Some people never learn….

Remember when Microsoft launched their new operating system -- Windows Vista -- 2 -3 years ago. Not only did the public and media complain about how incompatible it was with existing hardware but they were also befuddled by Microsoft’s decision to have, if my memory serves me right, six different versions of the product with prices ranging from less than $100 all the way up past $350. A quick price check today indicates that the range has widened, as you can now buy versions of Vista from $97 up to $800. Today there is Vista Starter, Vista Home Basic, Vista Home Premium, Vista Business and Vista Ultimate. Then there are versions of these with or without a Service Pack at an array of different prices along with upgrades from older Windows operating systems at another realm of different prices. Basically, what we’re looking at here is a discombobulated pricing mess.

Now don’t get me wrong, segmenting the market and having different versions of products to meet different levels of customer requirements is paramount in Best Practice Pricing, and it’s something we put into practice with our clients every day. But if that’s the case, you may be wondering why I’m complaining about what Microsoft is doing. The answer is simple. When you segment your market with different versions of your product or service, at different prices, it is crucial that the segmentation make sense for your customers. If it does not, they will feel they are being nickeled-and-dimed into paying higher prices for something that they do not value. So for example, Vista Home Premium does not have the “protection of hardware failure” feature while the Vista Business edition does not have the user-friendly DVD-burning feature. So if you, the customer, want both of these features, you have to buy Vista Ultimate - which comes at a substantial price premium to either of the other two versions. In Microsoft's case, this segmentation did not make sense to a large number of customers -- which led to reams of bad press, customer frustration and dissatisfaction. In fact, Microsoft can only get by doing this because of their monopolistic stronghold on the market. Any other company that would have attempted to quell the same outrage Microsoft did at the Vista launch would have been forced to change their product and price practices immediately to avoid complete failure.

While Microsoft is still going strong, they did not come out of this adventure unscathed. What’s amazing though, is that while they are waiting for the bruises to heal from their Vista experience, they have gone ahead and developed a new version of their operating system known as Windows 7. The product will be launched later in 2009. Hopefully, it will be better technologically than Vista, but when it comes to pricing, has Microsoft learned anything from its past mistakes? No, not at all, in fact, they have indicated they will do the same unnecessarily complex pricing again! They will launch five or six versions of Windows 7, at a bevy of different prices, creating the same confusion and the same outrage again!

So, while you should segment your marketplace and your offering to meet the needs and willingness to pay for each segments, you have to do this carefully to avoid alienating your customers -- even if you are an industry behemoth like Microsoft.

With non-monopolistic regards,

Per Sjofors
Founder, Managing Partner
Atenga Inc
www.atenga.com
per@atenga.com