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by: Bernard Teo

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Fri 02 Oct 2009

The Art of Pricing

Category : Commentary/TheArtofPricing.txt

There's a book by that name that I've read. It has a five-star rating at Amazon and I remember it being one of those books that I would call nourishing, in terms of its contribution to my development as a business-person.

Coming from a family of civil servants, I still find it hard to see myself as a business man. "If you don't study hard", my grandmother would say, "you'll end up as a salesman, like that useless so-and so", no doubt hoping that I'd be the mandarin that I never could be. I still hear her voice, all these years. But, ahh, that's the matriarchal Chinese family.

Then there's also Chris Anderson's "Free - The Future of a Radical Price" that I'm reading now.

It's another day in my personal, custom-made, self-learning MBA course, with a good measure of practical experience thrown in. That's what it's like doing this - designing, building and selling software on the Internet.

So I've ended up as a salesman of some sort - selling software that I've built myself - maybe that isn't quite a large fall from grace (I hope).

I've only now managed to get a break from coding to think about pricing (no doubt getting things ass-backwards, as the Americans would say). But Snow Leopard is so good that I want to get everyone who has ever used any of our products to get on the platform, so we can build on up with the good stuff from this point on. I've changed our system to make it possible for everyone to upgrade to the equivalent Snow Leopard product for USD $15 if they've ever bought any one of our previous products, including going all the way back to Postfix Enabler for Tiger.

I say "our", not because I'm royalty, but because Hai Hwee, who's responsible for a lot of the work in Luca and for our Internet store - every time you buy something, it's her code that is doing the processing - is going to come back and work with me full time from end December after a stint teaching at the local polytechnic (but she's through with all that). Maybe work on Luca will move a lot faster then. Or at least that's what we've planned.

Now that's $15 for a "pro-level" product that's superior, in terms of features, to the product that it replaced in Leopard, and which a significant number of people have shown they're willing to pay $25 for at full price. So I believe $15 represents good value for those who're upgrading to Snow Leopard.

But why $15? After 5 years doing this, I think it's absolutely the lowest point to make this type of venture worthwhile. To compete, someone with another product will have to come in at $10, but that's a very painful place to be in. Just ask me - I've been at that level for 4 of the last 5 years. And 15 USD now has lost so much of its value following the slide in the US$ exchange rate that it's a lot closer to the 10 USD of 4 years ago than it is to 15.

Then there is the element of charging what the market will bear. What has surprised me is the number of people paying the full 25 USD price - even people who could have taken advantage of the upgrade offer if they had wanted to. Over the years I've been bouyed by the sentiments (if not the money) of these people who've signalled with their purchases that the product has at least met, if not exceeded, their expectations even at full price.

But setting the price higher than that could create a shelter for a competing product to slip under. Or at least that's the theory from MBA-land.

But then, what do I know? I'm still learning. Now, off with the suit, and back to coding.

I've just finished Outliers - The Story of Success by Malcolm Gladwell. Like the first book, The Tipping Point, I would give it two thumbs up. I believe there's a lot of truth in what he says. That your success is not a product of just your own hard work, but it's also through a whole lot of luck as to how opportunities had come your way. Like my life would have been vastly different had my grandmother not plucked me out to rear as her own simply because I was the eldest son of her (remaining) eldest son - probably as a substitute for the favoured son she lost to the Japanese in the Second World War. I think my brothers had always felt that.

Posted at 4:12PM UTC | permalink

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