4 ms·

is there any other benefits of "no price tag" approach, particularly for buyers? Yes. Say the marginal cost of a good is $1000. The fixed cost of developing

is there any other benefits of "no price tag" approach, particularly for buyers? Yes. Say the marginal cost of a good is $1000. The fixed cost of developing the product was $900,000. There are 100 potential customers. In order to break even, the average sales price must be $10,000. But let's say that some customers can afford to pay $50,000, while most others can only pay $5,000. Without price discrimination, the product simply would not exist. If you charged $10,000 to everyone, the smaller companies simply could not buy. But if you price discriminate, and charge the small companies $5,000 and the big companies $50,000 you can cover your fixed costs and break even. Everyone wins. The producer makes money and both the small customers and big customers get a product that otherwise would not exist.

yrashk 17y ago
good point, so it is effectively "rich businesses subsidizing others" :)
- TimothyFitz 17y ago
  It's also "poor businesses subsidizing rich businesses". Note that the rich business didn't have the ROI to go out and build the tool themselves; without poor businesses chipping in they wouldn't have the tool either.
  - gaius 17y ago
    It's free trade - everyone who participates ends up wealthier.
babyboy808 17y ago
I never thought about this. But what happens if the company that purchased the product at 50k finds out another company paid just 5k because of their size?
- yrashk 17y ago
  Yeah, I am curious about this, too. Wouldn't it be better to formalize this approach? Lets say, base price is 50K but there is, say, a "Startup Edition" which is essentially the same but for companies that qualify as new startups. I've seen this approach used here and there. Sill price discrimination? Yes, sort of. Formalized? Yes.
  - kleinsch 17y ago
    This is becoming prevalent in the world of game engines, where the engines sell for big money, but companies making under $100K per year can buy for a few thousand (Look up Unity 3D or Torque for more info). It serves as promotion and builds a much larger community for the engine developer. It also lets them get money from the mass-market, as usually the indie licenses come with less support requirements. For the big name publishers, they make a lot of money but provide the support SLA, custom development or source code access.
  - rythie 17y ago
    I think in a lot of cases the product is suitably different in a way you can't easily compare for every deal. Amount of support, client licenses, cross promotion, source code availablity, features. For server hardware I've seen companies simply upsell more expensive more profitable model to the customer paying more.
  - gaius 17y ago
    Or you could charge per-seat. E.g. theoretically (back in the day) NT Server cost $x + $y/user connecting to it.
- tptacek 17y ago
  You wouldn't normally just charge $50k to an F500 and $5k to an SMB. You'd come up with a product line where the $50k price list item was more suitable to the F500. The process of figuring out what combination of features, functions, packaging, and licensing parameters to assign which price points is the real nuts and bolts of product marketing. It's a huge chunk of what a real product marketing manager does.

yrashk 17y ago

good point, so it is effectively "rich businesses subsidizing others" :)

TimothyFitz 17y ago
It's also "poor businesses subsidizing rich businesses". Note that the rich business didn't have the ROI to go out and build the tool themselves; without poor businesses chipping in they wouldn't have the tool either.
- gaius 17y ago
  It's free trade - everyone who participates ends up wealthier.

babyboy808 17y ago

I never thought about this. But what happens if the company that purchased the product at 50k finds out another company paid just 5k because of their size?

yrashk 17y ago
Yeah, I am curious about this, too. Wouldn't it be better to formalize this approach? Lets say, base price is 50K but there is, say, a "Startup Edition" which is essentially the same but for companies that qualify as new startups. I've seen this approach used here and there. Sill price discrimination? Yes, sort of. Formalized? Yes.
- kleinsch 17y ago
  This is becoming prevalent in the world of game engines, where the engines sell for big money, but companies making under $100K per year can buy for a few thousand (Look up Unity 3D or Torque for more info). It serves as promotion and builds a much larger community for the engine developer. It also lets them get money from the mass-market, as usually the indie licenses come with less support requirements. For the big name publishers, they make a lot of money but provide the support SLA, custom development or source code access.
- rythie 17y ago
  I think in a lot of cases the product is suitably different in a way you can't easily compare for every deal. Amount of support, client licenses, cross promotion, source code availablity, features. For server hardware I've seen companies simply upsell more expensive more profitable model to the customer paying more.
- gaius 17y ago
  Or you could charge per-seat. E.g. theoretically (back in the day) NT Server cost $x + $y/user connecting to it.
tptacek 17y ago
You wouldn't normally just charge $50k to an F500 and $5k to an SMB. You'd come up with a product line where the $50k price list item was more suitable to the F500. The process of figuring out what combination of features, functions, packaging, and licensing parameters to assign which price points is the real nuts and bolts of product marketing. It's a huge chunk of what a real product marketing manager does.