Pricing Strategy Should Be Easy

If you haven’t noticed, Mark Burton and I have been writing more about pricing strategy these days.  That’s because managers, pricing or otherwise, continue to focus on developing better pricing tactics through software, systems and analytics.  There is nothing wrong with that but those activities need to rest on the foundation of good pricing strategy and supported with an infrastructure of disciplined execution.  Without those two, the tactical work will usually go to waste and you’ll end up leaving a lot of money on the table.  We’re both concerned that not there isn’t enough focus on the strategic issues of price.

 

An example of good pricing strategy is what Microsoft is doing with the introduction of Windows 7 in the fall.  It’s primary features will be simplicity and ease of use and won’t contain “new bells and whistles”.  Priced at $15, a fraction of the full featured version, Window’s 7 will not support fancier monitors and supports a limited number of programs at once.  It is intended for the fast growing sub-$500 market of laptops.  This market has been controlled by Linux and Microsoft’s 2008 share of this market was a paltry 10%.  Since then, Windows has picked their share up to 95% and the Windows 7 introduction will extend that dominance.

 

If users want to expand to the full featured version (currently priced at $70), will just have to put in their credit card number.  There is some concern that this will alienate some users.  We think it will be better to have a dominant share and risk some level of alienation than having a small share and not alienate people.  It’s really a no-brainer.

 

We’ve got to give kudo’s to Microsoft on this one for the following reasons:

• Their CEO has told everyone what the strategy is (penetration priced lower value product).  He was clear what the objective is (dominance),
• has provided customers with a clear path to upgrade the product (good fences),
• it’s simple and everyone in the company agrees with it. 

 

The analysts might ping them on some of the problems that’s just nit-picking.  The bottom line that this one is a clear recipe for success.