Hello, my name is Jeremiah, and I would like to talk to you today a bit about how to think about pricing. How to set the price can be a really overwhelming experience. You have to think about what is the right price points where you're going to make money, but you also have to think about, how many customers are going to buy your product? Will you reach the volume you're trying to get to? You have to consider where your competitors are pricing, which sometimes is easy to know if you can see the prices on the market. Sometimes can be really complicated, and you do not know where competitors' prices are. You have to think about customer value, and how does that value depend on different customer segments, and therefore should you have a way to price for different segments at the same time? There's a lot of things to take into account. As we worked with our clients, we found there was an easy way to think through pricing, and we have structured our courses according to that way. And I'm going to explain this in a really simple way now. The first thing you need to think about, thinking about pricing, is your costs and the economics. In other words, what does it cost for you to serve a particular customer, to have a product, and what is the margin that you can have on top of this? You need to think about supply and demand. You need to think about the incentives you give your customers to buy a little more volume. What discount do you give? This is all in the frame of economics. The second thing you need to think about is the value that your customers will get. What is their willingness to pay? You need to think about whether you have different customer segments or not. You need to think about how will they make decisions, how will they compare your product to other products? And I just talked about other products. Of course in the market there's also a lot of competitors, and you need to understand where these competitors price, think about their share, think about their strategy, think about how your product compares to what we call the next base alternative, what the other competitors are charging. Now, as I talk to these three elements, there is obviously some overlap between each of them. First there is an overlap between the economics and the customer value. Essentially, between the supply and demand, and how customers value things differently. That overlap is all about the elasticity. Elasticity is going to be how much will your volume depend on your price. And that depends on how much the customers do value your products, but also where your costs are so you can really optimize the volume you want to have for the margin you're going to get. The second overlap is the overlap about how much you can discriminate price points between customer segments. And to understand how you do this, you need to understand of course the customer segments and where customers come from. You also need to understand what competitors are offering. Very often different competitors will tailor to different customer segments. It gives you an indication about what you can do to discriminate price points between different customer segments. The final overlap is between the economics and competitors. Game theory is a discipline that tries to help companies decide whether or not to match competitive prices. It considers every market as a game, where companies go against each other on an ongoing basis. And what is the optimum price points, given that you know your competitors are going to react to your price changes, whether a price up or a price down. So, we have decided to structure the course in three sub courses, one around each lenses. The first one is going to talk about the economics and is going to also include elasticity. The second one is going to talk about customers, their value, and is also going to talk about segmentation and discrimination of pricing. And the last one is going to be about competitive strategy, the game theory aspects of it that is a bit more complicated than I talked about. Now, after you've seen all these three lenses and the overlap between each of them, you have an overlap in the middle. And this is pulling everything together to make a pricing decision that will take into account all of the three lenses. What the customers want, what's your cost, and what the competitors do. If you know how to balance these three forces, you will know how to set your price ideally, and will maximize your profits. That will be the purpose of the fourth course you will go through.
