GB530 Unit 7 Pricing Analysis Example

A $1,523 Survey Sold for $5,120 Against a $10,800 Alternative: A Unit 7 Pricing Analysis

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Purdue University Global

GB530: Marketing Management

Unit 7 Pricing Analysis

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[Date]

The firm, its costs, prices and every figure are composite and illustrative; the pricing methods and sources cited are real.

Table 1: The Cost of One Survey

For a 160,000-square-foot distribution roof:

Flight crew: two crew members for 5.5 hours at $48 an hour, $528.

Analysis: seven analyst hours at $55, $385.

Verification cores: three cores by the partner roofer, $350.

Travel: $140.

Equipment wear: cameras, drones and batteries, $120.

Total variable cost: $1,523.

At the current price of 3.2 cents a square foot, the survey sells for $5,120, leaving a contribution of $3,597, or about 70.3 percent. Fixed costs, such as the office, software, insurance and sales, are covered from that contribution.

Table 2: Competitors' Prices

Photo-only drone network: about 1 cent a square foot, $1,600 for this roof, but photographs show only the surface.

Contractor free inspection: no charge, but tied to a repair or replacement proposal.

Core-cutting consultant: about 6 cents a square foot, $9,600, plus about $1,200 to patch some thirty cores, for about $10,800, with results in about fifteen days.

Cost-plus pricing would ignore these figures, and pricing against the photo network would undersell a different product. Nagle et al. (2023) argue that price should be set from the value delivered to the customer relative to the next-best alternative, treating cost only as the level below which the firm should not sell.

Table 3: Economic Value to the Owner

The owner's next-best alternative for verified evidence of wet insulation is the core-cutting consultant, at about $10,800. That is the reference value.

Differentiation value adds to it. The thermal survey covers the whole roof, while cores sample points and can miss wet areas between them. Results arrive in four days rather than fifteen. And there are no thirty holes to patch, each a possible leak.

The largest source of value is the decision the survey supports. Replacing this roof would cost roughly $1.4 million. If the survey shows that only about 8 percent of the insulation is wet, the owner can replace those areas for about $180,000 and defer the full replacement for several years. Even if that saving occurs on only one roof in ten, its expected value is far larger than the survey's price.

The survey is priced near the cost of a consultant's patching and labor, while the decision it informs is worth more than a hundred times its price.

What the Value Says About the Price

At $5,120, the price captures less than half the reference value and a small share of the total economic value. Anderson and Narus (1998) argue that business marketers should measure value in the customer's own terms and use it to set and defend prices. The value case suggests room to raise the one-time survey price modestly, but the firm's goal is to move owners to the annual program, and a low survey price makes the first purchase easy. The analysis recommends holding the survey at 3.2 cents.

Table 4: Pricing the Annual Program

As defined in Unit 6, the program bundles two seasonal flights, rapid response to leaks and portfolio reporting for insurers.

Expected cost per enrolled building: spring survey $1,523; fall re-flight, needed on about 40 percent of roofs at about $1,100, $440; leak-response flights, about one every two years at $600, $300; dashboard and letter, $250; total about $2,513.

Program price at 4.2 cents a square foot: about $6,770 a year for this roof.

Contribution: about $4,255, or about 63 percent.

The program's margin percentage is lower than the one-time survey's, but its contribution per building is higher and recurs each year. It also spreads crew work evenly through the flying season instead of bunching it after storms.

Portfolio Discounts

For portfolios above twenty buildings, a price of 3.9 cents a square foot, about $6,240 for this roof, still leaves about $3,730 of contribution, about 60 percent. The discount is justified by lower selling and scheduling costs per building and by the value of locking in large portfolios. Marn and Rosiello (1992) warn that discounts given without clear rules erode realized prices, so the tier should be published and tied only to the number of enrolled buildings.

Recommendation

Hold the one-time survey at 3.2 cents a square foot as an entry offer. Price the annual program at 4.2 cents, with a published tier at 3.9 cents for portfolios above twenty buildings. Present the program to asset managers with the value case, the consultant comparison and the avoided replacement, rather than with the firm's costs.

Limits

Costs vary with roof size, travel distance and weather delays. The avoided-replacement value depends on how often surveys change owners' decisions, which the firm should track. Competitors may respond, and a consultant could cut its price or add thermal imaging to its own work; if the photo network adds thermal analysis, the survey's differentiation would shrink and its price would need review.

References

Anderson, J. C., & Narus, J. A. (1998). Business marketing: Understand what customers value. Harvard Business Review, 76(6), 53-65.

Marn, M. V., & Rosiello, R. L. (1992). Managing price, gaining profit. Harvard Business Review, 70(5), 84-94.

Nagle, T. T., Müller, G., & Gruyaert, E. (2023). The strategy and tactics of pricing: A guide to growing more profitably (7th ed.). Routledge.