Alternative Way of Pricing a Product

I have written a lengthy post about product pricing in the past, but today many different commercials and product prices have got me thinking.

I believe that almost whatever you think about pricing doesn’t really matter. That’s quite a bold statement, but if you think about different things that people buy: couple of bucks for bottled water, $5ish for hamburger meal, $100 for a pair of shoes, $1000 and more to be able to watch more commercials from a thin box. Would you think that these prices were based on the costs? No, they were based on what people were willing to buy.

People are paying ridiculous sums for different goods, so why wouldn’t it be possible to price your product much higher than it currently is? If somebody is willing to spend $25 for a new movie, but cannot spend $10 for a webhosting – something is wrong.

That’s the reason why seller’s opinion about the price is not the most important factor. Naturally there are factors that affect in pricing (such as “industry standards” for certain products), but much more important factor is what the buyer is ultimately willing to spend. I think we should learn from other industries. Look at what kind of price tags cloth stores (for example) are using. Are they using only $10 or $20 prices? No. Besides low-end prices, there’s lots of stuff that costs more like hundreds of dollars. If a cloth store can put a $500 price tag for a coat, why couldn’t you put $500 price tag for your services? Or $5000 or more for that matter?

For individual games it’s tough to price more than $20, but as as Halo 3 taught, the game price can be much more than an average price – sometimes lots of more.

Think about it. Think about choosing a price that’s determined buy what the buyer is willing to pay – not what you think he is willing to pay. Think about different industries. Compare prices of hamburgers with the price of your product. Are they worth much more than couple of hamburgers?

If so, let it show in the price tag.

5 thoughts on “Alternative Way of Pricing a Product

  1. “You are confusing one time selling with many time selling. Some things can be sold only once, other things many times. Prices for one time sells are almost always higher then many-sells. Most of your examples of higher prices are once sellers: Hamburgers, Shoes, Thin boxes that show TV, Cloths…”

    I’m not sure if I follow you… unless you mean like “physical” compared to “digital” product. In my example it really doesn’t matter if it’s physical or digital (for example: Halo game is sold in a physical box…)

    In general games are not like that at all. Once finished, they are mass manufactured and copied for almost nothing, and the buyer knows thhis. Therefore you can’t demand much more then a book, or a movie ticket/DVD for a game, unless you offer insane amounts of gameplay time, as in most MMORPGS.

    Well, you mentioned the thing I was hoping to introduce my post. The “unless”… part. We should figure out how this could be done.

    I completely agree that game prices need not be bound by a cost-plus mentality… but how exactly can you get to the “price that’s determined by what the buyer is willing to pay – not what you think he is willing to pay”?

    Well, I don’t know how to get there – but some examples could be special game versions “legendary editions” like Halo. This would also help no matter what the industry is charging…

    There are also all kinds of game club passes and stuff that could be used to find alternative ways to price games.

  2. Juuso,

    I completely agree that game prices need not be bound by a cost-plus mentality… but how exactly can you get to the “price that’s determined by what the buyer is willing to pay – not what you think he is willing to pay”?

    I think in practice that these are really the same thing. After all, the only information you really have to go on is your best guess. You might be able to back that up with market research, anecdotal evidence, tradition, etc., but there’s an inherent element of subjectivity there.

    (I also think you might be underestimating the importance of traditional industry pricing in gaming – not because it has anything to do with the intrinsic value of the game per se, but just because your customers have been conditioned to value games at those prices. People can develop a pretty strong sense of entitlement.)

  3. You are confusing one time selling with many time selling. Some things can be sold only once, other things many times. Prices for one time sells are almost always higher then many-sells. Most of your examples of higher prices are once sellers: Hamburgers, Shoes, Thin boxes that show TV, Cloths…

    In general games are not like that at all. Once finished, they are mass manufactured and copied for almost nothing, and the buyer knows thhis. Therefore you can’t demand much more then a book, or a movie ticket/DVD for a game, unless you offer insane amounts of gameplay time, as in most MMORPGS.

    Another such example is different kind of services. If a service is aviable from many places and with dimishing amounmts of work, it’s gonna be cheap, and many cheaply sold games fall into this category. Another example for this would be web hosting.
    Of course there are also services that demand much work, and are not aviable at every third site on the web, therefore they’re not cheap. Examples of this second kind would be database experts or advertisement agencies.

    PS: Of course actual pricing is much more complicated, for example you can slap a nike logo onto any shoe, and then you suddenly can demand 100 to 200 $ more for them.

  4. Oliver, I would like to remind that the blog post was not just about pricing games – but also pricing other products or services.

    as I said… “industry standards” are important, but it didn’t prevent Lord of the Rings Online to have $200 price tag. It didn’t affect many games selling not just their actual game product… but also “strategy guides”, “caps”… you name it – with a far higher price than average “hat” would cost.

  5. Would be interesting to know, how much Halo copies that were sold were in fact of the overpriced editions.

    I, personally, am a fan of special editions, but by far the majority of the people I know buy the standard version, if any at all.

    “industry standards” is an important factor here imho, you make it sound like you can charge depending on the “actual worth” of the product, but nobody will be willing to pay considerably more if you don’t have more to show than what you would have sold normally anyway.