Spreadsheets for Business – Using Excel to Help with your Small Business Questions

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Video transcript

00:06 hey guys back here with another video
00:10 finally most of my previous videos on
00:15 most of my recent videos have been on
00:17 the subject of QuickBooks Online and go
00:20 in a little different direction with
00:22 this one actually I’ve written quite a
00:25 bit on the website about business plans
00:30 and most of that so far is focused on
00:34 market research for a business plan and
00:37 this is kind of the last piece of
00:39 content on that particular subject and
00:43 from here it’s going to move on to move
00:49 on to writing the business plan in
00:51 earnest but anyhow rather than write
00:55 this one out as a blog post you know
00:58 those were kind of hit and miss as far
01:00 as traffic goes I thought I would just
01:01 do it as a YouTube video and see what
01:06 kind of reception that got and that’s
01:08 what brings us here so like I said this
01:10 is
01:12 part of the part of market research an
01:16 important part of business plans and in
01:19 particular it’s about pricing strategies
01:22 for for startups and really this will
01:25 also work for existing businesses too
01:27 you know you you probably have a little
01:30 more flexibility when you’re settling on
01:34 pricing as a start-up than you do as an
01:36 established business it can be kind of
01:39 hard to pivot into something else when
01:41 your customers come to expect a
01:43 particular particular pricing strategy
01:46 from you so but you know nevertheless if
01:49 you have an existing business and are
01:52 interested in the tool that I may do
01:55 along with this which we’ll get to in a
01:57 little bit and the strategies and that
02:00 there’s a like I said here 16 of them to
02:03 think about and let’s get into it here I
02:06 like to start every video I have with
02:11 kind of a quick answer or summary what
02:14 I’m gonna go over and doing the same
02:18 here so pricing will have a huge impact
02:23 on your business you know that’s your
02:26 probably like and no kidding
02:29 you probably already knew that and you
02:32 know but I had read somewhere wouldn’t
02:35 as kind of doing the research for this
02:37 video about how you know like a 1%
02:40 change in pricing can have up to an 8
02:43 percent change in sales you know and it
02:48 really is if you can
02:51 increased prices by 1% you know that can
02:55 have a depending on the the mix of
03:00 products you’re selling you know that
03:02 can have an enormous effect on enormous
03:06 effect on your on your sales and
03:08 therefore your profitability you know
03:10 keep in mind as we go through this that
03:12 not all strategies are going to be
03:14 appropriate for your business you know
03:17 there’s 16 of them it’s gonna seem a
03:20 little overwhelming and you know don’t
03:25 think that every strategy you know you
03:29 have to work in to your your particular
03:33 business somewhere you know it’s not the
03:35 case it might just be one strategies
03:37 right for you you know it is a bit of
03:40 information overload but I give you all
03:42 this information because you know so you
03:47 can be aware of this about every
03:50 strategy I was able to find I don’t know
03:51 that it’s every strategy period in terms
03:55 of pricing but it’s a quite a few of
03:59 them and a lot a lot to consider but you
04:03 know just you some will jump out at you
04:06 as being practical for your business and
04:08 you know those are the ones you want to
04:10 kind of move forward and maybe look at
04:12 implementing and keep in mind that they
04:14 can be combined and different strategies
04:17 can be used on different products and
04:19 services or different types of customers
04:23 and you know
04:27 things are in the small business world a
04:33 little a little crazy right now I mean
04:36 first potentially he gets shut down for
04:39 a couple of months on account of kovat
04:42 19 and now some small businesses
04:46 fortunately not many in the grand scheme
04:49 of things but you know unfortunate for
04:52 those that it’s impacted or victims of
04:55 rioting looting and other sorts of
04:59 things you know they’re paying the price
05:01 for something that they had no you know
05:06 had no part in no injustice that they a
05:09 pardon and you know of course that
05:11 stinks and the reason I bring all that
05:13 up is it’s you know it’s been a an
05:15 insanely volatile year to be a small
05:18 business owner and you know so as we go
05:22 through these strategies what I’m
05:24 getting at here is that it it’s
05:25 important I think you know not just in
05:29 pricing but in everything to start to
05:31 think about implementing procedures
05:37 policies strategies you know whatever
05:39 you want to call them just you start
05:40 start doing business more flexibly with
05:45 more flexibility and
05:49 you know be able to pivot you know they
05:52 not get you as RIT as rid of as much
05:56 rigidness as you can because it’s I
05:59 don’t know manda it’s a it’s been a
06:01 crazy year and it’s a crazy world and
06:04 maybe this is you know maybe we’ve seen
06:08 the worst of it for a while that maybe
06:10 we haven’t you know I honestly don’t
06:13 know I wish I did but you know like I
06:16 said I think it’s important to move
06:19 forward and the lessons that can be
06:20 learned from this is that yeah the
06:23 rigidity just won’t won’t work so you
06:26 know every business is different so I I
06:29 hate to speak in such generalities you
06:32 know if you’ve watched any of my other
06:33 videos ready and other my posts that you
06:37 know I hate I like to get specifics
06:40 where I can or you know concrete
06:42 information where I can and not not deal
06:45 in abstraction as much because you know
06:47 that doesn’t help you I mean it might
06:49 give you a little something to think
06:50 about but you know people people want
06:52 answers and you know so I beg your
06:56 pardon for that but you know that’s the
07:01 best way I can phrase it now you know
07:04 just you know with everything else but
07:09 in particular since we’re on the subject
07:10 of pricing strategies here just to
07:12 gravitate more towards the ones that are
07:14 more that are more flexible if you can
07:19 then kind of we go through the
07:22 strategies we’ll we’ll get to a tool
07:24 that I made in Google sheets so you can
07:27 download it for free it’ll be on I
07:30 always make a post of the videos when
07:34 I’m done and where I’ll have the slides
07:38 here and then transcript from the video
07:41 the video itself and in cases like this
07:44 when I reference a particular tool that
07:48 I’ve made a spreadsheet
07:49 this is spreadsheets for business after
07:51 all anyways I’ll make it available on
07:54 there and you can go and download that
07:57 and this is a it’s something called the
07:59 price sensitivity meter it was a concept
08:01 that I’d come across
08:02 that I thought was interesting and
08:04 potentially helpful and what it’ll do in
08:07 essence is give you a range of
08:09 acceptable pricing you know kind of kind
08:12 of give you a some numbers start working
08:15 with and then you can implement the
08:16 strategies that are appropriate from you
08:19 for you from them and like I said
08:23 transcript and slides all that business
08:25 will be on spreadsheets for business
08:27 comm soon
08:31 so you know pricing is a complicated
08:37 subject you know it seems relatively
08:40 straightforward and will be more
08:42 straightforward for some businesses than
08:44 others but you know it’s a complicated
08:48 thing people get hung up on it it’s a
08:52 you know there’s just a lot of factors
08:55 at play you know that there’s course
08:57 competing on price with your competitors
08:59 but then there’s the you know your value
09:02 properties proposition versus your
09:04 competitors your you know unique selling
09:08 proposition USP Matt how you position
09:11 yourself the customer service quality
09:14 and all those things factored in and you
09:18 know really it if you look back at the
09:22 last year two years ago five years ago
09:25 whatever I mean you know for a little
09:29 thought experiment look back at those
09:31 years and ask yourself you know if I had
09:36 increased prices I mean again and maybe
09:39 just a little bit you know 1% bump here
09:42 a couple dollars there you know if
09:45 you’re a super small business couple of
09:46 dollars on the right items might have
09:49 you know might have been the difference
09:52 between a mediocre year and a bumper
09:54 year might have been the difference
09:55 between you know ending up in red and
10:00 ending up into black it’s you know it’s
10:05 completely possible so you know it is a
10:10 complicated subject and the point of
10:12 this is to hopefully an army with a
10:15 little information excuse me
10:20 army little information to kind of see
10:24 through the fog and iron you know get a
10:27 firm grasp on what your pricing strategy
10:31 should be and again I’ll reiterate not
10:33 all these strategies are going to apply
10:35 to you you don’t have to work every
10:37 single one into the
10:40 into your business okay and pressing can
10:45 being overwhelming oops back pricing can
10:49 be overwhelming touched on that earlier
10:51 a lot of things to consider dismiss
10:53 strategies that won’t work you know I
10:56 would also urge you to where possible to
11:00 air on the higher side of pricing you
11:03 know if you’ve ever done any reading on
11:05 the subject or research you know you’ve
11:08 you’ve seen similar sort of things said
11:11 and it’s it can feel tough to do you
11:13 know cuz II you nervous about losing
11:16 sales on account of pricing and you know
11:21 but it’s always easier to reduce for
11:23 promotions and you know hell you can
11:25 even run promotions fairly frequently
11:29 speaking of which I have a post on
11:31 promotions on spreadsheets calm
11:34 spreadsheets for business calm I wish I
11:37 owned spreadsheets calm but I don’t
11:39 spreadsheets for business about pricing
11:44 in QuickBooks Online you know running
11:47 promotions in that and then one beyond
11:49 that which also comes with the
11:51 calculator in regards to you know just
11:58 running promotions in the effect it can
12:00 have and everything so it’s like a
12:01 little handy little tool to estimate
12:04 what the effects might be
12:10 you know and I mentioned also earlier
12:13 that you can use different strategies
12:16 for different products and services you
12:19 know different categories different
12:20 customers you know again it be be
12:26 flexible you know not not rigid so
12:31 consider all these strategies we’re
12:34 gonna go through and use the
12:36 accompanying tool play around with it
12:39 download it you know and then armed with
12:43 all that information rely on your
12:45 expertise your intuition and you know be
12:49 willing to make some mistakes some trial
12:51 and error in terms of pricing it’s you
12:53 know mistakes are gonna be made it’s
12:57 it’s like budgeting you know we’re
12:59 forecasting I’ll tell you right off the
13:02 bat you’re not gonna get not gonna get
13:05 it exactly right forecast your exact
13:07 unit sales exact revenue exact costs
13:10 exact labor needed you know marketing
13:13 that the point isn’t to you know this
13:17 isn’t school you’re not graded on how
13:18 close you get to its actual you know
13:21 it’s really just to go through the
13:23 thought experiment of the whole thing
13:26 and to you know just think at everything
13:30 from from different angles and net and
13:32 then you know so don’t don’t worry about
13:34 making mistakes with your pricing when
13:36 you know try something and learn your
13:41 lesson from it and if it’s good keep it
13:43 if it stinks then do something different
13:48 okay so we’ll get into the strategies
13:52 here
13:58 all right and I’ll try to go through
14:00 them fairly quick we’re about 14 minutes
14:02 in now and you know I realize that
14:08 longer videos people people lose
14:10 interest and I guess I can’t blame him
14:14 so like I said I’ll try to go through
14:15 strategies pretty quick and then we’ll
14:17 get we’ll get to the touch on a couple
14:22 of things and get to the tool how to use
14:24 it okay so the first strategy is price
14:27 leadership okay
14:29 this is where basically a single
14:31 business would dictate market price and
14:33 this one isn’t gonna be really practical
14:35 for a startup unless it’s a brand-new
14:38 and brand-new market brand new items
14:42 something nobody’s seen before maybe
14:44 that’s cases you startup probably not
14:46 you know but you know again I just want
14:50 to make you aware of it so this is
14:51 something that oligopolies would do
14:53 which is a similar to monopoly except
14:55 they’re a couple of firms rather than
14:57 just one and this is like Airlines
15:02 wireless carriers film TV music you know
15:05 basically they dictate the market price
15:08 they have enough control over the market
15:10 to be able to do that and any little
15:13 player that wants to come in and get
15:15 involved with that or any other business
15:16 that wants to try to come in and take
15:19 some of that market share has got a you
15:21 know gotta be aware that the the leader
15:24 of the market is dictating the price so
15:28 premium pricing this is
15:34 by companies selling high quality goods
15:36 or services and that might be you that
15:39 might be your business model and you
15:41 know luxury items in that and you know
15:43 it’s not always that the items are
15:46 luxury you know luxury is kind of a
15:51 flexible term but you know like some
15:53 clothing brands name-brand clothing
15:55 sometimes is a very low quality you know
15:58 and you you can buy you know whether
16:02 it’s shirts pants accessories whatever
16:05 from a name-brand and it’ll fall apart
16:07 right away you know it’s not it you
16:10 really you’re paying for the name so
16:12 that’s why I say you know Oh having a
16:15 brand name is an instance where you
16:17 could still use premium prep premium
16:20 pricing if you’re not selling
16:22 technically high-quality goods or
16:25 services you know the customers are
16:27 paying for the status the paying for
16:28 that name okay so some examples of that
16:31 and this is not to say these things
16:32 aren’t quality per se but they aren’t
16:34 it’s not a given luxury cars and
16:39 designer clothes and Apple products are
16:41 a couple of examples that I was able to
16:43 find so the opposite of premium pricing
16:48 is economy pricing this is where you’re
16:51 doing bottom dollar pricing okay and it
16:54 depends heavily on selling a high-volume
16:57 products um you know to make up for
17:00 those low margins you you know you’re
17:03 gonna have high margins probably premium
17:05 pricing low margins with economy so you
17:07 got to sell a lot with economy so in
17:09 order to get away with economy pricing
17:11 you’ve got to have a good understanding
17:13 of your cost okay because those margins
17:16 are so low you can’t afford not to
17:18 understand what it takes for you to get
17:21 a product to market in terms of cost
17:23 okay because you you could either you
17:29 could price it obviously too low and be
17:32 selling at a loss and not knowing it or
17:35 conversely you could be pricing it too
17:38 high and leaving room for other
17:45 competitors
17:46 with you know a better grasp under cost
17:49 and can beat you on price because that’s
17:50 what you’re competing on is price you
17:52 know when you’re doing economy pricing
17:54 and a couple of examples that are warm
17:56 Walmart and private labels like you’d
17:58 find at the grocery store next one here
18:02 is premium decoy pricing this one gets a
18:04 little more advanced not quite as
18:06 straightforward so it’s a similar to
18:09 premium pricing
18:11 but it uses a similar product or service
18:16 at a much higher price so it’s priced on
18:22 the high end with a healthy margin okay
18:24 something to use a premium decoy pricing
18:27 you got you got an item a okay with the
18:30 with a healthy margin and that’s the
18:32 item that you really want to sell okay
18:34 but then you bring in item B which is
18:40 similar similar enough for a comparison
18:43 you know maybe with a little added value
18:46 but then it’s just priced through the
18:48 roof I mean it’s a ridiculously
18:51 overpriced and so what this does is it
18:54 plays on the concept of single option
18:55 aversion this is the name of the term
18:57 and it basically says that you know
19:02 customers are less likely to choose an
19:05 attractive product or service if there’s
19:06 nothing to compare it to so you know if
19:11 your business model is such that your
19:15 business is that you it kind of revolves
19:17 around one product you know that it
19:21 could present an issue for you when it
19:23 comes to marketing and sales because
19:25 there’s nothing to compare it to when
19:28 you’re when you’re pitching it to a
19:30 customer they you know people need
19:33 context we make sense of the world by
19:36 how we compare things to each other
19:37 things are things are better worse
19:42 I mean really you know we we categorize
19:45 everything in that way this car is
19:47 better and everybody has a different
19:48 opinion of course there’s no that one
19:50 universal opinion but you know in this
19:52 instance you’re you’re playing on that
19:55 kind of human tendency to just if you
20:01 know if you’re just presented with one
20:03 option well I don’t know is this a good
20:04 value or a bad value you know I’ve got
20:07 I’ve got nothing to compare it to so if
20:10 that’s your type of product you might
20:11 consider something like this add some
20:14 token bells and whistles price it way up
20:17 so then the item you’re actually trying
20:18 to sell looks good by comparison okay
20:21 they’re like damn this is a value you
20:24 know because this other thing that has
20:25 just a little bit more you know is
20:30 priced at this so this must be a good
20:32 value you know that it’s a it’s a little
20:35 bit of marketing trickery there so an
20:38 example the Apple products will do it a
20:44 little bit to where they’ll and I made I
20:47 put a copy of the link that I referenced
20:50 there at the bottom but Apple products
20:53 are have in the past I don’t follow
20:55 Apple that closely but like like a phone
21:01 with a little bit more storage will be
21:04 priced disproportionately high you know
21:08 to getting a little more value and but
21:12 they’re you know but they’re making it
21:14 bad option unattractive it’s there if
21:17 somebody wants it I mean somebody will
21:18 buy it because they want the best that
21:21 quote-unquote the best but you know
21:25 they’re really trying to sell the one
21:27 the more reasonably priced when the
21:29 middle the quote-unquote middle you know
21:31 the good better best they’re trying to
21:32 sell the better version so and then the
21:36 Economist is another classic example and
21:39 you’ll see quite a bit if you never
21:41 delve into this type of research in this
21:44 subject in terms of pricing that it’s
21:48 like
21:49 they sell the electronic subscription I
21:53 hope I’m not misquoting this and then
21:55 the electronic for less the print
21:56 four-way hider well hardly anybody wants
21:59 the damn print when I can just get it
22:01 electronically you know so you’re like
22:05 well why would I pay that much more this
22:08 electronic subscription alone looks much
22:11 more attractive so kind of went on about
22:13 that one for a while but it’s a you know
22:15 it’s kind of a fascinating thing I think
22:17 because of them you know the
22:20 psychological element to it okay so a
22:25 similar pricing strategy is bundle
22:29 pricing
22:32 so you’ve seen this no doubt I know my
22:37 internet company does it TV and Internet
22:41 bundled it’s you no way you pay him way
22:44 less for each you got automobiles with
22:48 extras you know sunroof leather seats
22:56 bigger engine the you know the GT model
22:59 whatever it may be they’re gonna you
23:02 know price it together an automobile you
23:05 can’t necessarily go get a sunroof extra
23:08 aftermarket I mean technically you could
23:10 I suppose but you know and that’s not
23:12 practical most people but excuse me the
23:16 games will bundle also you know Nintendo
23:21 Sony they’ll all sell you know whether
23:24 it’s a bundle of games or bundling the
23:27 console with the games so it you selling
23:32 items together and you selling them at a
23:33 lower price than you would sell them
23:34 separately and it gives a customer
23:37 better value customer recognizes that
23:39 makes attractive but when it does for
23:42 you then is also increased the sales
23:44 volume so included another link at the
23:46 bottom they’re gonna read a little more
23:48 about where I got those examples from
23:51 okay value-based pricing this is based
23:58 on you know and keep in mind like I said
24:01 these these can be combined they’re not
24:05 all mutually exclusive you don’t have to
24:07 pick just one so don’t just want to
24:10 reiterate that so now you base pricing
24:13 is where you price something based on
24:15 how much value your product or service
24:17 provides basically you know what’s the
24:20 utility it gives the the person who
24:23 purchased it you know if you’re selling
24:28 something that gives every every
24:32 customer infinite happiness for the rest
24:34 of your life and you’re selling it for a
24:36 dollar
24:36 well you’re not using value-based
24:38 pricing okay that’s that’s worth a lot
24:42 of money you know to have infinite
24:45 happiness for the rest of your life you
24:47 know you could charge almost anything
24:49 for that
24:52 so it’s it’s basically pushing the
24:55 threshold of what the customer is
24:56 willing to pay based off of your value
24:59 proposition similar to project pricing
25:01 which we’re covering a little bit it’s
25:04 you know cost is not critical in the
25:07 sense that you still need to be making a
25:09 profit of course you know there you
25:12 won’t be in business for long but it
25:14 might be that the value of what you’re
25:17 selling is not much above your cost well
25:21 then you need to look at lowering the
25:23 cost or increasing the value of course
25:26 flipside you know the margin might be
25:28 really big so not it’s not to be
25:32 confused something with another one we
25:35 talked about earlier value pricing of
25:37 course that was economy pricing where
25:39 you know you’re selling low margins
25:41 high-volume okay so in this case it
25:45 could be you know that luxury
25:46 automobiles would fall but fall under
25:49 that category like I said some might be
25:53 overpriced others might be priced at the
25:55 value they provide you know they’re
25:56 high-quality automobile that oh you know
26:00 that is reliable and beautiful and
26:03 everything you want
26:05 and you know it’s priced accordingly but
26:08 you if you’ve got the money you pay that
26:10 because that’s what it’s worth to you
26:12 another example might be professional
26:15 services or consulting okay you know
26:19 particularly those for a business if
26:22 they’re providing a lot of value if
26:23 professional service is going to help
26:25 you make a million dollars more in sales
26:27 well and charging you a hundred thousand
26:29 dollars potentially is it’s well worth
26:33 of you know that’s what it’s worth I
26:35 mean you’re still earning an excellent
26:37 return
26:40 this one’s psychological pricing this is
26:42 one obviously it can be easily combined
26:44 with others it’s a we’ve all seen it you
26:47 see it everywhere you know we think we
26:51 can see through it but you know research
26:53 says that it that it works that they
26:55 sell businesses sell more products and
27:00 services when they’re priced with that
27:04 99 cents eighty-nine cents or just you
27:07 know just shy of a certain threshold you
27:11 know it’s not by seeing a one at the the
27:19 beginning of the 1999 price it you know
27:21 I get you know again I’m sure you think
27:25 you see through it I think I do but you
27:27 know apparently not everybody does but
27:30 you know if I seen that one instead of a
27:31 two instead of just pricing is straight
27:33 twenty you know it they’re more they
27:38 feel like they’re getting more of a
27:40 bargain so you know you sacrifice very
27:43 little in revenue to potentially sell a
27:46 lot more so definitely a strategy worth
27:50 considering and like I said we see in
27:52 retail at a time and see with
27:54 automobiles you know car price to
27:57 nineteen thousand something 29,000 some
28:01 thirty nine thousand something you know
28:02 it’s a frequently relied upon strategy
28:08 okay
28:11 tration pricing
28:15 so this is a this is a potential
28:19 strategy to use the first startup it’s
28:23 typically one used by new market
28:25 entrants and it’s used to accumulate
28:28 market share with low pricing basically
28:31 swoop in say hey we’re brand new to this
28:33 market look how attractive this pricing
28:36 is give us a shot okay and you know
28:40 hopefully that the pricing is good
28:46 enough that it will compel people to try
28:47 your product or service that day they’ll
28:49 be like you know might as well give
28:53 these people a shot you know this is a
28:55 this a hell of a bargain you know and
28:58 maybe maybe it stinks hopefully not but
29:01 in this what they’re thinking you know
29:03 maybe this product or service stinks but
29:06 you know at this price I gotta at least
29:08 try it okay so it’s short-term strategy
29:10 you don’t if you do it for long term
29:12 you’re gonna be doing economy pricing
29:14 and you know that’s tough for small
29:16 businesses to do economy pricing they
29:20 just don’t have the economies of scale
29:22 that a Walmart or whomever does so you
29:27 know again you want to keep this
29:28 strategy to the short-term and be ready
29:30 to transition to a new strategy you know
29:35 to raising prices to a more appropriate
29:39 level later and hopefully by getting
29:41 people to try your product or service by
29:44 luring them with the penetration pricing
29:46 your unique selling proposition you’re a
29:49 quality customer service whatever it may
29:52 be will compel them to remain customers
29:54 then you know you’ll probably have some
29:56 fall-off of demand of course but you
29:58 know hopefully then you’ve got gotten in
30:01 there and claimed a little bit of the
30:04 market for yourself so you know you can
30:07 then move on to a new strategy build
30:11 your business off of that initial grab
30:13 of market share and a couple examples
30:16 businesses that have done this is
30:17 Netflix and not the Netflix is expensive
30:21 now by any means and this potentially
30:25 better value now than it was but you
30:26 know I mean what was it
30:28 $5.99 799 or something when it first
30:31 started you know very very inexpensive
30:34 and it’s worked its way up there since
30:36 and you know that people at that price
30:40 said I even if you know I mean trillion
30:43 find something to watch them here will
30:45 try it for $7.99 a month whatever you
30:48 know so they they penetrated the market
30:50 stole market share away from the cable
30:52 companies or the movie theaters
30:55 potentially or you know the the whole
30:57 gamut of different sub interest
31:01 industries that they compete against
31:09 you know Google Fiber did this I don’t
31:14 know what that’s priced at now but you
31:17 know if this was back when it first came
31:19 out and they had gigabit an Internet and
31:21 you know it was absurdly inexpensive I
31:25 think they kicked it off here not far
31:27 from me and was it Topeka or Kansas City
31:30 Kansas or something like that and you
31:34 know yeah in order to get people to try
31:36 it they went with the low price and I
31:38 would imagine the price has gone up
31:40 since then so you know any any business
31:46 that uses a low introductory price is
31:51 using penetration pricing strategy
31:56 so a strategy that runs in contrast to
32:00 that is skimming pricing okay now when
32:04 you see this used as when research and
32:07 development or costs or just the cost in
32:12 general of bringing a product to market
32:14 are high okay so there was a lot a lot
32:18 of a lot a lot of capital expended
32:21 before this product was even able to be
32:26 offered for sale okay so so the
32:29 reasoning is we’ve got to charge a
32:32 pretty high price just you know we’re
32:35 not we’re not gonna make as many sales
32:37 as we potentially could but we you know
32:40 we need to make big sales to get big
32:42 money coming in to recoup those costs to
32:45 get closer to breaking even you know do
32:49 to make some big strides towards
32:52 breaking even and then as time goes on
32:55 and you know the early adopters buy it
32:57 okay then you’re able to lower the price
32:59 a little bit and you know then people
33:04 are maybe you’re like okay it was this
33:07 now it’s this so that’s a bargain and
33:09 you to you know a few more customers and
33:11 so you’re selling more and your
33:13 economies of scale are getting better
33:15 and the price can continue to be lowered
33:18 and you know and for this particular
33:22 strategy and the businesses that use it
33:24 it’s often necessary to start lowering
33:29 that price because if it’s a rapidly
33:32 moving industry you know electronics
33:35 computer equipment whatever it may be
33:39 um you know you better you damn well
33:43 better lower that price because
33:44 something new
33:46 better fancier you know faster smaller
33:51 whatever it may be is is on the horizon
33:54 if is if it isn’t already there so you
33:57 know that the lowering the price isn’t
33:59 just to make a higher volume of sales
34:02 it’s like I said out of necessity
34:05 because what it is that you initially
34:07 brought to market it ain’t so cutting at
34:09 cutting edge anymore
34:10 okay so again this is a short term
34:13 strategy and like I said you’re selling
34:16 to early adopters and
34:17 it’s kind of the opposite of the
34:19 penetration pricing and you know it’s
34:21 the cutting edge technology you know
34:25 game systems with the recent
34:27 announcement of the PS 5 even though I
34:29 don’t think they priced it yet
34:31 that I’ve seen you know those gaming
34:35 consoles are always priced in that
34:36 manner with the skimming you know the
34:39 price their highest when they’re first
34:41 introduced and as time goes by that
34:43 price goes down and by the time there’s
34:45 a next-generation console out well
34:46 forget it you can pick up the second
34:50 generation console for pennies on the
34:53 dollar
34:58 trucking along here we’ve got
35:01 pre-emptive pricing and this is another
35:03 short-term strategy now this is one that
35:06 would be used by somebody’s already in a
35:08 market and is responding to a new
35:12 entrant into the market and what they’re
35:15 doing is the lowering pricing so it’s
35:19 similar to penetration pricing but again
35:24 they’re already established in the
35:26 market they’ve already got their market
35:27 share and they want to keep it okay so
35:29 now look in the game market share and
35:31 they want to keep what they got and you
35:33 see this used by monopolies and big
35:36 businesses they’ll even have lost
35:39 leaders in some instances you know
35:41 grocery stores who sell bread or milk
35:44 for a slight loss because you know they
35:48 the prospect of spending so little on
35:52 bread or milk is so irresistible to so
35:54 many customers well they’re gonna come
35:56 in for the bread and milk and they’re
35:58 just gonna do the grocery shopping there
35:59 because grocery shopping is a pain in
36:01 the ass they’re not gonna go to the new
36:04 grocery store and hang about it are
36:07 already at a grocery store you know they
36:08 just said that you know then they make
36:10 up the the lost margin on you know the
36:16 lost leaders with other higher margin
36:20 products or with volume and so what what
36:23 does I do you know of course that
36:24 discourages competition that discourages
36:27 the new guy the little guy from getting
36:31 into the market so this is a defensive
36:34 tactic basically and like I said not one
36:37 typically used by startups and some
36:39 examples you know it had it happens and
36:44 I mean I think Walmart you know their
36:45 grocery stores and it was Walmart of
36:47 course which is a little infamous for
36:49 this
36:49 I imagine Walmart still does it in some
36:52 respects but you know I they the example
36:59 I I found was a prescription prices
37:01 where they would sell some prescription
37:03 drugs you know sell them either at a
37:06 very low margin or as lost leaders and
37:08 you know prescriptions are can be a big
37:12 chunk of people’s budget and you know
37:15 the prospect of saving money on them is
37:17 like I said it’s irresistible well okay
37:20 so we’re gonna get our prescriptions
37:21 filled at Walmart and we gonna get back
37:23 in our car and drive a mile down the
37:26 road to go to the groats other grocery
37:28 store we just gonna do our grocery
37:29 shopping at Walmart you know well a lot
37:32 a lot of people you know and on my
37:35 mother she would she’d drive all around
37:37 town buying each individual item it’s on
37:40 sale from each individual grocery store
37:42 I think if if there were more than 24
37:45 hours in a day but most people are just
37:48 going to you know do the grocery
37:51 shopping there so you know I thought it
37:54 seems like such a kind of
38:00 I don’t know if sort of thing you feel
38:03 like is done all the time but I really
38:05 had our time find an example so I’m sure
38:07 there are more out there I’m sure it is
38:09 done and maybe it’s just not as
38:11 documented as easy as you might know as
38:14 you might think it is rather but anyhow
38:18 that it is pre-emptive pricing probably
38:20 not not something you’ll have to worry
38:23 about but something should be aware of
38:29 okay so cartel pricing we’re all
38:32 familiar with the word cartel and
38:36 you know the reason is you know because
38:41 this is sometimes how pricing is done
38:46 you know when they sell drug cartels
38:48 sell commodities of course you know
38:51 heroin you know heroin users not real
38:55 particular about their supplier as long
38:58 as the quality’s the same I’m
39:00 speculating here and not speaking from
39:02 experience and but you know drugs are a
39:05 commodity so it’s a it’s in essence a
39:09 gentleman’s agreement to keep prices
39:10 high so if you got two competitors it’s
39:12 like why sit here and fight on price you
39:17 know that just digs in to our margins if
39:21 there’s you know a few just a few of us
39:23 let’s just say you know nope this is
39:26 what we’re pricing it at okay and we’ll
39:29 compete through other channels you know
39:30 and drug cartels probably you know don’t
39:34 compete terribly fairly but in principle
39:39 you know like I said you would agree to
39:41 compete there other chance whether it’s
39:42 marketing or trying to lower your own
39:44 cost things like that you know to to get
39:49 an edge so it’s not a strategy that will
39:55 work with too many businesses in the
39:57 marketplace because you know between two
40:01 people two businesses okay three maybe
40:05 four
40:05 good luck five forget it you know I mean
40:09 I’m I’m you know speaking hypothetically
40:14 they’re you know the number it just
40:17 depends on them the business I guess but
40:19 the point being eventually if you have
40:22 too many competitors somebody’s gonna
40:24 take the easy road somebody’s gonna say
40:27 now I’m just gonna I’m gonna lower my
40:29 prices and try to steal market share you
40:31 know somebody will give in somebody will
40:33 cave and then that in turn forces all
40:37 the other market participants to do the
40:39 same thing so he got examples are OPEC
40:45 you know
40:48 drug cartels of course in the federal
40:51 reserve is in essence a cartel of banks
40:55 and Siemens in Europe and again I found
41:00 a link or references that example okay
41:06 so cost plus pricing this is a pricing
41:11 strategy that focuses purely on the cost
41:13 and it just adds a fixed percentage to
41:16 the cost of products or services so the
41:20 old legend was that Nebraska Furniture
41:24 Mart before Berkshire Hathaway bought it
41:28 sold it costs plus 10% and did a high
41:34 volume of business but this is still not
41:36 a pricing strategy I would recommend
41:38 recommend and you know Makana Cost
41:42 Accountant and
41:43 so I you know recognize the importance
41:47 of understanding your cost that this is
41:49 a kind of a lazy lazy pricing strategy
41:52 and cost by no means should be the only
41:55 factor to consider and when it comes to
41:57 pricing
42:01 examples that I found were cutting-edge
42:06 technology smart phones other
42:08 electronics
42:12 and that they were is a little hard to
42:14 find some more specific examples but
42:17 like I said there was a Nebraska
42:19 Furniture Mart I do remember that from
42:21 back when I read a lot of books on
42:23 Warren Buffett
42:27 okay so dynamic pricing this is a
42:34 flexible pricing strategy that changes
42:37 with demand so it basically prices go up
42:42 as demand goes down I’m sorry prices go
42:48 up as demand goes up excuse me
42:50 prices go down as demand goes down to
42:52 lure customers in and we’re talking that
42:56 these prices can change inside of a day
42:59 you know and so very quickly very very
43:03 dynamic it’s the name and you know a lot
43:07 of times you’re gonna need software with
43:10 a quality algorithm to keep up with
43:13 those changes in demand and to make sure
43:16 that you don’t get hosed and examples
43:18 are hotels and airlines
43:24 freemium pricing this is a combination
43:28 of the words free and premium premium
43:32 course and basically where you offer for
43:36 free a bare-bones version of your
43:39 product really just to kind of whet
43:41 people’s appetite give them a chance to
43:44 interact with it and see field like a
43:48 like a sample at a grocery store at
43:50 Costco or Sam’s or whatever and the goal
43:54 is of course to get customers to like it
43:57 your little free taste test and then
43:59 upgrade to a paid version and it’s in
44:04 some essence more of a marketing
44:08 strategy than a pricing one but you know
44:11 I did include it in here because it’s
44:13 worth we’re thinking about and you see
44:15 this a lot with the software and
44:17 software is a service in particular
44:23 okay so we’re getting getting down in
44:26 nitty-gritty here to more hourly pricing
44:31 this is a pricing strategy that’s
44:34 exclusively for services you know it’s
44:39 where you trade time for money and it’s
44:41 not advised I wrote a post on my other
44:44 side invest some money calm about
44:46 business models and kind of the
44:49 hierarchy and which are the most
44:51 attractive and trading time for money is
44:53 at the bottom it is the least attractive
44:56 and it’s not advised because you can’t
44:59 scale you can’t make more time in the
45:02 day no matter how hard you try no matter
45:05 what you do and you know it’s some
45:11 people when they first get into owning
45:14 their own business is bookkeeping or
45:15 freelancers or that do that and it’s
45:19 it’s simple in some respects certainly
45:22 but you know it’s a it just puts a cap
45:25 on your success so it’s not recommended
45:27 and but examples and there are examples
45:31 that put employees because that’s
45:33 exactly what most employees do you know
45:35 those that aren’t on some sort of
45:37 commission or large bonus program trade
45:42 time for money you know it’s what I do
45:45 and it’s ill-advised it’s not why you
45:49 got into business for yourself I mean it
45:52 you know aside from the freedom and the
45:55 control of course but you know
45:59 focuses on input you know your time and
46:02 labor or someone or another employees
46:04 time and labor it’s the same you can’t
46:06 create any more hours in the day for
46:08 other employees either but it focuses on
46:11 that input rather than the output that’s
46:13 the value received by your customer so
46:15 again not an advised strategy typically
46:19 but you know you have to be we’re aware
46:23 of its existence
46:29 project pricing is kind of the opposite
46:32 of hourly pricing and it’s also
46:34 exclusively for services because it’s a
46:37 flat fee charge for a deliverable it
46:41 might include you know products in there
46:47 too in terms of the pricing so a may be
46:51 exclusively for services but it’s
46:54 typically a services pricing strategy
46:57 for services and similar the value
47:00 pricing you know the fee you charge is
47:03 for deliverable and it’s hopefully based
47:06 on the value received by the customer
47:08 for that deliverable and it focuses on
47:11 the output you know the customers value
47:12 received rather than the input time and
47:14 labor some examples that do this it can
47:18 be done with some of the other examples
47:19 bookkeeping freelancing and that but you
47:23 know other examples are consulting
47:25 contractors and freelancers like I said
47:30 they can do it too so alright those are
47:33 the pricing strategies and I’ve been
47:36 going on for a while here but keep
47:41 pushing along and
47:45 talk about a little bit now about some
47:46 factors to consider when you’re talking
47:50 about pricing and some of those main
47:54 factors to consider are costs your
47:56 customers competitors new products and
47:59 market segmentation segmentation rather
48:02 get into that here so costs and pricing
48:07 I said cost plus is not typically a
48:13 recommended strategy but it is critical
48:16 that you understand your cost okay so
48:19 again just because I say cost less is
48:21 and how you want to pry something
48:22 doesn’t mean you can just be willy-nilly
48:24 with understanding your costs critical
48:26 that you understand your cost you want
48:28 to get as accurate as possible knowledge
48:32 of what each product and service cost
48:34 you deliver to customers okay so you
48:36 know your true margins and keep in mind
48:38 cost is more than labor and materials
48:40 there’s overhead there’s sgna expenses
48:44 and there’s just the manner in which you
48:46 allocate costs okay there’s a lot it’s
48:48 there’s no cut and drying method for
48:50 doing that some are going to be better
48:52 than others
48:53 some are gonna be more accurate than
48:55 others is what I mean an activity-based
48:58 costing I’ve got a page on that on the
49:02 website and you know that’s a generally
49:07 regarded as a well it’s certainly more
49:10 accurate than just generic costing but
49:15 excuse me it’s also a very heavily
49:18 involved process so not to be taken
49:23 lightly but if it’s done and with some
49:26 with some sense and taking seriously and
49:29 seeing through can provide some good
49:31 insights okay so you know the other
49:34 thing about constitu is categorization
49:36 ok that’s important with whether you you
49:40 understanding what of your costs are
49:43 fixed and what are variable because this
49:44 is gonna impact your operating leverage
49:46 you guessed it another subject I have a
49:50 post on on the website and you know
49:53 operating leverage to use the hi fix use
49:56 of five high fixed costs is
49:58 it gives you the ability to learn
50:02 extraordinary returns if you can sell
50:04 enough
50:05 okay so customers ultimately when it
50:09 comes to pricing your customers have to
50:10 buy in okay you have to understand what
50:15 they expect in terms of customer
50:17 services quality and of course pricing
50:20 and you know customer service and
50:25 quality aren’t gonna affect your cost so
50:27 it’s kind of a circular circular sort of
50:30 thing a feedback loop and you want to
50:32 know your customer avatars I talked
50:34 about that on some of my business plan
50:37 posts particularly and get down here
50:41 some of the earlier ones what is it yeah
50:47 business plan demand talks about
50:49 customer avatars and that’s basically
50:51 the demographic makeup of your customers
50:54 you know that you’re kind of in terms of
51:00 gender age income all those demographic
51:05 factors what you’re you know who your
51:10 customers are so you want to know them
51:12 okay you wanna know what compels them to
51:14 make purchasing decisions and beyond
51:16 that you want to have a firm grasp on
51:19 your unique selling proposition
51:20 something I’ve written about on invests
51:23 the money website and you know this is
51:27 basically what makes you your business
51:29 unique okay and this is how you separate
51:33 yourself from your competitors and you
51:35 know can can then charge what charge
51:39 your best price
51:42 competitors you’re gonna want to do
51:44 little detective work on on them and
51:48 understand you know how they position
51:50 themselves with strategies they use how
51:53 much do they offer in terms of customer
51:55 service and quality and what is their
51:57 unique selling proposition okay because
52:00 you know your customers are making
52:02 choices between you and competitors you
52:05 want to understand who you’re up against
52:07 okay you want to you want to do your
52:09 scouting report
52:12 so new when it comes to new products and
52:14 pricing and in this case we might be
52:16 talking new to you not the market and
52:20 you know a lot of times you do want to
52:23 come out of the gates and try to capture
52:25 market share quickly and have a high B
52:27 through penetration pricing strategy but
52:30 it depends on the market saturation
52:32 depends on the sophistication the
52:34 competitors whether that’s the strategy
52:36 you have to adopt but again I want to
52:40 remind you that is a short-term strategy
52:43 it needs to be part of a larger plan and
52:45 larger plan you know when it comes to
52:48 new products to don’t discount the value
52:50 of transparency and authenticity with
52:52 your customers you know when especially
52:56 if you’re making direct sales you know
52:59 why are you charging what you charge
53:01 okay a customer like might like that you
53:05 know they understand you’ve got to make
53:06 a profit and you know if they get taken
53:10 care of and feel like they’re in good
53:12 hands they’re a lot of times might be
53:15 willing to pay a little higher price and
53:18 you know they they appreciate you being
53:20 upfront and really given them the
53:24 information they need to compare the
53:27 value proposition between you and the
53:29 competitors so you know don’t as a rule
53:34 of thumb
53:34 yeah B be transparent in that respect I
53:37 think your customers will probably
53:39 appreciate it and then market
53:43 segmentation pricing I touched on this
53:46 earlier you know not all your customers
53:50 are the same different avatars other
53:52 differences that could really affect the
53:54 cost that’s needed to serve those
53:56 customers geography the amount they buy
54:00 and the timing of the sales you know did
54:04 they buy off and do they buy in peak
54:07 season not peak season things like that
54:09 okay so we’re not talking about price
54:11 discrimination here charging essentially
54:15 the same customer customers to different
54:19 customers to different prices no I mean
54:21 we’re talking about real things that
54:23 effect you know that you can justifiably
54:26 charge different prices for so don’t you
54:30 know depending on your business don’t
54:32 just make a blanket
54:35 prices pricing strategy you know think
54:37 about is it are there certain customers
54:40 that you could and should charge more
54:42 because they cost more to serve because
54:44 you know they’re getting a higher value
54:46 whatever it may be last thing we’ll
54:51 touch on here before the pricing tool is
54:57 the business plan and pricing okay so
54:59 like I said this is part of a bigger
55:02 series on business plan in particular
55:07 you know market research for a business
55:09 plan and you know pricing effects market
55:14 research of course who your competitors
55:16 are gonna be and it’ll affect the demand
55:20 you know demand and pricing are more you
55:25 know generally speaking inversely
55:28 related though you know that can be
55:30 worked around pricing will affect your
55:33 market size your serviceable available
55:35 market and the serviceable obtainable
55:37 market what you charge in price might
55:41 affect the location of your business
55:42 okay some locations are going to be more
55:44 conducive to higher prices and/or lower
55:47 prices the demographics where you are
55:49 you know he you got to think about that
55:52 again depends on your type of business
55:56 it might affect how you calculate market
56:00 saturation and I think that was my last
56:03 post on
56:05 market research yep market saturation
56:07 okay
56:09 and not post talk about finding and
56:12 setting a benchmark okay as you’re
56:14 researching for your business plan or
56:17 just for your annual planning you know
56:23 your pricing will affect what you choose
56:26 your benchmark and number four will
56:28 determine you know how Sacchi
56:32 saturated the market might be it’ll
56:35 affect your marketing of course and
56:37 it’ll affect your financial projections
56:39 of course you know your budgeting
56:42 capital budgeting operating budgeting
56:45 and financial budgeting and all of your
56:49 income state or all of your financial
56:50 statements income balance sheet and cash
56:52 flow okay
56:57 let’s talk a little bit about tool for
56:59 pricing I will put a link in the
57:01 description and this tool and there’s a
57:05 little snapshot of it
57:06 now I’ve got it up here so I can
57:09 directly reference it too but it’s in
57:12 the slides there and it’s inspired by
57:15 something called a Van Weston dorp as a
57:18 price sensitivity meter or just price
57:21 sensitivity meter for short
57:24 Dutch fellow I think came up with it and
57:28 what you’re doing in essence when you
57:31 use this tool you’re answering four
57:33 questions for a range of prices so for
57:37 for every price
57:40 in this range or not you know not every
57:43 price to the penny but you know for a
57:46 bunch of different prices you’re
57:47 answering four questions okay
57:49 these questions are what percentage of
57:51 people would question the quality of
57:53 this product or service at these prices
57:56 okay
57:57 ie they would think it’s too cheap
57:59 something’s wrong with it
58:00 it’s none nothing worth a damn is going
58:04 to be this inexpensive okay what
58:07 percentage of people would think that
58:08 the product or service is a bargain at
58:10 these prices okay so another way of
58:14 thinking that is it’s not expensive it’s
58:16 a bargain alright for each of those
58:20 prices what percentage of people would
58:22 think this product or service is getting
58:24 expensive so it’s no longer a bargain
58:26 it’s just it’s starting to get any
58:29 expensive range okay and what percentage
58:33 of people would think this product or
58:35 service is too expensive to these prices
58:38 ie that one doesn’t need an ie too
58:42 expensive too expensive you know what
58:44 that means I know what that means
58:48 okay so those are your four questions
58:50 and so when you answer these four
58:52 questions over a range of prices okay so
58:56 right here see here we got our range of
58:59 prices and we’re answering this question
59:01 the percentage of people that would
59:04 think
59:07 you know that would answer these
59:09 questions as follows
59:11 or is it shown over here at these prices
59:13 and shown here and what that does is
59:16 graph it out for you and then this well
59:19 I put in the table here to give you the
59:21 exact number but then you can see it on
59:22 the graph too and each of these points
59:24 where they cross provide you with the
59:27 information okay a couple of links real
59:33 good links at the bottom there on this
59:37 subject so like I said provides pride
59:44 the graph and the table provides pricing
59:47 insights and ideas and a what’s known as
59:50 a range of acceptable pricing okay so
59:53 the intersection of lines what do they
59:55 tell you all right
60:07 and I didn’t do this right well I’ll
60:09 tweak this table okay so we’ve got
60:17 marginal cheapness okay and if you’ve
60:22 ever watched my videos before which you
60:24 probably haven’t because not many people
60:25 have but you know I’m not above tweaking
60:29 a table on the fly here
60:43 okay
60:51 okay so the first one here we’re
60:53 questioning quality and getting
60:55 expensive intersect this is known as the
60:57 point of marginal cheapness okay or PMC
61:00 it means that any lower of a price could
61:06 mean that you’ll lose too many sales to
61:07 a perceived lack of quality okay so you
61:14 know there are there are basically
61:17 already quite a few people who think
61:19 that the product is cheap bordering on
61:22 too cheap so lowering it anymore
61:24 in theory isn’t gonna give you a bigger
61:28 volume of sales to offset the people
61:32 that just won’t buy it because they
61:33 think it’s not worth a damn okay so the
61:37 next point the optimum price point is
61:39 they call it and doesn’t mean you have
61:40 to choose this price point it’s just
61:43 this name is where the same percentage
61:48 of people and this is hopefully a low
61:50 percentage of people
61:52 feel the the product or service is too
61:55 expensive and they think the quality is
61:58 questionable okay so you’ve got both it
62:00 this is where both extremes intersect
62:02 okay but where they intersect this hope
62:06 again hopefully a low percentage because
62:08 these people aren’t going to buy in
62:11 either instance because they’re gonna
62:13 either question the quality or they’re
62:15 gonna think it’s too expensive its
62:18 overpriced so it’s the point you’re
62:20 minimizing those extremes okay the next
62:29 one is indifference price point where
62:32 bargain and getting expensive
62:44 intersect
62:50 so here this is the same hopefully high
62:53 percentage of people are in that middle
62:57 ground okay where a lot of them and and
63:01 this is the one where I see the most
63:03 kind of people who’ve written on it
63:05 recommended that you get your price if
63:07 you’re you know again I’d take
63:10 everything into consideration but this
63:12 is a good starting a point okay
63:14 ironically not the quote unquote optimum
63:16 price point just what they were named
63:18 and you know and I guess the name stuck
63:21 but the rationale changed over the years
63:23 it’s kind of an old model but so it’s
63:28 the same again hopefully high percentage
63:30 of customers feel the product is it’s
63:31 just starting to get expensive and same
63:35 percentage of people think it’s a
63:36 bargain okay so these are the people
63:39 they’re gonna make purchases all right
63:42 so that you know again this is where
63:48 potentially you would have the highest
63:50 volume depending on the quality of your
63:51 information and if finally the last one
63:54 is the point of marginal expensiveness
63:57 okay so bargain and too expensive where
64:00 those lines intersect
64:07 so it’s basically the same as the point
64:13 of marginal cheapness just flipped on
64:16 its head you know it means any higher of
64:18 a price you
64:21 you know you just gonna see too big of a
64:24 drop-off in in demand to to really help
64:32 your sales okay if it gets any more
64:35 expensive demands probably gonna fall
64:37 off and there just aren’t enough people
64:39 that feel that this is you know beyond
64:45 this point and there aren’t a big
64:48 percentage of people they’re gonna feel
64:49 that you know that either this is
64:56 a bargain or even getting expensive you
65:00 know beyond this point a lot of people
65:02 are gonna start to think it’s too
65:03 expensive too many people okay so you
65:08 know you you do that you fill this
65:11 information out you know the
65:13 intersections are over here on the table
65:15 you can see the prices but for
65:17 everything I entered up here here’s our
65:19 point of marginal cheapness eighty four
65:22 ninety nine any less than that so many
65:24 people are gonna think that it’s junk
65:26 and it won’t buy it the demand will be
65:29 there you know we got our optimum price
65:31 point ninety three thirty two and down
65:36 here we’re same percentage of people or
65:39 if the question quality and think it’s
65:41 too expensive that’s where the extremes
65:43 are minimized okay we got our
65:45 indifference price point here where our
65:48 moderate our purchasers are maximized
65:50 percentage-wise
65:51 that’s a $115 and then we got our point
65:56 of marginal expensiveness beyond this
65:57 too many people are going to think it’s
65:59 too expensive the demand won’t be there
66:03 so yeah like I said they and their
66:08 sections are over here and we’ll go over
66:10 how to use the table here next
66:14 almost done two more slides hang in
66:17 there I’m trying to hang in there myself
66:19 been going on an hour in six minutes
66:21 ended up my videos always go longer than
66:26 I anticipated but you know it’s a labor
66:29 of love
66:30 sure selling a labor of monetary reward
66:34 but nem okay how do you use the price
66:38 sensitivity meter well if you can
66:41 conduct an actual survey of customers or
66:43 get your hands on that information
66:44 otherwise and great use it okay
66:49 if you can’t do that
66:53 indefinitely research it further if
66:55 that’s the path you’re gonna take cuz
66:57 you want to understand the wording of
66:58 the questions there’s ill you know it’s
67:00 kind of an art unto itself okay
67:03 obviously I’m using a hypothetical
67:05 example here and just speculated but um
67:10 you know if you don’t if you don’t think
67:12 you can practically conduct the survey
67:14 or get this information from potential
67:15 customers then you have to speculate so
67:19 first thing you do is enter the average
67:21 or medium price you know take them
67:24 whatever the first price that comes to
67:26 mind
67:27 okay this doesn’t have to be exact and
67:29 enter it right here in h2 okay so from
67:31 there it’s going to calculate down to
67:34 zero and it’s gonna calculate up give
67:37 you a range of prices up to double the
67:39 price okay that’ll happen automatically
67:45 again I’ll make the point if you’ve ever
67:48 used any of my other tools you know the
67:50 white cells okay that’s where you put
67:53 information in shaded cells have
67:55 formulas okay so don’t type over them
67:57 type in the white cells and excuse me
68:01 you’ll be good to go
68:05 okay so for each question and are the
68:07 percentage of customers who would or you
68:09 think would agree so at zero well it’s a
68:16 hundred and a hundred okay so we’re
68:18 going to say
68:21 everybody would question the quality at
68:24 zero and by default everybody would
68:28 think it’s a quote unquote bargain there
68:31 and you know this just has to do with
68:34 if you enter zero here well first of all
68:38 it’ll give you an error okay because it
68:40 kind of violates the rules it’s
68:44 less people are always gonna question
68:46 the quality then think it’s a bargain
68:47 okay less people are always gonna think
68:51 it’s too expensive and think it’s
68:53 getting expensive okay so me describing
68:57 it I might not do it justice
69:01 if you tinker around with this a little
69:02 bit I think it’ll it’ll become intuitive
69:05 you know it just takes a little getting
69:06 used to and it’s you know in essence you
69:09 want your lines like this so like I said
69:11 this question quality is the blue line
69:13 here is always less than the red line
69:16 alright because you know this is worse
69:22 than bargain
69:24 okay so fewer people are gonna think
69:26 that conversely too expensive it’s
69:30 always gonna be fewer people and think
69:32 it’s getting expensive okay and you see
69:35 the lines sloped down this way for the
69:37 bottom to slope down this way for the
69:39 top so again there’s logic worked into
69:42 the table here where you can’t go from
69:44 oh well ninety percent people question
69:47 quality at twenty but ninety five are
69:49 gonna question it at forty well that
69:51 wouldn’t make sense okay why would more
69:53 people question the quality of forty
69:55 dollars than would at twenty twenty is
69:57 less than forty so if you try to do that
70:01 that it’ll say no no violates the rules
70:06 try again and that’s just to keep you
70:08 from entering information that you know
70:14 would basically render the tool useless
70:16 so I put that in there for your own good
70:18 you know and particularly as you’re kind
70:20 of like getting used to it tinkering
70:22 with it
70:25 you know it it just helps got as kind of
70:29 a check they’re just like hey you know
70:31 that’s not what you want to do and like
70:32 I said you’ll get used to it and you’ll
70:33 you’ll understand become a little more
70:35 intuitive to you that at first glance it
70:38 if you’re just watching this video it
70:39 might not be but again I would encourage
70:40 you to download it try it a little bit
70:43 and read up on it some more you know
70:45 they there might be a damn good
70:49 possibility someone else explains it
70:50 better than I do okay so talk a little
70:54 bit about the the logic here question
70:57 quality and bargain must be equal or
71:01 decrease as the price increases okay
71:04 price goes up fewer people are gonna
71:07 think it’s a bargain fewer people are
71:08 gonna question the quality you know
71:11 question quality it means that it’s so
71:14 low something must be wrong with it
71:16 why are they trying to give this away
71:20 okay conversely getting expensive and
71:24 too expensive must be equal as the price
71:27 increases or increase okay as the price
71:32 increases more people are gonna think
71:33 it’s too expensive more people are gonna
71:35 think it’s getting expensive all right
71:37 it’s pretty straightforward okay so the
71:40 percentage that question quality must be
71:42 equal to or lower like I said earlier
71:44 than think it’s a bargain
71:45 if you were you know this is a worse
71:52 description okay you know so there’s
71:57 always gonna be fewer people that think
72:00 that or there has to be in terms of this
72:04 within the context of this tool you know
72:08 anything’s possible but you know like I
72:11 said this is just kind of the logic that
72:12 you have to use to be able to get get
72:14 anything from this tool because if you
72:15 throw this logic out the window then the
72:17 tool is useless and you know so
72:23 and I touched on earlier so the
72:24 percentage that feel it’s too expensive
72:25 must also be equal to or lower than the
72:27 percentage to feel it’s getting
72:28 expensive fewer people are going to
72:30 think it’s too expensive I think it’s
72:32 just starting to get expensive game
72:35 trechie present prevents this logic can
72:38 be violated your
72:44 losing point of marginal cheapness
72:45 optimum price point indifference price
72:47 point and point of marginal
72:48 expensiveness are automatically
72:50 calculated and the graph is
72:51 automatically updated so for example
72:56 like if we take this and say this the
73:01 question quality it was 15 10 5
73:08 you see a little bit see the graph
73:11 change down here and then with some of
73:14 those first edits he saw the price the
73:18 point of marginal cheap cheapness change
73:20 see it jumps okay because it changes all
73:26 right so it’s the same as you you know
73:28 particularly as you get to update and
73:29 these values in the middle that’s where
73:30 you gonna see these changes in the
73:32 prices but you’ll see the graph a bit II
73:36 no matter where what changes you make
73:39 some ok and went on our fifteen seventy
73:45 five minutes yeah
73:46 it’s a long one I’m done you know I did
73:51 included this slide in with mostly with
73:54 my quickbooks online videos and it
73:59 doesn’t directly apply here but i
74:00 slipped it in anyways and you know
74:02 depending on where you’re at with your
74:03 bookkeeping if you DIY in it and you
74:08 hate it and you know you want to work
74:13 more on your business than work in your
74:14 business and do less data entry because
74:17 you think that’s boring and you’re right
74:19 then check out bot keeper you know they
74:23 use AI to automate your bookkeeping
74:25 tasks they can do it in quickbooks
74:27 online and like i say gives you the
74:29 opportunity help your business grow it
74:32 spend less time on menial tasks and
74:35 there will be a link down in the
74:37 description for that
74:41 okay that’s all I got man if you stuck
74:45 with me thank you hope you found some
74:48 value there some things to think about
74:50 and like I said pricing is a complicated
74:53 manner but when we’re spending time on
74:57 check out the tool try it again I you
75:00 know don’t let spreadsheets scare you I
75:02 try to make my spreadsheets as
75:04 simplistic as possible and give you the
75:07 documentation you need to use them and
75:10 get value from them because that’s what
75:11 they’re there for
75:12 you know so any you know the old and
75:17 it’s an old saying I’ve only seen it
75:19 said once and I thought it was great
75:20 though they said you know better to make
75:23 mistakes in a spreadsheet then in real
75:26 life you know when I’m not doing the
75:28 quote justice but something like that
75:30 but I am I’ll leave you all with that
75:33 thanks for watching
75:35 take care

Pricing strategy example

As has been customary for my business plan posts, I’ll be trying to apply what write about (or record, in this case).

I’ve been using a startup that seeks to manufacture an all-natural topical hair regrowth treatment for my examples thus far. Though the previous post on market saturation called the viability of that idea into question – I’ll continue to use it for consistency’s sake.

As far as pricing strategies go, I knew I wanted to use psychological pricing – because why not? If it convinces a few more people to buy than would have otherwise, it’s worth it.

Also, due to the nature of the product (vanity) I always figured that premium pricing would be appropriate. Not excessive, but I knew I wanted to price on the high end. Again, I can always run promotions.

I also wanted to be mindful of value. This is, admittedly, not a miracle product. It’s just a supplement. If it cured all hair loss, I could charge just about any price for it. But, it doesn’t. So, I need to be mindful of just how much value I’m providing.

With those strategies in mind, I went to Amazon and searched for competing products. I did this for both men and women because I thought it would be smart to price those customer segments differently. I could make slight tweaks to the formula to justify the difference in pricing.

I thought that a women’s hair regrowth product would be priced higher. The reason I thought this was because of the (surprising) preponderance of women concerned about hair loss. I was wrong, however. Women’s hair regrowth products tended to be priced lower than men’s.

After getting a feel for the pricing for each segment, I plugged my assumptions into the Price Sensitivity Meter.

Here’s what I came up with:

Men’s pricing: $35.49 for a one-month supply.

Women’s pricing: $29.49 for a one-month supply.