Evidence And Equipment Of Using Price Scamming For Your Next Product Launch
Evidence And Equipment Of Using Price Scamming For Your Next Product Launch Price scamming is a business strategy for prices of goods and services. When introduced in market, a good or service is priced higher than usual and then decreases increasing over time.
“Scamming” is a lack of customers willing to meet a specific price point. Once the customer class is satisfied/satisfied, that class is “scammed” off. Prices have been dropped, and the next class of buyers has been revealed.
In this article we will:
- Review the pros and cons of using cost reduction as a strategy
- Check out real world examples of this strategy
- Find the best or least suitable business for this type of business model
Let’s jump right in!
Price scamming pro
Compensate sink cost fast. – The sooner the price of a product could mean research, development and production costs reclaiming as quickly as possible.
Cost saving. Consumers adopting new products and technology before majority can test your products for you. Their feedback can help improve your design and build buzz for it, saving you money overall on testing and marketing.
Inventory control. Even when a product loses popularity you can still clip it if you could tap into different customer categories who were willing to wait to buy it at a lower price.
Market observation. Decreasing and distributing prices allows consumers to quickly analyze market behavior. More time means even with future products, more measured, confident results to move forward.
Price scamming cones
Customer’s welcome. Dropping prices too soon may offend those who bought at full price. Depending on the deficiency, you might find greedy.
Quality is the key.
Kane contestants. High-priced new products raise the flag with competitors. They will decide how they can replicate your product at lower cost, hire at entry prices and gain market share.
A short term strategy. Your customer pool at all levels will eventually deplete, possibly leaving you with extra inventory and no one to buy it. Furthermore, if this strategy becomes your routine, your audience will come to know that your price will eventually go down, making smaller numbers willing to buy at higher prices.
When price scamming works . . .
In an ideal scenario, price scamming works when:
- You have a crowd of early adopters and innovators who follow your growth and are eager to try to market your company, no matter the cost.
- What you offer is truly new or innovative.
- There are no direct competitors.
With this trifecta, a producer is essentially free to set the image, expectations and pricing for their products or services because no other company has set up bars in those areas. When in a position like this, companies can use price scamming to generate large profits on small amounts.
Apple for example
Take for example Apple’s 2007 release of the iPhone that met the above three standards:
- Apple was already obsessed after the release of the McIntosh PC and iPod. The anticipation of owning the iPhone generated by this base and other early adopters and tech-inspired customers created a huge buzz around the product.
- iPhone was a truly innovative product: a phone, music player and computer, all in one device, that can fit in your pocket.
- No one else in the mobile device industry had something like this at that time.
Released in June 2007, the 4G version of the iPhone costs $499 and the 8G version costs $599. In approximately 74 days, 10 million iPhones sold in the United States. Shortly before publicizing this milestone, Apple discontinued the 4G version and slashed the price of the 8G model to $399. It’s clear that the initial push resulted in a lot more yield, but there was also a downside to it. We’ll be looking out for this in the next episode.
Apple has managed to maintain high prices for iPhone post-release because they still have a loyal following that will always buy Apple products.
The fashion and automotive industries also regularly use a price scamming model. Have a loyal following of top brands in these areas. They are at the forefront of innovation working on seasonal or annual cycles. Every new release creates buzz like iPhone for the latest and greatest. They can release new collections at seasonally higher prices. To manage the left-wing inventory, they use price drop to move old inventory out, and keep products on clearance. At the same time, their competitor usually looks for a way to develop and release similar products, putting additional pressure on their pricing strategy.
Brand loyalty to other products more chic. There is Y, which means that a drop in prices will only work once.
If you were in the market for a music player in 1982, you may be interested in new technology called a compact disc (CD) player. The first CD player was made by Sony and sold for nearly $700, but prices sharply dropped in the following years. As the CD player’s popularity has increased, the manufacturing capacity and increased supply have led to entry and competition-based pricing more effectively in this market. A similar story holds true for flat screen televisions, DVD/Blu-Ray players, and computers.
. . . And when that doesn’t happen
If a product like you is already on the market under a price scamming strategy, you shouldn’t pursue it, unless you actually make a significant improvement. Potential customers who can’t understand the difference won’t agree to pay a premium. If cost is the only difference, build your own strategy. Evidence And Equipment Of Using Price Scamming For Your Next Product Launch
Price scamming is not a good strategy if pricing will eliminate the perceived cost of your product or service or isolate your customer base. Here are some scenarios to consider:
Do you offer personal or professional services.
you develop experience during your career, which makes your time more valuable, not less. While the availability of professionals offering these services may increase, and their prices may vary, one should base pricing on the skill level required for the job.
Do you offer subscription-based or tiered products or services.
Subscription-based services offer a basic level of access to a product at a price that renews on cycle. That cycle is usually monthly or yearly. Accessing additional pros or new features requires upgrading and/or purchasing these features at a higher price. If base subscription price drops over time, it could hurt consumers’ feelings about product price and quality. A more sustainable and profitable model for this type of service is the FRAME model. This model allows companies to transfer features that will be popular and sustainable over time to the base model. Identifying new features and pricing on high-level purchases to continue to grow both customer base and product.
You have a loyal, but entitled, customer base.
An early adopter’s foundation can help, but their loyalty may earn them a special kind of treatment. For Apple’s die-hard customers who bought iPhone in months as a price drop in September 2007, the drop felt betrayal, and they’ve accused Apple of unfair prices. RESULT: Steve Jobs appealed the sentiments, issued a public apology and offered discounts to affected customers. Recent releases of the new iPhone model are following a different cycle: a new version has been released at eye-popping prices, followed by a slightly different version with slightly different features but with a more digestible price tag. With the latest version ranging between $700 and $1000, Apple has the additional burden of continuing to appeal to its loyal followers while valuing its quality and innovations.
Drawing a conclusion
Cost-scamming strategy requires deliberate research and preparation. It depends on the alignment of specific factors and proper timing. This may work in the short term, but serving on the board is not a good practice. If holding a share of market share or reclaiming costs is your primary goal, a price reduction may be the best approach. However, if you want a long-term, value-based position, neutral pricing or freeemies will better serve your goals.