Your new product will fail if you adopt the wrong price. Set it too high and no one buys. Set it too low and you won’t make a profit -- and it’s not OK to lose money forever. If you choose the right price, of course, you still have to do a lot of other
stuff right. But that’s not our job here!
Let’s do a quick historical review of pricing. We’ll end up at the Net. Don’t groan -- we said “quick.”
In the bad old days of hunting and gathering...
... people bartered. They negotiated goods or services for the goods and services of others. Bartering is still seen in developing countries and in the “black market” of developed countries.
As the Agricultural Revolution took hold, market places evolved. Now that people were growing zucchini and potatoes, they needed someplace to sell them! People negotiated a cash price on a one-to-one basis. It’s called haggling. People still do it -- just visit any farmers’ market on a bustling Saturday morning.
Pricing varied according to supply (good year for growing?), demand (did buyers have much money?), and competition (merchants simply peeked into the next vendors’ stall to see what they were charging), which all factored into the one-on-one haggling. In other words, pricing was dynamic, fluctuating constantly.
Then came the Industrial Revolution and mass production. Could retail stores and the fixed price be far behind? A fixed price is where the seller decides upon a price -- the prospective customer either buys it or does not. No haggling. Of course, if the seller sets the price too high, no one buys. So there still remains a system of checks and balances.
Traditional pricing policies were determined from the bottom-up. Companies determined a cost of the product by factoring in direct and overhead costs. An appropriate mark-up was then charged, based upon competing pressures and “what the market could bear” (although rarely was there science to back up that hoary old phrase).
Now we are at the beginning of the Digital Revolution. Dynamic pricing has potential.Auctions are an interesting and efficient, non-fixed, pricing system. Sellers put an item up for sale and buyers bid upon it.
It used to be that you had to displace yourself and meet at a fixed time at a fixed place to participate. Not any more -- at eBay and hundreds of other Net auction sites, you can bid and sell 24 x 7 x 365. And auctions can also happen in reverse -- buyers say what they need and sellers submit competing quotes, an increasingly popular B2B application on the Net.
And not only can you have “reverse auctions,” you can have reverse fixed prices. The customer submits the fixed price that she is willing to pay. The company meets that price or not, but there is no negotiating or bidding. Priceline.com is a great example where you can name your price and save.
EwinWin is an e-commerce business that uses group buying power to drive prices down. This type of buying opportunity even has a formal name... demand aggregation.
Of course, the ultimate in flexibility is full, two-way markets like the stock or commodity exchanges. Buyers bid and sellers ask. The exchange of product for cash happens when a bid price equals an asking price. Depending upon how large the buying and selling pressures is, prices for a stock or commodity rise or fall.
Dynamic pricing is the next potential stage of e-commerce development. If it ever gains in popularity and acceptance, it will change the face of transactionbased sites forever.
And there you have it... millions of years of pricing history in less than two pages! What does the future hold?
1) Commodity -- a commoditized product has lots of competition. Usually, there’s nothing that differentiates it from its competitors. You compete on price. Watch for the Net to force your margins to be razor-thin. “Bots” will haggle with you, one-to-one, and aggregated demand and markets will ultimately beat you down when they get around to bidding on your products.
Those who execute best will win this war. Source efficiently. Manufacture just in time. Laser-speed inventory turns. Proficient distribution.It’s a brutal way to earn a living. So differentiate yourself and sell...
2) Proprietary product -- it is an original product with new and valuable benefits. The innovation can be in the product itself or in the marketing of the product, preferably both. How to do this is beyond the scope of this course.
Product development is beyond the scope of this course. Make Your Site Sell!, considered the “bible” of Net marketing by top Internet experts, covers the subject extensively.
http://myss.sitesell.com/
Original products with new features and benefits stifle “apples-to-apples” comparisons by “bots.” As a result, you can set a price that will maximize profits.
Keep in mind that markets mature rapidly on the Net -- you may have to adjust pricing frequently or upgrade your product to maintain your price.Computer hardware is a great example of both a commodity and of a proprietary product...
As a commodity, the PC clones are constantly upgrading and shaving prices to fight each other. Yet Dell has exploded in size. How? It’s done it through manufacturing and marketing innovations (“make-on-demand” and sellingthrough-the-Web).
As a semi-proprietary product, Macintosh can no longer afford to be far more expensive than Windows machines. But it has enough original features and extra user-friendliness that it can still set a slightly higher price. One thing for sure... your competitors can be reached with a single click of the mouse. Get the price right or perish.
Of course, even before the right price, you have to have a quality product or products or you won’t succeed.http://buildit.sitesell.com/sbi-businesses/value.html
Site Build It! has a track record that no other company or product can come close to matching...
http://results.sitesell.com/
Compare SBI! results with Interland’s “success stories” (they also show just a few sites, out of 100,000’s)...
http://www.interland.com/sb/testimonials/sitebuilder/
As you can see, SBI! builds site that work!
From a history lesson to a marketing lesson... your “pricing education” continues…
