoted text here. Click to load it


Obviously one of those guys had already done it. ;)

Cheers

Phil Hobbs
(Who doesn't understand pricing either)


--  
Dr Philip C D Hobbs
Principal Consultant
We've slightly trimmed the long signature. Click to see the full one.
Re: Setting price points
On 25/11/2020 17:48, Phil Hobbs wrote:
Quoted text here. Click to load it


Quoted text here. Click to load it

It is important to know what comparable or competitors products sell for  
to as not to obviously under or over price. And also what the market  
will stand - I amazed at some of the audiophool prices for instance.

Quoted text here. Click to load it

The company I used to work for had a strict rule that they would not put  
anything into production where the raw bill of material cost was more  
than 20% of the intended selling price. This produced some very silly  
"optimisations" to hit the target build cost. Swapping the right grade  
of stainless bolts for cheaper inferior ones that would corrode on a  
timescale of 5 years in kit intended to have a 20 year lifespan.

I recall one case study from a course on this topic where there was a  
new entrant into the cleaning materials business and they didn't do  
their homework at all and undercut their competitors by a factor of  
three based on a naive cost plus margin pricing scheme. They got plenty  
of big orders but went out of business inside a year because their  
competitors took it in turns to buy up one critical ingredient each.

A variant of that scheme was used by Chance and Pilkington to maintain  
their near duopoly premium price on window glass in the Victorian era.  
Without all the right ingredients you can't make the product!

--  
Regards,
Martin Brown

Re: Setting price points
On Thursday, November 26, 2020 at 5:01:52 AM UTC-5, Martin Brown wrote:
Quoted text here. Click to load it

Our business had the same rule of thumb.  It is a remarkably good rule of thumb.  The only thing is that expensive components should get a lesser weight than 5:1.  That would help not do stupid things like putting in inferior bolts.

Quoted text here. Click to load it

Re: Setting price points
On Wed, 25 Nov 2020 12:48:29 -0500, Phil Hobbs

Quoted text here. Click to load it

We have a new product, and our first customer told us what a great
deal it was for the price. That was the old price of course.

--  

John Larkin         Highland Technology, Inc   trk

The cork popped merrily, and Lord Peter rose to his feet.  
We've slightly trimmed the long signature. Click to see the full one.
Re: Setting price points
On 11/26/2020 10:17 AM, John Larkin wrote:
Quoted text here. Click to load it

Tangentially related question, what are the conflicts of interest if any  
if you do a one-off job for a client and get to thinking there might be  
a market for the box if changed up a bit and sold as a stand-alone  
product in the general market? No NDA was signed with the client and no  
exclusive transfer of IP or manufacturing rights etc. was signed off on  
or implied.

Like as an example the client needs a custom lighting controller for  
their own personal/business use and you design and build it to the spec  
for them and then realize there might be a market to other businesses  
for the same design.

Re: Setting price points
On 11/27/2020 11:16 PM, bitrex wrote:
Quoted text here. Click to load it

Google "work for hire".

But, also consider how such an action will affect your "rep", going forward.

[IME, I just avoid the markets that my clients operate in; in my case,
that's relatively easy!  But, that doesn't mean that I can't benefit from
what I've learned while tackling their project!  Just like THEY have benefited
from what I learned from the previous client.]

When in doubt, get things in writing.  Paper is cheap.  Litigation isn't!

Site Timeline