Whenever we think of marketing, a flashy TVC or a brilliant billboard instantly comes to mind. Sometimes we also talk about the features of a product (especially tech products like phones or tabs). Pricing is rarely mentioned or discussed as a key component of the marketing strategy. However, it is interesting to note that pricing is the only revenue generating element among the 4Ps of marketing; the other three are all cost centers. So having the right pricing strategy is central to the success of any product or service offering. This is especially important now when we are entering into an age of dynamic and fast-changing digital products and services. Being able to distribute digital goods and software is also a top priority for companies in the sector which is why many turn to ecommerce platforms like FastSpring to get their products to customers. Now the typical product lifecycle is reduced to such an extent that one wrong pricing strategy can destroy profitability of that product for the entire lifecycle. This is why pricing manager jobs are quite challenging but ultimately rewarding if the price chosen is correct.
The right pricing strategy starts with understanding the customer. A marketer has to answer three basic questions first:
- Who are the targeted customers?
- How much are they willing to pay for the product?
- What feature(s) of the product do they value more?
Once we know the answers to the above questions, we know exactly what the customers’ requirements are. We also know their perceived value of the product. Most importantly, we know which features of the product are critical to the customers and which are not. Based on this information, we can tailor the product as per the customers’ need. A fundamental mistake a lot of us make is first making a product and then thinking of how much to price it. The real trick is to do it the other way around. If we do not make the product keeping the customers’ need in mind, a few unfortunate pricing issues can arise which lead to a failure of proper monetization.
The most common mistake we see in a number of modern tech products is feature shock. Marketers sometimes try to create the perfect product by cramming as many features as possible. But unfortunately, making a Swiss army knife isn’t always the best answer to a marketing problem. This creates confusion in customers’ mind and also makes the product needlessly expensive. A classic example of feature shock is the laptop-cum-tablet line of products. There products couldn’t satisfy the need of a typical laptop user because of their low-end features and small screen size. On the other hand, the price tag was too high for users who just wanted a tablet.
Another common pricing issue we observe is called minivation. Minivation refers to a product being priced so low that it becomes unable to reach its full potential in terms of market opportunity and profitability. This happens more often in the case of a new product innovation. Marketers do not usually have a reference point for pricing these new products and end up setting a price which is actually lower than what the customer would have agreed to pay for it. A good example of this is ASUS 2008 model laptop, which was priced at 299 Euros. Given this extremely low price compared to other similar-featured laptops of the time, ASUS were stocked out within days and the next lot of shipment wasn’t due for another month. As a result, the hype died down and ASUS lost a huge monetization opportunity by setting low prices due to the minivation error.
Third notable monetization failure comes from the concept known as hidden gems. This happens when a company stumbles upon a new product idea that is not typically part of its core business and decides that it is not big or important enough to launch. One of the most famous hidden gems was Kodak’s response to the digital camera in the 1970s. A young Kodak engineer named Steven Sasson had invented the initial technology behind the digital camera. However, Kodak sat on that technology for 21 years and finally introduced its first digital camera in 1995, much later than their competitors. They eventually declared bankruptcy when their core product, camera film, stopped selling.
Last monetization error is known as the undead. These are products that came to market dead on arrival or a product that still exists in the marketplace but for all practical purposes is non-existent. These products are either an answer to a question no one is asking or they are the wrong answer to the right question. Google Glass is a notorious example of undead product. It came to market in 2012 for $1,500 and created more problems for the users than it solved. In 2015, Google announced the end of Glass for everyday consumers.
The best way to avoid any of these monetization failures is having in-depth pricing discussions with target customers long before the product development team begins to draw up the engineering plans, and certainly long before any manufacturing resources are committed and configured to building something. Those discussions need to center on determining precisely what features customers truly care about, are willing to pay for, and the price they are willing to pay. Only then we can hope to capitalize most from the amazing products technology is churning out every day.
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Syed Ibrahim Saajid
The author, a graduate from IBA, is currently working in a leading multinational telecom company as specialist, pricing strategy. He can be reached at [email protected]