subject: Price, The Second P in The Marketing Mix [print this page] Price, The Second P in The Marketing Mix Price, The Second P in The Marketing Mix
I discussed in a previous article my view on the Marketing Mix known also as the 4Ps. In this article I will focus on the second P, also known also as the Price. By introducing the 4Cs, the Price became known as the Cost.
When you are about to launch your product, you need to determine its price, or even its cost, whether to you or the public you are targeting. As I stated in earlier articles, your product may be just an idea that you want to share with others. However, If your aim is to make money out of your product you look into the cost, whether its is your cost or the potential purchaser's cost.
In many cultures we hear the words "Time is money". In other cultures time is free, while most are actually using a combination of both. Lots of people don't value the time unless they start running out of it. If I am paid 40 USD/hour doing my daily work, I won't replace it by writing blogs that will give me pennies on the dollar spent. It all summarizes in your own reason to share a product. If your aim is just to share ideas for the fun of it, then you would not probably care about the amount of time, neither the financial figures spent to promote your product. Some people opt to blog for fun, in their free time, and surely don't mind making an additional dollar.
I do not understand though the promises of financial freedom when it comes to "work from home" or some affiliate programs. In order to guarantee this financial freedom, you actually should work on your blogging full time, making sure you have enough traffic running through your site in order to interest a few to click on this ad or the other, hence losing the freedom, and becoming a full time employee, be it on your own turf.
The time you spend thinking of a product and putting it out to the public for grabs, costs you money. You could have worked in a job that gives you 2 Dollars a day. As low as that is in most standards, these are 2 Dollars that you cannot afford to lose. You can invest in your thoughts, and expect a return sometime in the future, but you certainly have to take that into account when you are calculating your costs.
On another hand, you have to think about your potential clients. How much are they ready to invest in order to buy your product. Some websites offer free services and rely on advertisement; others have paid subscription, or pay per action (view, download, click, etc)
When we are in a business, we are in it to make money. In my field of experience we used to rely on Average Revenue Per User (ARPU). The formula was rather easy: Total amount collected within a month divided by the total number of subscribers we had during that same month. As an example, if we had 1,000 subscribers making total calls in month for a value of 100 $ each, and 5,000 subscribers making total calls of 5 $ each in the same month, the ARPU will be:
This was the easiest formula at that time. After several years of using this formula and going through a series of modifications and details in it due to product life cycle changes and introduction of multiple services, we had also to introduce the Average Cost Per User (ACPU). Although ACPU is not as "standardized" as the ARPU in telecom, more and more companies are adapting it. The earlier version of the ACPU was CPU (Cost Per User) which involved the license fees, among other costs per user (I will discuss those subjects among others related to Telecom in future articles). As you can see we were focusing more on the revenue and less on the cost. The more competitive the market became the more we worked on developing formulas to calculate the cost.
As the competition increased, companies started to realize that the subscribers' budgets were limited. Although mobile communication targeted a niche, it quickly became wide spread and users became average citizens and not only the selected few. In developing country where regular phone lines (Land lines / Public Switched Telephone Network PSTN) were scarce and barely available in the Capital city, the mobile phone became a widely accepted alternative to connect the various regions. Those two factors (Competition and new Subscribers segments) played the major role in making us look into reducing the Cost rather than only relying on increasing ARPU. The pricing did not rely solely on how much we wanted to make anymore, we started to look at the impact of lower prices on our business. To keep the profit margin, we had to reduce the costs or at least control them.
Companies that did not adapt to these changes found themselves losing their market share. Although the demand kept the prices rather high, the markets started getting saturated, this brought the prices down. Determining the prices became more crucial than before for any company who wanted to succeed in the Telecom field.
In everyday products, the Fast Moving Consumer Goods (FMCG) the supply and demand rules apply. Various products have various approaches when it comes to pricing. By knowing your product and classifying it (defining it), you are in a better position to price it. By doing so, you are ready for your next Marketing Mix concept, the Place.
