By THOMAS NAGLE - JOHN HOGAN
For undergraduate advent to marketplace Pricing classes.
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A complete and useful, step by step advisor to pricing research and procedure improvement. the tactic and strategies of Pricing exhibits readers tips to deal with markets strategically–rather than just calculate pricing in accordance with product and profit–in order to enhance their competitiveness and the profitability in their deals.
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Additional info for THE STRATEGY AND TACTICS OF PRICING: PEARSON NEW INTERNATIONAL ED ITION
Very different from survey or even focus group methods, indepth interviews probe the underlying economics of the customer’s business model and your product’s prospective role in it. The goal is to develop value driver algorithms, the formulas and calculations that estimate the differentiated monetary worth of each unit of product performance (Exhibit 4). In-depth interviews require a different skill set than many qualitative research methods. Rather than striving for statistical precision, validity, and reliability, the price researcher seeks approximations about complex customer processes that might defy accurate, to-the-decimal-point calculations.
Where do you have sustainable competitive advantages, and where do rivals hold the upper hand? Which customers can you, therefore, better serve than can competitors, and which are likely to be beyond your reach, assuming that prospective customers are well-informed? Step 4: Create Primary and Secondary Segments This step combines what you’ve learned so far about how customer values differ and about your costs and constraints in serving different customers. Unless you’re comfortable with multivariate statistical analyses accounting for several value drivers simultaneously, you’ll find it most convenient to segment your marketplace in multiple stages, value driver by value driver.
Therefore, the in-depth interview provides a foundation for developing value algorithms and collecting some initial data points to turn those algorithms into quantified estimates of customers’ monetary value drivers. EXHIBIT 4 Examples of Value Driver Algorithms for Equipment Manufacturer Cost Drivers Algorithm Reduction in mounting costs (Current mounting costs) ϫ (Percent reduction in mounting costs) Reduction in procurement costs (Reduction in procurement costs)/(Number of units ordered) Reduction in defective board handling costs ((Reduced number of defective boards) ϫ (Cost per board))/(Number of units ordered) Revenue Drivers Algorithm New contracts (Number of contractors as a percent of upgrade business) ϫ (Percent of business a customer wins due to lower cost bids) ϫ (Average contribution per contract) Increased throughput (Percent increase in throughput per measurement) ϫ (Dollar contribution per measurement) ϫ (Average number of measurements) 25 Value Creation Once the differential value algorithms have been determined, the final step is to sum the reference value and the differentiation value to determine the total monetary value.
THE STRATEGY AND TACTICS OF PRICING: PEARSON NEW INTERNATIONAL ED ITION by THOMAS NAGLE - JOHN HOGAN