The Strategy and Tactics of Pricing in Online Business and Information Marketing Businesses
The strategy and tactics of pricing in online business and information businesses can be overwhelming if you are new to those categories. There are 2 seemingly conflicting pillars of online business success that you must reconcile to succeed in the information marketing business or in the online marketing business.
1. You cannot succeed in your business by competing on price.
2. You cannot internet business success by ignoring free and low-cost products.
In this article, we will examine this pricing strategy paradox that affects not only internet business entrepreneurs, but every entrepreneur whose business model depends on information publishing or information marketing.
In this article, I will share a coherent strategy that reconciles the pricing philosophy conflict and is guaranteed to create monopoly-like profits for your business. But first, let’s examine some of the assumptions I made earlier about price.
The Challenges of a Price-Based USP
Every business should develop a brand positioning strategy that makes promises the business can sustainably execute. Many small business owners naively enter a market thinking they can under-price the incumbents and quickly gain some market share before they need to raise prices.
Unfortunately, this approach fails most of the time because the incumbents often have enough resources to survive a price war. Even worse, there are always new competitors on the scene willing to compete (however temporarily) on price, making those business models unaffordable.
Unless you have a definitive (and sustainable) advantage that helps you keep the lowest costs, stay away from a price-based differentiation strategy. There can only ever be one price leader in any market and the chances are good that it’s not you.
In addition, the ability to create, package and distribute compelling information products has been largely democratized since the advent of the web. Low price as a pricing strategy generally does not lead to profitable business.
Self-generated Information Products Are No Exception
If you are in the information business and the biggest input is your time and effort, you may be tempted to think that the general rule I just shared about avoiding a price-based USP doesn’t apply to you. After all, you probably generate or compile your own content and can afford to control product creation costs.
The problem is that your inability to generate good margins or cash flow will delay your time to significant profits. Most newbie information marketers end up quitting their strategy long before they hit sustainable profits for reasons like this.
The biggest danger with trying to build a successful information business by selling $10 dollar ebooks (for instance) is that you do not reach profitability before competitors drown you out or you run of momentum.
The Demanding Internet business customer
Internet visitors and internet business customers have been conditioned by the culture of the open source movement and the habits of the digital economy to expect a lot at very low cost. As a matter of fact, many web visitors expect you to give them a lot of value for free.
If your business depends on trying to sell high end information products or professional services through the internet, and you don’t acknowledge this reality of internet consumer culture, your business could be ruined. You either have to have a ready made crowd of super qualified leads already in your hands, or you’ll have to do something different.
The Pricing Ladder Sales Funnel
The reality is that you must build a sophisticated product funnel where pricing goes from very low (including specially positioned “free products”) to very high. In this structure, the low-priced products are used in a lead generation process that increases market share, after which clients are connected through a client-nurturing process (like an email marketing system) to the high-margin products and value-added services that maximize profits in your business.
Price Stretching For Market Penetration and Profit Maximization
In his excellent momentum marketing series, direct response consultant and internet business guru Lee McIntyre explains (and illustrates) a very practical technique he calls “price stretching” that allows you to pull off a seamless transition of clients from front end to back end.
Price stretching emphasizes building high-value upfront in the relationship through specific pricing and branding decisions that make it easier to monetize the customer relationship on the back end. It is also highly effective for dealing with purchase-resistant email subscribers.
In many internet businesses, subscribers who have never bought a penny’s worth of product can still be made profitable through strategic partnerships. The strategy and tactics of pricing information products can be only be executed profitably when you keep all the realities of the online marketplace in clear focus.