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The Price is Right

David Bowman
David Bowman
BY: David Bowman ON September 13, 2011

Bob Barker The Price is RightThink back to marketing 101 and the 4 P’s of marketing – product, price, place, and promotion.  While marketing has evolved to include many additional factors beyond these 4 basic categories, they still serve as valuable levers to consider using when trying to accomplish organizational marketing goals and objectives.  Of the four P’s the one that probably gets the least amount of emphasis in the creative world is price.  We tend to spend a great deal of time focusing on branded promotions, innovative products, and exciting new places to engage customers.  Price is generally looked at less creatively and more as a point of direct competition within an existing industry structure.  Is our widget more expensive than their widget?  By how much?  Does that align with the positioning of the brand and the value perceived by the consumer?  Generally it is a conversation about up or down, not different.

Still, price has great creative potential when considering the model of pricing rather than price points within an existing industry structure.  For example, there is a widespread rumor circulating this week that Amazon is about to release a Netflix style pricing model for digital books.  This new model would mimic your gym membership, shifting price from being a variable tied to consumption into a recurring fee tied to membership.  (I think Amazon is eavesdropping on my conversations, as I have been begging out loud for this for years.)  This pricing move is a potential game changer for an entire industry.  No more buying books, simply log in and read what you want, when you want, as often as you want.  Because the content is digital, Amazon can distribute these books at very little cost regardless of how much or how little you actually read.  While some will actually read more than they would have done if they would have to buy the books, many will pay the fee and read the same as they previously did, simply because the variable of free time available for reading is difficult to change.  I personally try to read everyday for 30 – 60 minutes of time.  This new model won’t give me more time, but will allow me to do more exploration of new books, authors, and areas of knowledge that I may not have wanted to invest in before.  The new model removes the risk of buying a bad book from the equation, something I would personally be willing to pay a premium for.

There is another potential benefit to this change in pricing.  If Amazon is able to successfully execute this before the competition, they can create relationships with customers and migrate them into the Amazon ecosystem.  Instead of buying digital books from Apple or Barnes and Noble, Amazon’s alternative pricing method would make this an apples and oranges decision – two entirely different things to choose from.  They can push you toward picking the Orange, and not just for books.  Couple this with streaming audio content, digital storage, and online shopping, and Amazon is using price to create potential lifetime customers.

Now consider that Amazon is rumored to be also about to release the next generation Kindle, a tablet computer set to rival the ipad and priced at $250, and pricing takes on even more importance.  On one hand Amazon is introducing an entirely different pricing model for content to migrate customers into their ecosystem, while simultaneously introducing a competitive product to market at a price point that drastically undercuts it’s competition. They are strategically using price to create a new game – one with rules that favor them.

What about your industry?  Are there alternative pricing models you could explore?  Does the move from a world of physical things to a world of digital assets provide opportunity to change the way you generate revenue and create customer relationships?  How could you get creative with price and change the game you’re going to play in the future.  Interesting things can happen if the price is right.

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