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Marketing Product innovation Spreadsheets Strategy
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Synopsis
Need to evaluate the best pricing strategy for a product? Our Pricing Strategies spreadsheet template includes the top five pricing tools to evaluate cost, features, market share, competition, and customer price sensitivity to pick the right price for the right market. Adjust and analyze pricing to maximize profit margin for any product based on key metrics such as LTV, CAC, COGS, market share gained, or customer price perception.
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The effectiveness of a pricing strategy can be measured by evaluating key metrics such as Lifetime Value (LTV), Customer Acquisition Cost (CAC), Cost of Goods Sold (COGS), market share gained, and customer price perception. These metrics can help determine if the pricing strategy is successful in maximizing profit margin for a product.
Some factors that can cause a change in market share include changes in pricing strategy, introduction of new products or services, changes in customer preferences, changes in market conditions, and competitive actions.
Pricing strategies should be reviewed and adjusted regularly, ideally on a quarterly basis. However, the frequency can vary depending on the market conditions, competition, and customer price sensitivity. It's important to keep an eye on key metrics such as LTV, CAC, COGS, market share gained, and customer price perception to make necessary adjustments.
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We've created this Pricing Strategies template in Excel and Google Sheets that you can download and customize to your needs. whether you need to compare the competition's pricing strategy, the product's cost and ideal margins, different pricing tiers, historical customer price sensitivity, marketing spend, CAC, and LTV, feature-by-feature freemium conversion, or market share captured over time, this tool can help you do it. We'll now show how to use the pricing strategy spreadsheet template to utilize the top five pricing strategies to price a product like a new cell phone.
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Customer price perception plays a crucial role in pricing strategy. It refers to the customer's opinion of a product's value. If customers perceive that the product's price is greater than its value, they are less likely to purchase it. Conversely, if they perceive that the value is greater than the price, they are more likely to make a purchase. Therefore, understanding customer price perception can help businesses price their products in a way that maximizes sales and profits.
The pricing strategy spreadsheet template can be used to evaluate market share gained by tracking the market share captured over time. This can be done by inputting data related to your product's pricing, the competition's pricing, and the overall market conditions. By analyzing this data, you can see how changes in your pricing strategy affect your market share.
Marketing spend plays a crucial role in pricing strategy as it directly impacts the cost of acquiring a customer (CAC) and the lifetime value of a customer (LTV). The more a company spends on marketing, the higher the CAC. This needs to be factored into the pricing strategy to ensure profitability. Additionally, marketing spend can influence customer perception and demand, which can also affect pricing.
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Competitor comparison
To begin, first enter the name of the cell phone under the Price Analysis section of the Field tab, along with an initial price point to analyze. Then enter the total fixed cost for the business, which is the total amount of money a business must pay to keep their operations running regardless of how many products they make or sell.
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A business can use pricing strategies to improve its customer price perception by implementing strategies such as value-based pricing, psychological pricing, or promotional pricing. Value-based pricing involves setting prices based on the perceived value of a product or service to the customer rather than on the cost of the product or service. Psychological pricing involves setting prices that are more appealing to customers such as pricing an item at $9.99 instead of $10.00. Promotional pricing involves temporarily reducing prices to increase short-term sales and attract more customers.
Some common mistakes businesses make when setting their initial price point include: not considering the cost of production, not understanding the market and competition, pricing too high or too low, not considering the perceived value of the product by customers, and not revisiting the price point regularly to adjust for changes in the market or cost of production.
A business can balance between gaining market share and maximizing profit margin by implementing a strategic pricing strategy. This involves setting a price that is competitive enough to attract customers and gain market share, while also high enough to cover costs and generate a profit. The business should also focus on improving operational efficiency to reduce costs, and invest in marketing and product development to increase demand and sales volume. It's a delicate balance and requires careful planning and execution.
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The first pricing strategy to assess is competition-based pricing. On the Competitor comparison tab, we can check our phone's price against the competition with two competitive landscapes: a Competitor perceptual map and a Kotler's matrix. Fill out the competiton's price-point below, along with their perceived product quality and price level and estimate for annual units sold. Each product is now placed on the perceptual map, where bubble size indicates each competitor's market share, and Kotler's matrix, which defines each competitor's pricing strategy.
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Kotler's matrix defines a competitor's pricing strategy by placing each product on the matrix based on their perceived product quality and price level. It also takes into account the estimated annual units sold. The position of the product on the matrix indicates the competitor's pricing strategy.
A perceptual map is a visual representation that helps in evaluating a competitor's market share. In the context of competition-based pricing, each product is placed on the perceptual map, where the size of the bubble indicates each competitor's market share. This allows for a quick visual comparison of the market share among competitors.
The annual units sold by a competitor can influence our pricing strategy by providing insights into the competitor's market share. A larger market share, indicated by a larger number of units sold, may suggest that the competitor's pricing strategy is effective. This information can be used to adjust our own pricing strategy, either by matching the competitor's price to compete for market share, or by differentiating our product and setting a higher price. It's important to consider other factors as well, such as product quality and perceived value.
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For example, Apple's pricing strategy with the iPhone 14 is Premium pricing because its a high price-point and high quality item, but the iphone SE pricing strategy would land at High Value for high quality at a medium price-point.
Cost-based pricing
Now cost-based pricing determines how to price products based on the product's sensitivity to the cost of goods sold. Here on the Cost-based pricing tab, we compare multiple price-point scenarios to find the price-point with the lowest break-even point in our break-even analysis.
To determine these scenarios, either experiment with fixed dollar increases, where the list price is changed, or percent-based increases, where the profit margin is changed. These are then presented against one another to analyze which price point has the lowest break-even point. Below, use the filters to compare two single break-even analysis scenarios side by side.
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Pricing in business refers to the method of determining what a company will receive in exchange for its products or services. It involves considering factors like fixed and variable costs, competition, company objectives, proposed pricing strategy, targeted consumer and willingness to pay.
Fixed dollar increases involve changing the list price of a product or service, while percent-based increases involve changing the profit margin.
The break-even point is the point at which total cost and total revenue are equal, meaning the business has neither made a profit nor incurred a loss.
Comparing different pricing scenarios helps a business determine the most profitable pricing strategy.
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Pricing sensitivity
Next up is a pricing landscape to find the price sensitivity of your current customers. In the pricing data table of the Price sensitivity tab, enter how many units sold at each historical price point during each time period. Add any marketing spend and customer lifetime value, or LTV, of that cohort.
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The content provided does not mention any Excel format file. However, if you're looking for an Excel file to input your pricing data, you can create one yourself. Simply open Excel and create columns for units sold, historical price point, time period, marketing spend, and customer lifetime value. If you're looking for a specific file mentioned in a different context, you may need to refer back to that source or contact the person or organization that provided the information.
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The charts visualize how changes in price impact "customer price sensitivity" across units sold, revenue, profit, and CAC while accounting for variables such LTV, marketing spend, or cost over time. Remember, you can download and customize this Pricing Strategies spreadsheet to evaluate your own customer price sensitivity right now.
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Freemium conversion
What about pricing freemium products, where conversion to paid depends on feature sensitivity? Here on the Freemium conversion tab, analyze customer feature sensitivity across ten unique product features. Enter the feature name, the number of free users gained, the conversion rate to paid, the price of the tier purchased, any marketing spend, and expected customer LTV. For example, our phone's photo edit app feature converted the most free users, at the second highest price-point, with the most revenue and lowest acquisition cost.
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When preparing a pricing model, several direct and indirect costs need to be considered:
Direct costs: These are costs directly associated with the production or delivery of a product or service. They include raw materials, labor costs, and manufacturing expenses.
Indirect costs: These are costs that are not directly tied to a specific product or service but are necessary for the overall operation of the business. They include overhead costs like rent, utilities, and administrative expenses.
Other costs: These can include marketing and advertising costs, research and development costs, and any costs associated with legal or regulatory compliance.
Additionally, it's important to consider the cost of customer acquisition, the expected lifetime value of a customer (LTV), and the desired profit margin. These factors will also significantly influence the final pricing model.
A strategic pricing excel template is a tool that helps businesses determine the optimal price for their products or services. It typically includes various factors such as cost of production, market demand, competitor pricing, and desired profit margins.
For a freemium product, the template might include columns for feature name, number of free users, conversion rate to paid users, price of the paid tier, marketing spend, and expected customer lifetime value (LTV).
You can find various strategic pricing excel templates online, some are free while others are paid. Choose one that best fits your business model and pricing strategy.
Remember, the goal of strategic pricing is not just to cover costs, but also to maximize profits while providing value to customers.
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The first chart highlights the number of active users and those that converted across each feature. The others compare features across free users gained, conversion, price, revenue, spend, acquisition cost, LTV, and profit.
Market penetration
Last up, analyze two competing pricing strategies and how well they capture market share over time with the Market penetration tab. Below the charts, there are two strategy tables where you can plot the data from your competing strategies. Enter the strategy name, the dates, price points, units sold, and market share captured to compare progress in phases. Here, two opposite strategies to capture market share are assessed: price skimming versus penetration pricing.
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"Price skimming" starts with a high, premium price-point that gradually goes lower to enter and gain market share before offering deals. "Penetration pricing" starts with a low price to penetrate the market, create a moat, then increase prices to cover costs.
To use these top five pricing strategy tools to price your next product, download and customize this Pricing Strategies spreadsheet template in Microsoft Excel or Google sheets. Now, go check out our Pricing Strategies (Part 2) presentation template for more tools to inform your pricing strategy analysis with beautiful slides to share your conclusions with key stakeholders.
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Matrix analysis for costs for a proposed initiative involves identifying all the costs associated with the initiative and organizing them in a matrix format. This includes direct costs, indirect costs, fixed costs, and variable costs.
Direct costs are those that can be directly attributed to the initiative, such as materials and labor. Indirect costs are those that are not directly attributable to the initiative but are necessary for its implementation, such as overheads.
Fixed costs are those that do not change with the level of output, such as rent and salaries. Variable costs are those that change with the level of output, such as raw materials and utilities.
Once all the costs have been identified and organized, they can be analyzed to determine the total cost of the initiative, the cost per unit of output, and the break-even point. This information can then be used to inform decision-making regarding the initiative.
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