Product Pricing Revisited

Wednesday, July 9, 2008 Wednesday, July 09, 2008

Last week I posted the basics of product pricing, but there is a lot more to the story. Friend Dandellion Kimban posted her theory of pricing, which proposes a number of psychological and sociological factors are also at play. I believe this to be true, and in spite of the advice I provided last week, I often do guess at prices because of these very factors.

While the pricing of particle effects is not as sophisticated as in the general fashion industry, I have personally observed two examples of Dandellion’s theory.

Many months ago a large-scale landowner came by and recommended that I raise my prices. “They are too low”, he said. At the time I believed that lower prices were required to “beat the competition”, whoever they might have been at the time. But this guy appeared to be successful and therefore may have known something I did not. I like to experiment, so I raised my prices to nice round (and larger) numbers. Amazingly, business picked up immediately. Not lots, but definite and consistent from then onwards.

The second occurrence was much more recent, and dealt with the issue of pricing custom built particle effects. I get many visitors coming by requesting all manner of custom builds. Sometimes it goes badly, but most of the time I am able to more than satisfy customers with cool stuff. I guess they like the products because people keep asking for more. Eventually, I simply did not have time to handle all the requests. I had to do something, as the situation was getting out of control. I could have just turned them away, but instead I did what most business owners do when demand outstrips supply: I raised my price.

I set a minimum fee for any custom effect. And depending on the complexity of the item, the price could even be higher. Take that, numerous sequesters!

My thoughts of having a more relaxing time quickly evaporated when I discovered that no requester balked at the minimum fee. Fine, I said to myself. I will do the work and get paid more for it.

Then something interesting happened.

More clients began to arrive over succeeding days. So many that I suspected them of conspiring with each other. Yet they were not. I was making more money and getting even more demand, but why?

Dandellion has the answer: the price sets the price. For a quality item, a higher price transforms it into an exclusive item, more desirable than it was before.

My advice: set your prices very carefully indeed.


Peter Stindberg said...

The idea of the minimum fee got suggested to me by my first reference client Blaze Columbia. The suggested 500 L$ minimum fee seemed to high for me, so I set it at 250 L$ - but up to date I heard not a single complaint about it.

Roz said...

I think you're definitely onto something. But one thing deserves mention -- the price of entry to this game is that your product be of high quality. I've run into high-priced furniture or prefabs that just aren't worth it, but the builder is unrealistic or trying to fool the naive. Perhaps they score some hits from the gullible, but the path to success in SL is repurchase and good word-of-mouth. My guess is that the builder would strike out on those counts.

ArminasX said...

I agree totally, Diva - high quality is mandatory. It's almost like there should be a big gap between freebies and high-priced quality items.

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