Last week I read a short, interesting eBook on pricing. Pricing is one of the most challenging and talked about issues in marketing, so I was keen to see what it offered. Those of you who have read Chris Anderson's "Free" won't find too much new in it - but those who haven’t will, and to the eBook’s credit, it’s a much quicker read.
Here are a few of the key points:
- The more we do business, the less it costs to do it. Essentially, all things remaining equal, operating costs tend to drop over time.
- Of all the levers available to senior management, price has the greatest effect on the bottom-line. An example: in November of last year, Nokia earned $1.1 billion on 35% global market share, while Apple earned $1.6 billion on 2.5% market share. An incredible difference that their premium price (and brand, and product, etc) allows. (Fixed To Flexible - Page 14.)
- Economic models that describe how small and medium businesses ‘should’ act in order to maximize their margins have little bearing in the real world.
- Companies have to choose between offering convenience on one hand and fidelity on the other. Eg Wal-mart offers high convenience, low fidelity. Harvard Business School offers low convenience, high fidelity. Starbucks is given as an example of a company which has moved away from its high-fidelity roots, but has yet to embrace its current status as a seller of convenience.
- If you’re a seller of convenience, the price of your product or service will drop over time. Operate accordingly - bring your costs down, constantly reinvent your offering to provide new value, and experiment with pricing strategies when you can. (eg “freemium”, “pay what you can”, and similar innovative approaches)
- If you’re a seller of fidelity, employ price-discrimination strategies to increase your volume, boost your margins, and shrink the market for pirates and copycats.
The book is a good quick read and will give you some insight to the evolving science of price, which has been getting more and more attention lately.