Vpogled v ozadje dinamičnega modela določanja cene. Prezentacija je bila predstavljena v okviru 19. slovenske marketinške konference 2014 v Portorožu.

1. The Price is Right! Is it?
Slovenian Marketing Conference 2014

2. The Price is Right! Is it? by Martin Boehm 2
Why is pricing so important?
Pricing pressure is all around us

3. The Price is Right! Is it? by Martin Boehm 3
Why is pricing so important?
In Europe companies focus on two growth drivers…
9%
29%
52%
59%
75%
Reduced
number of
competitors
Price
increase
Innovation
Cost
reductions
Increase in
sales volume
Key drivers to increase profits in the next
three years (% of respondents)
Does this
prioritization
make any sense?
Source: IE Business School (2011) European Pricing Study

4. The Price is Right! Is it? by Martin Boehm 5
2,3%
3,3%
7,8%
11,1%
Fixed Cost
Units
Variable Cost
Price
1% improvement in…
Why is pricing so important?
Price is the single most important profit lever…
…creates Operating Profit Improvement of

5. The Price is Right! Is it? by Martin Boehm 6
Why is pricing so important?
The relationship between pricing focus and profit
3,71
3,83
3,83
3,88
4,07
4,08
4,27
4,58
Strategic
Priorties
Strategic priorities and
EBITDA
>35%
Source: IE Business School (2011) European Pricing Study
28%
Balanced
priorities
55%
Cost
management
17%
Price
management
30-35%
25-30%
20-25%
15-20%
10-15%
5-10%
<5%
Cost management
focus
Price management
focus

6. The Price is Right! Is it? by Martin Boehm 7

7. The Price is Right! Is it? by Martin Boehm 8
Estudio Mundial de Pricing 2012
1:
3: 4:
2:
15 SMC 2015
14 € 500.000
13 € 125.000
12 € 64.000
11 € 32.000
10 € 16.000
9 € 8.000
8 € 4.000
7 € 2.000
6 € 1.000
5 € 500
4 € 300
3 € 200
2 € 100
1 € 50
50:50
5: 6:- 8 -

8. The Price is Right! Is it? by Martin Boehm 9
Estudio Mundial de Pricing 2012
With a contribution margin of 20%, by what
percentage would the sales volume have to
increase to make a 10% price decrease still
profitable?
1:
3: 4:
2:
15 SMC 2015
14 € 500.000
13 € 125.000
12 € 64.000
11 € 32.000
10 € 16.000
9 € 8.000
8 € 4.000
7 € 2.000
6 € 1.000
5 € 500
4 € 300
3 € 200
2 € 100
1 € 50
50:50
5: 6:- 9 -
0%
30-60%
0-30%
60-90%
90-120% >120%

9. The Price is Right! Is it? by Martin Boehm 10
Why is pricing so important?
How to compensate for a 10% price decrease?
Contribution
Margin
Variable
Cost
20 €
80 €
100 €Price
Profit
Contribution
100 x 20€ =
2,000€
-10 €
10 €
80 €
90 €
100 x 10€ =
1,000€
200 x 10€ =
2,000€

10. The Price is Right! Is it? by Martin Boehm 11
Why is pricing so important?
9 out of 10 underestimate impact of price reduction
89%
5%
5%
0%
1%
High
underestimation
Low
underestimation
Right estimation
Low
overestimation
High
overestimation
Do you know the needed sales
volume increase?
Estimated impact of price
reduction
Estimated
right!
83%
Yes
17%
No

11. The Price is Right! Is it? by Martin Boehm 12
2,5
2,9
3,0
3,4
3,5
3,8
4,3
0 1 2 3 4 5
Advertising
After-Sales Service
Distribution
New Competitors
Product Quality
Prodct Differentiation
Price
Why is pricing so important?
Pricing causes headache for marketing managers
Question: What are your biggest worries? Sample: 187

12. The Price is Right! Is it? by Martin Boehm 13
Cost-based pricing?
Cost-based pricing is the dominant method in industry
69%
37%
30%
Cost-Based Competitor-Based Customer-Based

13. The Price is Right! Is it? by Martin Boehm 14
Cost-based pricing?
What is the cost of garbage?

14. The Price is Right! Is it? by Martin Boehm 15
Cost-based pricing?
Would you pay 80€ for an ashtray?
Weber One-Touch Silver 57cm Weber One-Touch Gold 57cm
179,90 € 259,90 €

15. The Price is Right! Is it? by Martin Boehm 16
Cost-based pricing?
Cost is a matter of fact. Price a matter of policy*
Internal Cost Perceived Value
Source: Pratt, R, Australian Entrepreneur

16. The Price is Right! Is it? by Martin Boehm 17
The Demand Curve
What are you willing to pay for these tickets?
I would like to sell:
 Two tickets
 Game:
Real Madrid vs.
FC Barcelona
 Venue: Santiago
Bernabeu

17. The Price is Right! Is it? by Martin Boehm 18
The Demand Curve
Demand is dependent on price
Price
QuantityQ2
P2
P3
P4
Q3Q4 Q1
P1

18. The Price is Right! Is it? by Martin Boehm 19
The Demand Curve
Value is relative!

19. The Price is Right! Is it? by Martin Boehm 20
The Demand Curve
Price discrimination: extracting different prices
“If I have 2000 customers on a given route and 400 different
prices, I am obviously short 1600 prices.”
Robert L. Candall
Former CEO of American Airlines

20. The Price is Right! Is it? by Martin Boehm 21
150150
The Demand Curve
Why price discriminate?
Price
Quantity
15€
30€
50 200
10€
No price discrimination: 15€ * 150 units = 2250€
With price discrimination: 30€ * 50 units = 1500€
15€ * 100 units = 1500€
10€ * 50 units = 500€
TOTAL: …………………………………………........= 3500€

21. The Price is Right! Is it? by Martin Boehm 22
0,64 € 0,69 €
0,80 €
0,90 €
1,20 €
1,60 €
2,00 €
Supermarket Grocery Store Bakery Vending
Machine
Gas Station Newsstand -
Street
Newsstand -
Airport
Price Discrimination
Is price discrimination already being practiced?
Note: Prices for a 0.33l Coca Cola can

22. The Price is Right! Is it? by Martin Boehm 23
The Demand Curve
What are the limits of price discrimination?
0.50€
1.00€
1.50€
Source: K@W (2007) The Price is Right, but Maybe It’s Not, and How Do You Know?

23. The Price is Right! Is it? by Martin Boehm 24

24. The Price is Right! Is it? by Martin Boehm 25
Summary
What did we learn so far?
 Pricing is the most important profit driver. Don’t neglect it when trying to grow
the business.
 Pricing – a managers nightmare!
 Cost-based pricing is overrated. Focus on value and the consumer’s
willingness-to-pay to set prices.
 Value is relative! The perceived value drives the willingness-to-pay of
consumers. Thus manage a consumer’s perceptions!
 Price discrimination can drive profits. However, there are limits to the pricing
game.

25. Thank you very much for your attention!
Martin Boehm
martin.boehm@ie.edu