Q. Pricing to optimise an online community
Any war stories of your experiences on pricing to optimise the growth of your online community?
Area of Expertise: Sales
Industry: Online/Social Media
3 answers | Asked on 01/21/10 by:
Karl Shaikh
San Francisco, CA, United States
Answers
Michael Lewin
Hoboken, NJ, United States
Your pricing must initially be based on what YOUR CUSTOMERS are currently paying for similar services. My 25 years of Sales and Marketing experience has demonstrated that: to compete with existing services similar to those that you want to sell, it is always better to set your prices slightly above your competitors. This demonstrates that your services are equal to or better than the competition.
BUT, you MUST be prepared to demonstrate that this is so!
Over time, if you provide what you have promiced, yours clients will stay with you and your business will grow.
Posted on 01/21/10
Martin Elliott
El Segundo, CA, United States
Michael raises some good points. To his answer, I would add that it really depends on what you are trying to optimize. The price that optimizes immediate user growth will be very different from the price that optimizes long term profit growth.
For new products, which it seems you might have, you generally have two main options: to maximize profit margin, or to maximize quantity/market share. To meet these objectives you need to use either a skimming strategy or a penetration strategy.
Skimming is an attempt to “skim the cream” off the top of the market and by setting a high price and selling to customers who value quality, service, or other factors above price. To Michael’s point though, your product needs to support the premium. If you have a better product and your customers are not looking for a deal, this might be appropriate. This is also appropriate when you don’t expect many benefits from getting bigger.
Penetration pricing is an attempt to increase volume (in your case, the number of users in the community) through low price. If customer’s are price sensitive, and you expect benefits (ad revenue perhaps?) from large increases in the user base, then this might be an appropriate strategy. The watch out here is that the pricing is usually not profitable and if the benefits from scale do not materialize you’ll be in some trouble. The dot com bust was full of failures of this kind. On the other hand online communities such as myspace and facebook are currently using variations of this model.
Posted on 02/06/10
Karl Shaikh
San Francisco, CA, United States
Thank you for your answers.
New answers would still be welcome as I continue my ongoing search. Thanks in advance.
Posted on 03/25/10
