Pricing

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Andreas Hinterhuber
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Setting Prices Based on Customer Value

  • Blog
  • Read Time: 3 min 

Andreas Hinterhuber and Stephan Liozu write that pricing scholars lean toward recommending customer value-based pricing. They provide a mini case study of how to use this method to make sure that you don’t leave money on the table.

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Is It Time to Rethink Your Pricing Strategy?

Companies differ in their approaches to price setting, but most fall into one of three buckets: cost-based, competition-based or customer value-based. Customer value-based pricing uses data on the perceived customer value of the product as the main factor to determine prices.

However, implementing customer value-based pricing is not easy. Developing a customer value-based pricing program is a multiyear project demanding executive attention and requiring substantial changes in corporate processes.

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Is It Time to Rethink Your Manufacturing Strategy?

Since the mid-1990s, many companies have outsourced or offshored their manufacturing operations. For most, one crucial enabling factor was cheap oil: Long supply lines were economically feasible because transportation costs were relatively low. Hence, companies emphasized reducing manufacturing costs through (1) offshoring or outsourcing; (2) plant rationalization; and (3) consolidating distribution centers and warehouses to reduce inventory levels and minimize fixed facility costs.

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L.L. Bean Weighs, Then Goes For, Free Shipping

  • Blog
  • Read Time: 1 min 

Maybe you are one of these people: You get most of the way through an online purchase, then you see the shipping cost and you decide, “nah, I can buy it offline cheaper / I don’t really need it / maybe next time.

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When Should You Nickel-and-Dime Your Customers?

When should a company “nickel-and-dime” customers by charging separately for various extras, and when is it better to combine all of the charges into one total price? It depends on a variety of factors, such as whether customers comparison shop, whether they are more sensitive to the prices of some components (delivery) than to others, whether the price of one component is small or large relative to the others, and whether the company controls the costs and quality of a particular component.

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Why the Highest Price Isn’t the Best Price

There are several questions an organization should ask to improve its pricing strategy, including: What is the marketing strategy in this segment? What is the differential value that is transparent to target customers? What is the price of the next best alternative offering? What is the customer’s expectation of a “fair” price?

By asking these questions and others, an organization can choose a price point that provides the largest long-term value to the supplier.

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Supply Risk in Fragile Contracts

Increasing length, complexity and interdependence in supply chain contracts is resulting in more critical and costly supply disruptions, yet despite that risk, commodity procurement is mainly handled via long-term, fixed-price contracts containing naive terms and clauses in the case of breach. The risk of these breaches is very real.

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Discounting Do’s and Don’ts

Marketers cannot avoid discounted sales, and consumers have come to expect them. The average shopping mall, grocery store or online shop is littered with discounted products: Tide detergent is 10% off; books are sold with free shipping; Nike sneakers are buy-one, get-one-free.

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So You Think You Know Your Brand?

Are you battling imports and losing market share? Has your product become an “unplanned commodity” as your sales negotiations with customers more and more revolve around price rather than value? Is your marketing team launching new products that support your brand and differentiate your company in the marketplace? Do you

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Attractive By Association

Consumers are a fickle lot. Case in point: It’s long been known that a consumer will be unhappy if he or she realizes that someone else got a better deal. So marketers tread very carefully when considering a promotion that targets one set of consumers for fear of alienating another.H

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