Everyone on this site will surely know the “4 P’s of marketing”:http://marketing.about.com/od/marketingplanandstrategy/a/marketingmix.htm. I must come clean, I have a favorite P. It’s Price. I’ve always been a secret admirer of the pricing strategies of companies, even before I got into marketing myself. I can’t understand anyone not admiring the genius of the “Buy One, Get the Second Half Price!” offer.
An accountant would say that this is just a marketing trick and that it would be more honest just to say “Get 25% off this item but only if you buy 2 of them”. That’s why there are no accountants in marketing. The strategy is to create extra demand for a product that you already have a qualified customer for at the till. For every customer who you get in the door interested in the sale item, you double the speed of your inventory movement. It’s genius. Then, of course, there is the Walmart approach of constantly rotating in-store price discounts. This strategy encourages frequency and loyalty in shopping behaviour and I would guess also increases the total amount of time spent in store.
Comparing these pricing innovations in the offline world with pricing online demonstrates the maturation process still needed in online marketing.
Let’s take one of the biggest and most successful online retail sales sites as an example, “iTunes”:http://www.apple.com/itunes/. Don’t get me wrong, I love iTunes for its simplicity of use and its vision of creating music “experiences” for customers. Further, at a billion paid downloads and growing, it’s tough to argue that they need a whole lot of coaching from me. That said, I would suggest that their current pricing practices reflect their existing dominance in the music download space (78%, I heard). I would predict that as new entrants increase their own market share, iTunes will naturally have to look at maturing its pricing practices to compete.
So what does iTunes do with pricing that so violates my sacred and favorite “P”?
Let me give you 3 examples.
First, all the songs on iTunes cost $.99. It doesn’t matter if it’s the latest song from Gnarls Barkley or a B-side from Michael Jackson’s “Bad”, they are all priced at $.99. Can anyone think of any credible retailer in the offline world that prices all products regardless of size, quality or demand at the same level? (Dollar stores don’t count, I said “credible” retailer).
Second, full albums are all the same price. If they are a full LP (vs a few singles or a double or ‘special” album), they are all $9.99. Has anyone been to an HMV recently? Tons of the CD’s on iTunes can be purchased at HMV for less than they are available at iTunes because HMV will discount older albums that aren’t moving. Last, not all singles can be purchased at iTunes. Indeed, some singles (presumably if they are really popular and the rest of the album sucks), are only available if you buy the whole album. Excuse me? I’ll date myself here and say that I still remember being able to buy 45’s at Sam the Record Man and there would have been a riot if I was forced to buy the whole “Rio” album when all I wanted was “Hungry like the Wolf” single.
This last infraction is directly related to the first one and in my opinion the central issue at the heart of the immature web pricing practices. The web has turned traditional supply and demand on its head. There is only one digital copy of “Hungry like the Wolf” at iTunes and it doesn’t take up any shelf space. There are no inventory control issues online which would force the company to develop innovative pricing to meet traditional supply and demand factors. iTunes is quite happy to leave “Hungry Like the Wolf” on the servers waiting for the long tail buyers like myself to come along to purchase it at $.99.
But I’ll say this. iTunes has missed an opportunity with me that likely one of their future competitors won’t. I went to iTunes looking for Gnarls Barkley and would have paid $1.98 for his new hit “Crazy”. And while I was there underpaying for the thing I wanted, I would have picked up a few of the oldies if they had just put up a sign which read “Buy One Get the Second Half Price.”