5.4 Pricing

Explanation

Cash generation is possible if you can price the offering significantly higher than your cost to produce. To achieve this there must be minimal competition. This could be because you are the first to the market, you have a monopoly on the market or because you are the only one willing to offer such an offering due to market decline, liability, social pressures, market location, etc.

Significant market penetration is usually only feasible in the early stages of an offering form's life cycle and is often accompanied with very competitive pricing. In later life cycle stages, market penetration might be feasible if you are able to offer much greater value for the same price or you have been able to substantially reduce your cost to produce as compared to the competition.

Describe your pricing strategy in terms of dollars per unit and how that compares to the competition. If you plan pricing specials or volume discounts, describe them. If you intend to use dealers or distributors, discounts or commissions will be required and should be described.

The mix of sales from full price to your deepest discount will result in an average selling price (ASP) that is lower than your retail price. You should project this mix and the resulting ASP.

Factors to consider:
Cash requirements
Long term staying power
Market penetration objectives
Competitive pricing
Competitor's objectives
Strength of competitors
Average selling price considering all channel discounts
Prospect's sensitivity to price versus product value
Use of pricing specials or trade allowances
Impact on sales organization

Sample from CitiLoc, Inc.

There will be two pricing levels for cities. The basic level, priced at $1,000 per year, will include our effort of accumulating and storing the city data on our data base and keeping the data current. The advanced level, priced at $2,500 per year, will include quarterly reports comparing the data for all cities in the data base plus a listing of businesses that have made a commitment to locate in a specific city.

There will also be two pricing levels for businesses wishing to use the data base. The basic level, priced at $2,500, will allow a business to access and search the data base for up to one year using the search tools provided by our system.

For example, the business could search for all cities that offer a tax abatement program, have an average price per foot for commercial space of less than $1.75/month, have an occupancy rate of less than 90%, have direct airline connections to San Jose and have a major university within 50 miles.

The advanced level, priced at $10,000, will provide extensive analysis tools plus evaluations, written by our staff, for up to three cities. The evaluations will review over fifty important factors to consider before making a commitment to a new city.

We may also offer to provide consulting support to businesses. If so, we will make proposals on request from the prospect. Minimum consulting rates will be $1,200 per day.

In addition, we expect that service and product vendors in the various cities will be interested in promoting their business in the data base. We have not established pricing for this as yet, but, in any case, do not expect it to be a substantial portion of our revenue.