Make Your Price Sell!, The Masters Course | Page 5

you ship from place A to place B?
4) Price… How do you decide on which price to charge?
Take your time with this exercise. You need a strategy for every part of your
business operation to guarantee success. There are so many inside and outside
factors that can affect your business, some of which you have more control over than
others!

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However, at the end of the day, all the pieces of your e-commerce puzzle have to fit
together or else your business will flounder.
Finished and ready to move forward? Let’s go directly to “price to win” pricing
strategies...

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4. Price to Win...
Before you set your exact price, you must decide upon a pricing model -- this
strategy should be consistent with your overall business model. Pricing always
needs to accomplish a goal...
… but that goal is not always to make the most money, especially when you are
selling on the Net.
At the risk of oversimplification, there are two basic business models, each with its
own objective. We’ll very briefly examine a few less frequently used models
afterwards.
OK. Let’s get the ball rolling…
Model #1 Price to Penetrate
Your goal is to penetrate the market fast and deep. In other words, sell as many of
the item as possible. So you set your price low. But how low?
There’s no point in giving away the store. You want to find the highest lowest
price that maximizes profits and number of units sold.
Use this strategy to establish a powerful position in the market quickly. Why? The
basic goal is to acquire as many customers as quickly as possible. Taken to an
extreme, you might even price at a loss. Why?
For this powerful reason… each customer has a lifetime value. That value can be
hundreds of times greater than some small gain you might make on the first sale.
With this knowledge, you are happy to reduce or forego that first profit.
Penetration pricing is especially appropriate if you sense that more competition is on
the way. Lock in the people who see your product being offered now.
Key point... penetration pricing only makes sense if you keep those customers.
There must be a strategy in place to realize that lifetime value. Here’s a
quick primer on how to convert “first-time” to “life-time.” Feel free to mix and match...
1) Stickiness -- this is customer loyalty with a twist. Once someone buys from you,
does it quickly become too costly for her to switch to a competitor? (high ‘switching
costs’). The costlier it is to switch...
... the stickier is your product.

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Offline example -- Shaver handles used to be expensive. And they only fit a
certain brand of blade. The cost of switching to another brand was the cost of buying
another expensive handle, so customers had to continue to buy expensive refills.
Hence that old phrase... the “razor-and-blade” strategy.
Online example -- Consider free Web site hosts like Geocities. Once you build a
site, it becomes tough to move it elsewhere. Also, the amazingly cheap online
brokers are remarkably “sticky” -- it takes a while to learn a system and set
everything up. Once you do that, you don’t want the hassle of switching.
2) Great product -- an outstanding product guarantees the customer’s return. You
know that she’ll be back!
Offline example -- Shaving companies realized that they could make much more
money, in the long run, from the resale of razor blades than from the handles.
They started to sell the blades at give-away prices. The customers got used to a
good shave with relatively inexpensive blades and just kept on buying those
profitable refills. Hence that old phrase... the “razor-and-blade” strategy.
Online example -- Good books and good prices are a winning combo. In the
beginning, Amazon.com discounted prices deeply in order to dominate the book
(and now every other category!) market in cyberspace. They are losing massive
amounts of money due to discounting. But they are building a massive base of
customers... lifetime customers, they hope.
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Of course, that’s the way an accountant thinks. If you think like a
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What are entirely new income streams worth? More to the point, what
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