About Best Practice Pricing

In today's economic environment companies must make every possible effort to retain and if at all possible, increase, their profits. Instituting good pricing practices is one of the most powerful ways to combat the rising costs of energy, transport raw materials, just to name a few. Yet, only a small number of companies seem to care at all about best practice pricing, resorting to erroneous methods they are familiar with, like "gut feel", "market price" or "cost plus". Why? Well, because cost cutting has been the mantra of business for the last 30 years or more, and most companies don't really know what best practice pricing means.

Thursday, April 9, 2009

Stirring the music download pricing pot

The music industry has been stirred up once again this week. After years of pressure from the labels, Apple finally gave up on its one-price-fits-all strategy for iTunes and introduced a three tier pricing model -- with downloads now available for $.69, $.99 and $1,29.

So among the three largest sellers of downloadable music, it creates an interesting competitive environment:

  • Apple, the clear market leader with a premium product, with the highest priced downloads, a claim to better sound quality, and complete integration with iTunes and iPods
  • Amazon.com, with a single price of $.99, “standard” high bit-rate MP3 files and an application that can integrate with iTunes and therefore iPods
  • WalMart.com, with a $.05 lower price per song than Apple’s pricing scheme ($.64, $.94 and $1.24) and “standard” high bit-rate MP3 files.

So it will be interesting to follow:

  • Will Apple lose some of its market share to Amazon - thus proving that a lower one-price-fits-all approach is the preferred consumer way to buy downloads.
  • Or, will Amazon follow Apple and WalMart with three-tiered pricing?
  • Will WalMart’s strategy to copy Apple’s tiered approach (but at a lower price) pan out? Will they gain market share?

What will the three-tiered pricing strategy do for the business results of Apple and the big music labels they’ve partnered with? Will it drive more revenue and profits or will consumers migrate back to the illegal file sharing sites that created the digital music market in the first place?

I will keep an eye on these developments and be sure to report back to you soon.

>>Update at 2pm 4/9/09: It did not take long. Amazon just introduced some songs at $1.29

With singing regards,

Per Sjofors
Founder/CEO
Atenga Inc
818 887 4970
per@atenga.com
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