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That's rarely actually true for anyone that wants to operate for more than a short time period. There are significant costs to gouging your customers. Anything

That's rarely actually true for anyone that wants to operate for more than a short time period. There are significant costs to gouging your customers. Anything from it being illegal, to it encouraging competition and your customers being motivated to actively flee you and shit on your reputation. The correct pricing strategy for people that don't have a long term enforceable monopoly is "whatever most customers are willing to reasonably happily pay"

kllvql 8y ago
I think you've hit on what always bothers me about this sentiment. It is obvious that at any point in time you can charge the maximum customers are willing to pay, but that allows for disruption through the channels like competition. The opposite where you charge the minimum to continue providing the goods or services seems optimal, though, leads to a company with zero profits that is unattractive to investment. Is there any literature on how to identify the optimal point of "whatever customers are willing to reasonably happily pay"? Businesses successfully exist on many points in the spectrum of zero profits to most profits the market will bear, but I'd be interested in anything discussing optimality. [Edit] Amazon employee working in Physical Consumer (not AWS). Asking out of personal curiosity.
- LamaOfRuin 8y ago
  I'm not an economist, and can't point to to anything in particular, but I would be skeptical of anything that claimed a general approach to that. "Optimal" depends entirely on what you're optimizing for, which is basically an infinite possibility space. I could need a significant amount of revenue immediately to accomplish a desired business development, or I could have plenty of cash and want to build a large and loyal long term customer base at the cost of immediate profit. As you say, successful businesses exist doing pretty much everything. The only limiting factor is being a viable ongoing concern (and that can just mean having a rich backer). I'm sure there are things discussing optimizing based on small slices of the possibility space though (but all the normal caveats about economists making dumb assumptions that rarely apply to humans apply even to those).
- mabbo 8y ago
  > Amazon employee working in Physical Consumer (not AWS) You too? I'm in AFT. I posted the original "whatever the customer is willing to pay" comment. Mostly just offhand and yeah there's a lot of nuance to it. I don't mean that anyone should want to individually gouge each customer, but when running a business one should pick a price whereby the total long term profit is maximized. Your pricing determines the number of customers. Your pricing also determines the profit on each customer. But choosing your pricing strategy correctly, you should have some people who won't buy your product.
solatic 8y ago
The minute that you have customers paying any amount at all, you set yourself up for possible competition undercutting you on price. The truth is, whether you have a great or poor relationship with your customers, unless you have legal protections you have very little control over whether competitors will eventually enter your market or not. So you need to always operate as if there is competition breathing down your neck. Pricing strategy has little to do with customer happiness in aggregate. Every price will make some customers happy, and other customers feel gouged, because different customers extract different amounts of value from your product. The key to protect yourself from competition isn't to spend time worrying about how pricing affects your aggregate customer volume, but about whether your customers are happy. Maybe some customers are unhappy because they feel gouged. Maybe you could make them happier by reducing prices. But maybe, you're better off letting them go, if they represent a small minority of your users, and instead focus on what a majority of your users might appreciate more - better service, relevant features, etc. which make them happier.
manigandham 8y ago
>> "whatever most customers are willing to reasonably happily pay" Do you have a better idea of what this is then they do? Considering they already have launch customers actively using this product and there are several comments on this page saying pricing is better than MongoDB?

kllvql 8y ago

I think you've hit on what always bothers me about this sentiment. It is obvious that at any point in time you can charge the maximum customers are willing to pay, but that allows for disruption through the channels like competition. The opposite where you charge the minimum to continue providing the goods or services seems optimal, though, leads to a company with zero profits that is unattractive to investment. Is there any literature on how to identify the optimal point of "whatever customers are willing to reasonably happily pay"? Businesses successfully exist on many points in the spectrum of zero profits to most profits the market will bear, but I'd be interested in anything discussing optimality. [Edit] Amazon employee working in Physical Consumer (not AWS). Asking out of personal curiosity.

LamaOfRuin 8y ago
I'm not an economist, and can't point to to anything in particular, but I would be skeptical of anything that claimed a general approach to that. "Optimal" depends entirely on what you're optimizing for, which is basically an infinite possibility space. I could need a significant amount of revenue immediately to accomplish a desired business development, or I could have plenty of cash and want to build a large and loyal long term customer base at the cost of immediate profit. As you say, successful businesses exist doing pretty much everything. The only limiting factor is being a viable ongoing concern (and that can just mean having a rich backer). I'm sure there are things discussing optimizing based on small slices of the possibility space though (but all the normal caveats about economists making dumb assumptions that rarely apply to humans apply even to those).
mabbo 8y ago
> Amazon employee working in Physical Consumer (not AWS) You too? I'm in AFT. I posted the original "whatever the customer is willing to pay" comment. Mostly just offhand and yeah there's a lot of nuance to it. I don't mean that anyone should want to individually gouge each customer, but when running a business one should pick a price whereby the total long term profit is maximized. Your pricing determines the number of customers. Your pricing also determines the profit on each customer. But choosing your pricing strategy correctly, you should have some people who won't buy your product.

solatic 8y ago

The minute that you have customers paying any amount at all, you set yourself up for possible competition undercutting you on price. The truth is, whether you have a great or poor relationship with your customers, unless you have legal protections you have very little control over whether competitors will eventually enter your market or not. So you need to always operate as if there is competition breathing down your neck. Pricing strategy has little to do with customer happiness in aggregate. Every price will make some customers happy, and other customers feel gouged, because different customers extract different amounts of value from your product. The key to protect yourself from competition isn't to spend time worrying about how pricing affects your aggregate customer volume, but about whether your customers are happy. Maybe some customers are unhappy because they feel gouged. Maybe you could make them happier by reducing prices. But maybe, you're better off letting them go, if they represent a small minority of your users, and instead focus on what a majority of your users might appreciate more - better service, relevant features, etc. which make them happier.

manigandham 8y ago

>> "whatever most customers are willing to reasonably happily pay" Do you have a better idea of what this is then they do? Considering they already have launch customers actively using this product and there are several comments on this page saying pricing is better than MongoDB?