The secret behind product strategy pricing

Technology in the continuous progress, innovative Internet products, one another business model continues to create a wealth myth. The basic laws of economics are not shaken by these changes, and the invisible hand still determines the market price of new products, and if you are an investor, the value of law can still help you identify those stocks that are too high.

Cost of the product

Internet age products are intellectual-intensive, such as Microsoft's operating system, Oracle's database software, Adobe's image processing software. This category of products is different from the traditional manufacturing products characteristics: After the first product is completed (usually need to pay a high cost), the following products need to simply copy, which is what economists say high fixed costs, low marginal costs. This feature means that the reproduction of almost no cost (product gross margin far beyond the traditional goods), the scale of production is not limited, the network economy has become an extreme case of economies of scale, the average cost of the product can be compressed to a minimum size. The rear product does not have to be priced at the cost of production, greatly reduce the price threshold for product sales, and even allow users to experience these products free of charge, so our Internet products appear in some of the now common sales strategy: sharing software free trial; product base version free, advanced version charge; books, Music and video are probation and so on.

The market structure of the product

Since the scale of production is unrestricted, a single supplier can provide services to all market users, making the competition more Life-and-death, from the market structure of two forms.

1, a single dominant market dominance of the product is not necessarily the best products, may be the scale effect of low average cost to make this product enjoy price advantage

2, a number of suppliers coexist, offering a slightly different product is actually in a number of market segments of the leading suppliers, such as large databases are usually Oracle and IBM world, while the medium-sized database market Microsoft eat a lot of

The network economy is advantageous to the small enterprise, the service 10,000 user and the service 20,000 user's cost difference is not big, the scale effect threshold completely does not have the traditional profession high.

Classic Price Strategy

As the beginning said, the Basic Law of economics has never changed, the classic price strategy also applies to the network economy

1, the use of economies of scale to obtain cost leadership, reduce the average cost to reduce prices, maintain price adjustment space

In traditional industries, manufacturers can reduce costs by optimizing processes, improving logistics capabilities, or controlling distribution costs. These tools are not very useful in the Internet economy because they have been reduced to nearly 0 of the technology, and the means to significantly reduce the average cost is to increase sales.

2, production is different from other products, in the market segments to avoid competition or to establish barriers to maintain the price control

Do not let the Internet product mediocrity or stop the change, it is too easy to replicate, to maintain different from competing products to avoid price competition compressed income space, when necessary, can actively use intellectual property to establish barriers to prevent opponents or potential opponents to enter the market.

3. Become a pioneer in the market. First enter the market to seize the share of time to market changes to make timely price adjustments.

The advantages of a pioneer need not be repeat. When the market is monopolized, to be vigilant about new technology, the low price advantage brought by new technology is much higher than the competitive advantage of brand and scale. When competitors in the market, can sacrifice some short-term benefits, the use of price reduction to sell products, reduce the size of the potential market, to limit the market share of new competitors. Because the forerunners usually also take advantage of the cost, the goal is to show the strength of the new competitor to face the possible price war, but also to threaten potential entrants to the market.

Product differentiation is the way of survival

Homogeneous products due to the mutual substitution of strong, there is no exception to the competition between them will use the price war this way, so that prices to the marginal cost closer to the end of the product price into 0, pure sales of the difference income also become 0, unless you can change the profit model, otherwise the price war will erase the profits of all participating manufacturers. Domestic anti-virus software market is an example, in 360 security guards and Microsoft free anti-virus software under the influence of each anti-virus software have to reduce prices and free, this is consumers are happy to see, not the manufacturers are willing to. In order to avoid their own products in the competition into a price war, we need to ensure that products do not have direct competitors to ensure product differentiation.

Maximizing the benefits of price differentiation

In the realization of product differentiation, in the market to occupy the initiative, you can start to pursue the maximization of benefits. This consists of two parts:

1, the realization of user personalized products, so that the maximum user value of products, so that the product into a different kind of service (quality products easily copied, quality service is difficult to replace), based on user value to price, rather than based on cost to price.

2, maintain the dynamic price mechanism. The price is as high as the user can accept, but it cannot allow the profit margin to spur new capital into the market, such as the Chinese Internet new products as far as possible not to stimulate the Tencent such giants to enter, in the price competition, but also ensure that not too low impact on survival.

Why does differential pricing yield the most benefit? We can assume that a situation like this:

The cost of a product is 50 yuan, it has 100 potential users. When the price is 100 yuan, 50 users are willing to buy, this time the profit is 50X (100-50) = 2500 yuan; when it is reduced to 80 o'clock, 90 users are willing to buy, when the profit is 90X (80-50) = 2700 yuan, although the profit of individual users is declining, But the rise in total profits has led to a rise in gross profit. In the ideal state, to each user set a price that exactly matches his maximum psychological price, you can let all potential users to buy products, to achieve maximum profit.

How to differentiate pricing

The necessary preparation for differentiated pricing is to understand your users, the good news is that the universal Internet provides a lot of tools, we can use Google Analytics (in the free statistical tools, it is undoubtedly the best, powerful to incredible, through the reading Help document can quickly deploy and use it) Or Baidu statistics such a third-party statistical system easy to understand user clustering and user behavior on the Web or mobile devices, thereby improving products and services, this is a professional discipline, it is worthwhile to spend a lot of time to study. If the technical ability is strong enough and do not want to disclose the data to the third party, you can build the log analysis system.

The Economist Kota Kinabalu distinguishes three different forms of price, respectively known as:

1, the first price discrimination (personalized pricing): to different, just equal to the user's greatest psychological price of the price to the user sales

This method is actually difficult to exist, because the maximum psychological price to identify a user is very high, in the case of large-scale users, the identification costs far higher than the benefits, it is difficult to have the operability.

2, two price Discrimination (version Division): to provide a different price of the product line, the user chose to buy this use window operating system to illustrate the most appropriate, Microsoft offers a family version, professional version, the flagship version of various versions, product features vary, the user has a certain choice, Can be based on their own needs and consumption levels to buy, in fact, stimulate the user potential demand, expand sales.

3, three price discrimination (group pricing): for different consumer groups to provide different prices

The common way is to distinguish between students, the elderly and other groups to carry out crowd orientation discounts or to new and old users discount. Group pricing is more ingenious than the previous two. There are four reasons for this:

3.1, the user group is price-sensitive, usually students or the elderly such a high-income group

3.2, the scale effect (network effect), if a product of the user's value and the use of group size is positively related, then make the product become fashionable or standard is significant, to the large target user group or deep influence customers discount sales or even free to effectively increase the user size. This effect is particularly prominent in social products, and vendors are even willing to pay for users.

3.3, in order to lock the user on the product, limit the market scale of competing products

3.4, the use of products for different user groups value is different, for example, the online novel for the individual is a fast-selling products, low value, but for the electronic bookstore is of high value, because it can be repeatedly sold to different users; the singer's new album is important to the fans, but not to the fans, so the album usually sets up a pre-sale price for the fans.