Name-Your-Own Price Strategy

First came mass customization- products made to your specifications. Now, we are being handed the keys to another element of the marketing mix: price. Some businesses are experimenting with name-your-own price, an approach in which the customer decides how much he or she wants to pay for the product. Name-your-own price gained noteriety recently when the British band Radiohead sold downloads of its latest CD “In Rainbows” on the Internet for a price to be determined by the customer. This decision could be to pay nothing at all for the download. A similar approach is being used by Paste Magazine for annual subscriptions to its music and entertainment publication, with a minimum price of $1 accepted.

Is name-your-own pricing the next big thing in marketing, or is it a risky, if not foolish, decision that allows people to walk away with your products for free? It is not an approach that would work in all industries, especially for products that have high variable costs. Giving away products and incurring materials costs with no assurance of recouping them does not seem to be a recipe for profitability. In the case of Radiohead and Paste, costs are less of an issue, so it could be argued that some revenues are better than none at all. The brand exposure received from the media attention and making it easier for consumers to experience their products could lead to the strategy being successful for Radiohead and Paste. Link

PS3 Plays the Price Card

While Nintendo is basking in the glory of being named Marketer of the Year by Advertising Age magazine (see 10/17 post), former video game category king Sony is looking to gain market share during the Christmas selling season. Sony is cutting the price on its 80 GB PlayStation 3 model by $100 to $499 and introducing a 40 GB model for $399. These pricing moves make Sony more competitive with Nintendo Wii ($249) and Microsoft Xbox 360 ($280-$350).

Sony’s price cut illustrates the flexibility pricing has in the marketing mix. It is the easiest variable to change on short notice. Product features and specs are set in stone compared to prices, and distribution and promotion decisions cannot be implemented as quickly as price changes. The price cut also signals an admission by Sony that the PlayStation 3 was overpriced. The product contains cutting-edge technology such as Blu-Ray DVD, but loading a product with features that drives up the price put PlayStation 3 out of reach for many consumers.
Sales in the video game console category in the past year speak volumes; customers prefer benefits offered by video games such as the highly interactive experience of Wii. Also, price does matter as evidenced by Wii’s strong sales and the fact that the “antiquated” Sony PS2 outsells PlayStation 3. Link

P.S. Since the last two posts are about video games, I don’t want to create the impression I’m a video game junkie… although I would love to have back all of the quarters I spent at arcades on Pac-Man and Galaga in my youth!

Variable Pricing Makes Sense… and Dollars!

A common pricing technique in service businesses is variable pricing. The rationale behind variable pricing is that consumers place different values on consuming based on time service is available or quality. The result is that demand for a service often varies. Some examples include a hotel that has high demand from business travelers during the week charge higher rates on weeknights than on weekends when business travelers are usually not on the road. Or, a movie theater charging $8.00 for an evening showing might only charge $5.75 for a matinee showing because of less demand for tickets in the afternoon. Adjusting the price downward during off-demand times allows capture of some revenues to offset fixed costs. Adjusting the price upward during peak-demand times is a way to reap the full value consumers place on your offering.

The practice is gaining increased use in sports marketing. For example, the Nashville Predators of the NHL have created a 3-tier pricing structure: non-premium, premium, and premium plus. Non-premium games include most weeknight games and represent the base ticket prices. Premium games are weekend games, and premium plus games are the games for which tickets are in the highest demand (4 games against Detroit and season finale vs. St. Louis). Some fans are angry about the new pricing structure, but a business should set prices based on the value of their offerings. Tickets for weekend games and games against Detroit are typically in greater demand. The team has a right to seek out a price premium as long as the market is willing to pay it.

Price Cuts on High Tech Products Are Nothing New

Surprise. Anger. Outrage. All of these words have been used to describe the reaction of some customers of the Apple iPhone. Apple has announced it is dropping the price of its 8GB iPhone by $200 to $399. This move infuriated some customers who paid $599 for the product when it launched in late June. The noteriety the price is receiving is surprising because it is a common practice for marketers of high tech products to skim the market at product introduction, then lower prices to make products more appealing to a wider market. People who buy products when first introduced are considered to be risk takers, have higher incomes, and like being among the first to own innovations like the iPhone.

There are two major differences between typical pricing for new products and the iPhone. First, the timing of the price cut is surprising. The product has not been on the market 100 days yet, and the cut signals either the product was overpriced or Apple misread the market’s desire for a multipurpose device. Second, it’s noteworthy because it’s the iPhone, which even got the label of the “Jesus phone” when rolled out because of all the hype and buzz about it. Apple has been on an amazing roll in recent years, fueled by the success of the iPod. But, Apple has failed before (its Newton PDA being one example), and it is conceivable that the iPhone could fail, too. However, the price cut may be the bait consumers needed to bite, especially with the Christmas selling season just around the corner.

Price Bundling: Added Value vs. Added Burden

My family recently enjoyed a vacation in Canada. A great time was had by all as we took in tourist attractions in Montreal and Toronto as well as visited relatives near Montreal. Being ever-observant of marketing practice as I am, I couldn’t escape noticing the marketing activity going on all around us. In particular, I was struck by the pricing practices of two tourist attractions and how one used price bundling effectively while another’s use of price bundling may actually hurt rather than help.

While in Toronto, we purchased a City Pass to take in six different attractions. City Pass bundles multiple attractions together for a single price. The price of the bundle is substantially less than purchasing tickets for each of the six attractions. Besides being a good deal for consumers, the tourist attractions that participate in City Pass benefit because they are likely to gain revenues from visitors who might opt to not visit an attraction when unbundled. In our case, we visited all six attractions in the bundle: Casa Loma, CN Tower, Hockey Hall of Fame, Ontario Science Centre, Royal Ontario Museum, and Toronto Zoo. We likely would have only visited 3 or 4 of these attractions if the bundle hadn’t been available. Our vacation experience was enhanced because of the added value the City Pass provided.

I wish I could say the same for another attraction I had hoped we could visit on our trip. The Granby Zoo, located about an hour’s drive from Montreal, is outstanding. I have fond memories of visiting the Zoo as a child and wanted to share that experience with my three sons. My enthusiasm was tempered, however, when I discovered that the only ticket the Zoo sold was a combination ticket for the Zoo and a water park. The price itself ($26.95, Canadian) is not the issue. The issue is I want a choice of purchasing a bundle or buying each attraction separately. We did not have time nor the desire to visit the water park, but we could not buy a ticket just for the Zoo. So, we opted not to go.

Price bundling is great because it can be used to deliver greater value on a cost-per-item basis when compared to buying items unbundled. However, price bundling should not be offered as a take-it-or-leave-it proposition, making consumers feel burdened if they buy a bundle of items that they cannot or do not want to use.