Main takeaways: - Know-how of various pricing techniques - Ability to price products in the future - Example breakdown analysis of pricing for 1-2 products

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Product Pricing Strategies
by Western Digital Dir of PM

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6. PRODUCT
(HARDWARE)
PRICING
STRATEGIES

7. Outline
■ Economics
■ Pricing Methodologies
■ Pricing Strategy
■ Pricing Examples
■ Summary

8. “PRICE is what you pay.
Value is what you get”
WARREN BUFFET

9. Why are these water bottles priced
so differently?
At the end of the day, isn’t drinking water just quenching customer’s thirst

10. ECONOMICS

11. Economics : Demand Curve
Volume Volume
Price
Price
Inelastic demand
(Low price sensitivity)
Elastic demand
(High price sensitivity)

12. Economics : Demand Curve
Inelastic demand goods
■ Vintage wine
■ Yacht
■ Luxury Cars
Elastic demand goods
■ Oil
■ Cars
■ Groceries

13. Recent examples of pricing
increases and decreases
Increases
▪ Sanitizers
▪ N-95 Masks
▪ Groceries
Decreases
▪ Oil
▪ Airline tickets
Why did prices of these specific products go up or down during COVID-19?

14. PRICING
METHODOLOGIES

15. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing
■ Premium pricing
■ Market based pricing
■ Value based pricing
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

16. Pricing Methodologies
■ Cost-plus pricing – Goal is to hit a margin % irrespective of market
conditions
■ Margin based pricing
■ Premium pricing
■ Market based pricing
■ Value based pricing
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

17. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing – Cost-plus based with margin targets but takes into
account market conditions
■ Premium pricing
■ Market based pricing
■ Value based pricing
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

18. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing
■ Premium pricing - Margin based pricing along with brand and quality
■ Market based pricing
■ Value based pricing
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

19. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing
■ Premium pricing
■ Market based pricing – Market sets the price
■ Value based pricing
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

20. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing
■ Premium pricing
■ Market based pricing
■ Value based pricing – Pricing based on customers’ perception of product
value
■ Other methodologies –
– Penetration pricing
– Dynamic pricing
Source : https://www.business-case-analysis.com/pricing.html

21. Pricing Methodologies
■ Cost-plus pricing
■ Margin based pricing
■ Premium pricing
■ Market based pricing
■ Value based pricing
■ Other methodologies –
– Penetration pricing – Pricing to enter a new market and gain market
share
– Dynamic pricing – Pricing during auctions
Source : https://www.business-case-analysis.com/pricing.html

22. However world is not black or white..
Need to consider a lot of factors

23. PRICING
STRATEGIES

24. Pricing Strategy
■ Pricing strategy depends on many factors…
– Company
■ Product Cost
■ Business targets
■ Financial condition
– Customer
■ Value
■ Price sensitivity
■ Long term agreements
– Competition
■ Differentiation
■ Pricing
■ Products

25. PRICING EXAMPLE -
DETERMINE PRICING
FOR A PRODUCT -
IPHONE

26. Pricing the NEXT iPhone
■ Imagine that you are a new employee at Apple who has been given the task
to price the next iPhone (2020)..
■ Which Pricing methodology would you chose?
■ Factors to consider

27. Pricing the NEXT iPhone
■ Imagine that you are a new employee at Apple who has been given the task
to price the next iPhone (2020) with the following assumptions
– iPhone 12 Pro Max
– 64GB/128GB capacity
■ Which Pricing methodology would you chose?
■ Factors to consider

28. Pricing the NEXT iPhone
■ Imagine that you are a new employee at Apple who has been given the task
to price the next iPhone (2020) with the following assumptions
– iPhone 12 Pro Max
– 64GB/128GB capacity
■ Which Pricing methodology would you chose?
– Premium based pricing - Cost-Plus + Margin + Quality/Brand +
Services (iMessage, FaceTime etc.)
■ Factors to consider

29. Pricing the NEXT iPhone
■ Imagine that you are a new employee at Apple who has been given the task
to price the next iPhone (2020) with the following assumptions
– iPhone 12 Pro Max
– 64GB/128GB capacity (Lowest)
■ Which Pricing methodology would you chose?
– Premium based pricing – Cost-Plus + Margin + Quality/Brand +
Services (iMessage, FaceTime etc.)
■ Factors to consider
– Product Cost – Internal estimates of product cost
– Competition –Competitive (Samsung, Google) product offerings,
pricing
– Macro economic conditions per region – Will there be a recession in the
U.S or Europe or Asia?

30. Pricing the NEXT iPhone
■ Product Cost
Assume 2020 model will be
10% costlier than the model
last year @ $500
■ Competition
(2019/2020)
Source :
https://www.bankmycell.com/blo
g/
how-much-do-iphones-cost-to-
make
■ Macro conditions
Probability of a recession in
2H’2020
Individual country growth
aspects might play an
important role in determining
pricing in each of the countries
Need to keep in mind
arbitrage pricing
Conditions determine the
revenue and margin goals to
meet
Google
Pixel4 XL
(128GB)
Galaxy
S20 Ultra
5G
(128GB)
Galaxy
Note10+
5G
(256GB)
OnePlus 8
Pro
(256GB)
$999 $1199 $1299 $999
Source: May 25th
2020
S20 128GB -
https://www.samsung.com/us/mobile/galaxy-s20-5g/buy/?link=galaxy-s20-5g
Note10+ 256GB - https://www.samsung.com/us/mobile/galaxy-note10/buy/
Google - https://store.google.com/us/config/pixel_4
The answer is it depends but expect the pricing to be in the range of $999 - $1099

31. Summary
■ Pricing in the real world will always be a combination of different pricing
methodologies described in the presentation
■ Pricing is an integral part that determines the health of the business

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