Lecture 5: Entrepreneurial Pricing (Part 1) Flashcards
What is cost based pricing?
Setting prices based on the costs.
What are the pros of cost based pricing?
Straightforward, low cost, predictable
What are the cons of cost based pricing?
Ignores competition, ignores value and marketplace potential, focuses customers on the
wrong thing (e.g., time spent vs.
your expertise)
Should I use cost base pricing?
No because there’s no relation between customer WTP and actual company costs.
What is competitive pricing?
Setting prices based on competitor’s strategies,
prices, costs, and market offerings.
What are the pros of competitive pricing?
Simple, low risk, accurate
What are the cons of competitive pricing?
Overreliance on others, ignores value and marketplace potential, detached from market factors.
What is value based pricing?
Setting a price based on buyers’ perception of
value rather than on the seller’s cost. Pricing begins with analysing
consumer needs and value perceptions, and the price is set to match the
perceived value.
How to use value based pricing?
- What are the needs of your customers?
- How does your product meet these needs (better than competitors)?
- Communicate the value you provide
- Do not be afraid to price accordingly
What is discriminatory pricing?
Charging different customers different prices
How to use discriminatory pricing?
Find variation in how customers value the product, offer price schemes
targeted to specific customers segments
Why not use freemium?
You don’t know how much customers are willing to pay
You need people to use your app over and over again
Freemium isn’t a business model, it’s a scaling strategy
What’s dynamic pricing?
Prices fluctuate based on market and customer
demand (e.g., hotels, airlines, event venues, utility companies)
What’s skimming pricing?
Start high, progressively lower as popularity declines
(e.g., technology products, such as DVD players, video game consoles,
and smartphones).
What’s penetration pricing?
Start super low; not a long term strategy