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Michael D. Mondello has looked at pricing from an academic point of view while majoring in finance and marketing at Northwestern University's Kellogg School of Management; from a sales perspective when he served as a sales rep and zone manager at Procter & Gamble; as a consultant with the Delta Consulting Group, in Trumbull, Conn.; and as a marketing manager, formerly at Procter & Gamble and currently at Celestial Seasonings, in Boulder, Colo., where he is vice-president of marketing.
CREATIVE PRICING PRIMER
PRICING APPROACH
HOW IT WORKS
EXAMPLE
HOW MIGHT IT APPLY TO YOUR BUSINESS?
1. Bundling or unbundling
Sell products or services together as packages or break them apart and price accordingly.
Season tickets; stereo equipment; car rentals charging for air-conditioning.
2. Time-period pricing
Adjust price, up or down, during specific times to spur or acknowledge changes in demand.
Off-season travel fares (to build demand); peak-period fees on bank ATMs (to shift demand).
3. Trial pricing
Make it easy and lower the risk for a customer to try out what you sell.
Three-month health-club starter memberships; low, nonrefundable "preview fees" on training videos.
4. Image pricing
Sometimes the customer wants to pay more, so you price accordingly.
Most expensive hotel room in a city; a private-label vitamin's raising price to increase unit sales by signaling quality to shoppers.
5. Accounting-system pricing
Structure price to make it more salable within a business's buying systems.
Bill in phases so no single invoice exceeds an authorization threshold; classify elements so pieces get charged to other line items.
6. Value-added price packages
Include free "value-added" services to appeal to bargain shoppers, without lowering price.
A magazine's offering advertisers free merchandising tie-ins when they buy ad space at rate-card prices.
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PRICING APPROACH
HOW IT WORKS
EXAMPLE
HOW MIGHT IT APPLY TO YOUR BUSINESS?
7. Pay-one-price
Unlimited use or unlimited amount of a service or product, for one set fee.
Amusement parks; office-copier contracts; salad bars.
8. Constant promotional pricing
Although a "regular" price exists, no one ever pays it.
Consumer-electronics retailers' always matching "lowest price" in town; always offering one pizza free when customer buys one at regular price.
9. Price performance
Amount customers pay is determined by the performance or value they receive.
Money managers' being paid profits; offering a career-transition guide for $80 and allowing buyers to ask for any amount refunded after use.
10. Change thestandard
Rather than adjust price, adjust the standard to make your price seem different (and better).
A magazine clearinghouse's selling a $20 subscription for "four payments of only $4.99."
11. Shift costs to your customer
Pass on ancillary costs directly to your customer, and do not include those costs in your price.
A consulting firm's charging a fee and then rebilling all mail, phone, and travel costs directly to client.
12. Variable pricing tied to a creative variable
Set up a "price per" pricing schedule tied to a related variable.
Children's haircuts at 10¢ per inch of the child's height; marina space billed at $25 per foot for a boat.
13. Different names for different price segments
Sell essentially the same product, under different names, to appeal to different price segments.
Separate model numbers or variations of the same TV for discounters, department stores, and electronics stores.
14. Captive pricing
Lock in your customer by selling the system cheap, and then profit by selling high-margin consumables.
The classic example: selling razors at cost, with all the margin made on razor-blade sales.
15. Product-line pricing
Establish a range of price points within your line. Structure the prices to encourage customers to buy your highest-profit product or service.
Luxury-car lines (high-end models enhance prestige of entire line but are priced to encourage sale of more profitable low end).
16. Differential pricing
Charge each customer or each customer segment what each will pay.
In new-car sales, a deal for every buyer; Colorado lift tickets sold locally at a discount, at full price for fly-ins.
17. Quality discount
Set up a standard pricing practice, which can be done several ways.
Per-unit discount on all units, as with article reprints; discounts only on the units above a certain level, as with record clubs.
18. Fixed, thenvariable
Institute a "just-to-get-started" charge, followed by a variable charge.
Taxi fares; phone services tied to usage.
19. "Don't break that price point!"
Price just below important thresholds for the buyer, to give a perception of lower price.
Charging $499 for a suit; $195,000 instead of $200,000 for a design project.
NOTE: Once you've been creative, make sure you're covered. The most important aspect of any pricing approach is that it is legal and ethical. Check with counsel.
