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Latest Pricing Insights

Optimize Lifecycle Pricing with Willingness-to-pay Insights

Posted by PriceBeam on April 10, 2018


Willingness-to-Pay evolves over time

Most products and services experience a development in willingness-to-pay (WtP) over time.

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Topics: price positioning, dynamic pricing, pricing research, segmentation, Pricing Strategy

iPad Launch Price Follows Apple's New Strategic Direction

Posted by PriceBeam on March 28, 2017

Last week, we highlighted the inconsistencies in Apple's product pricing with the very low price for the Apple AirPods. However, this pricing seems to become increasingly consistent, with both the Apple Watch and now the new iPad supporting this pricing strategy. At just $329, it's definitely among the cheaper options on the market.

One theory behind this move is that Apple is trying to win new customers at an early age. And as we know, young people typically has a much lower willingness-to-pay. But as the saying goes "Once you go Mac, you never go back", and that's exactly what Apple is hoping to do: Acquire young customers by offering low prices, and cash in through retention and selling high-margin products to them later in life.
Generally speaking, Apple enjoy great brand loyalty, and a fair share of their customers would not consider buying alternatives to Apple products. Such loyalty takes time to build up, and by offering lower prices for some of its product, Apple can reach young, price-sensitive customers and nurture them so that when they gain significant purchase power, they have a preference for the Apple products.

This strategy is also evident in Apple's education pricing. Not only do they aggressively establish partnerships with universities around the world, they also offer significant discounts to both students and university staff (In the UK you can get as much as £431 off your MacBook!). Note this discount also applies to the university staff, despite their willingness-to-pay is sufficiently high to pay the full price. At first sight, Apple is leaving a substantial amount of money on the table: but it comes with a reward. Not only does it increase students' exposure to Apple products, but it also encourages university professors to use OS-compatible software in their teaching; a significant measure used by Apple to gain and retain customers as a lot of software is only compatible with either OS or Windows (think Xcode and Freeway).

While it seems Apple are leaving their high-margin pricing strategy behind, this is unlikely to be the case. Apple is and always will be about offering top-notch products and it is impossible to target such products at all consumers. More so, the lower pricing is simply a mean to getting new customers in the fold, so they can become loyal Apple customers and buy high-margin products in the future.
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Topics: Pricing Strategy

Life Cycle Pricing: Capturing Value Throughout the PLC

Posted by PriceBeam on March 7, 2017

Far too many companies fail to develop a long-term life cycle pricing strategy that is continuously adjusted across the product life cycle (PLC). Typically, the savvy company will conduct extensive pricing research to find the a launch price that is aligned with their target group’s willingness-to-pay, but then fails to re-evaluate the pricing continuously. This is problematic in two ways: Firstly, you will either be losing out on revenue or leaving money on the table as you fail to take into account the changes in the customer’s willingness-to-pay, and secondly, it will most likely deteriorate the returns on other products in your portfolio. Proper life cycle pricing across both the early, mid- and late-stage of the PLC is absolutely crucial to reap the rewards from the R&D investment.

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Topics: Pricing Strategy, Discounting, Pricing

Price Positioning: Long-Term Effects of Short-Term Strategies

Posted by PriceBeam on February 24, 2017

In a previous article, we argued that you shouldn’t be looking to your competitors when setting your price. While this is true, knowing how your product or service is positioned in the mind of your customer will help you understand how you stand out from your competitors. And if you find your product is positioned pretty similar to a competitor, you can use price positioning as a tool to build a strong USP (Unique Selling Proposition) by setting a new price that is relatively higher or lower than your competitors’.

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Topics: Marketing, Pricing Strategy

Value-Based Pricing: The Secret to Profit Maximization

Posted by PriceBeam on February 20, 2017
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Topics: Pricing Strategy

Cost-Plus Pricing: Why You Should Never Use Markup Pricing

Posted by PriceBeam on February 6, 2017

Cost-plus pricing is a pricing strategy where you set your price by adding a fixed markup (typically a percentage) to the unit cost of your product or service. It’s a simple method and the first they teach you in the Marketing 101 class - but in reality, you should NEVER use it.

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Topics: Pricing, Pricing Strategy

McDonald's Sued Over "Extra Value" Price Bundle

Posted by PriceBeam on January 31, 2017

Price bundling refers to when several products or services are sold together as one single package. It is commonly used by sellers to limit the transparency for the buyer, so the buyer can’t scrutinize the price of each product in the bundle and whether or not this is in line with his or her willingness-to-pay. Thus, although the products are discounted, the seller can increase profits by selling products that the buyer wouldn’t else have bought.

McDonald’s meals are examples of this concept, and the fast food chain recently got into trouble over their “Extra Value Meals”, where they bundled cheeseburgers with drinks and fries. Customers were complaining that the bundle price was higher than each item bought separately, and while it is perfectly legal (and sometimes a very effective technique) to bundle products at a total price that is higher than the individual product prices added together, the claim that the bundle offers “Extra Value” has now resulted in a class-action lawsuit against the fast food giant.

Per Sjöfors discusses unbundling, and how it can be used to retain angry, price sensitive customers in his ebook.

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Topics: Pricing Strategy

Customer Willingness to Pay: Implications for Your Business

Posted by PriceBeam on January 30, 2017

For companies to pursue a pricing strategy that is tailored to their marketing environment, maximizes profitability and minimizes the risk of leaving money on the table, knowledge of customers’ willingness-to-pay (or WTP) is crucial. Despite significant advancement in pricing research that now allows you to measure the customer’s willingness-to-pay with great accuracy, researchers have found that as little as 8% of companies use this best-practice approach when developing their pricing strategy.

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Topics: Pricing Strategy

Moral Hazard in Pricing: Know your customer's price sensitivity?

Posted by PriceBeam on January 25, 2017

The concept of price sensitivity tells us that, generally, a price increase will cause your most price-sensitive customers to start looking for alternatives as their willingness-to-pay no longer exceeds the value they place on your product or service. But just how price-sensitive are your customers? This will, to some extent, depend on the number of substitutes available, and therefore it is crucial to understand who your customers are and if they do, in fact, have any substitutes available to them.

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Topics: Pricing Strategy, Pricing

Pricing Strategy Review: Is pay-what-you-want the way to go?

Posted by PriceBeam on September 27, 2016
One can argue if "pay what you want" really is a pricing strategy or not. But let's say it is. At least for those customers who actually pay. "Pay what you want" is exactly what the term mean. You offer something to your clients, and they decide if they want to pay for it or not. These customers have a choice of paying or not. Another way of thinking about this pricing strategy is an honor system. 

There are a few well-published occasions where a "pay what you want strategy" has worked very well. In music, artists have offered their product for download in return for a payment of the customers choice.  Having customers pay for downloaded music, or not, works because the cost of a download is virtually nill, and anything an artist may receive for an album or a song is better than what they would receive if it is pirated and better than the minuscule compensation they receive from the music streaming sites. But for artists, there is another variable, the network effect. As an artist, you would want people to listen to your music, to talk about you, to talk about your music. For your band or you personally to become a brand. To use the brand value to drive visitors to the concerts and shows.  So a "pay what you want" model for an artist has little to do with making profits on the thing you sell.

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Topics: Pricing, Pay-What-You-Want-Pricing, Pricing Strategy