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Hit the sweet spot

Hit the sweet spot

Watching the recent public debate about who should be allowed to own Fairfax made me think about the way people value information, and in particular, the information component of a compound product. Lately we've seen some classic examples of poor judgment in pricing and positioning products.

The journalists who strike in defence of a relatively non-monopolistic general press are undoubtedly most concerned about being able to provide the reader with unbiased news coverage. They'd like everyone to be able to read what they write. An ungenerous person would say the media owners are more interested in making money, and would probably prefer to sell one copy of the paper each day for $1 million than a million copies at $1 each. A mathematically gifted person might also tell you that it would be just as good to sell 100 million papers a day at 1c each.

Economy of scale is one thing, but as marketing people will tell you, there's usually a sweet spot for any given product at any given time. Why then, do we see so many products and services priced so stupidly? Encyclopaedia Britannica wondered why no-one bought its CD-based product when it cost $2000. Now the product has been brought to a much more sensible $299, yet even that is high if they expect users to pay 80 per cent of that price every time they upgrade.

Telstra's ISDN is another example. For far too long the product was priced way above overseas carriers and Telstra wondered why the uptake was so slow. Now Telstra has announced what it calls low-price access to the Internet via its fibre cable and cable modems.

The supposedly bargain prices are still too high, especially when you realise that data is charged at 35c per megabyte, and that equates to around $200 an hour when looking at reasonable quality streaming video. If you decide to listen to a typical CD via cable modem, this will cost you more than $20 for the 600-odd megabytes of audio data. When we look back at this sort of service in a couple of year's time, we'll find this charge grossly inflated.

Puffed-up prices

Vendors that keep prices artificially high when a product is introduced aren't helping anyone. They especially don't help themselves as the high price keeps interest down and slows market penetration for the product. In most cases, if you expect the product to appreciably drop in price after the introductory phase, you'll be better off starting it at the price you mean to maintain. Even if it bombs in the marketplace, the few extra dollars made on the first sales won't compensate for the delay in finding out that it was going to bomb anyway.


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