The Maximizing Profit Pricing Policy

Easy access to information and the ability to hand store on the Internet makes the internet a very good medium of advertising and place a trade . The growing importance of trade in electronic goods – e-books, online courses , computer programs , etc. . The cost of distribution of such goods may have been very low or even negligible. The main costs for such a product is the cost of producing and expense won over customers and advertising. A very important factor is the price or the pricing policy.

Suppose that we create a training in the form of an e-book and a footage. Assume, the cost of preparing the materials and start the distribution platform is $ 1,000 , advertising costs are $ 1,000 . Earn (gross) want $ 8000 . Our revenue must therefore be $ 10 000 .We can assume that the mere distribution costs resulting from a sale costs $ 0 as we send an email with your login to our site and the code for the program.

Our $ 10 000 we can work out :

- 1 sale for the price of $ 10, 000,
- 10 sales for $ 1,000
- 100 sales for $ 100 ,
- 1000 selling for $ 10 ,
- 10000 sales for $ 1

Because we produce and distribute the product we have full pricing flexibility . The question arises what price choose to maximize our profit and achieving the profit of $10 000 or more. The question may be more general – how to specify the procedure for selection of prices .

Our revenue depends on:
- the likelihood of purchases by the customer
- the number of views of our advertising or opening and reading our email .

So the question is, is it easier to have a 100 selling for $ 100 , or 1000 sales of $ 10 , or even 10 000 selling for $ 1

Contrary to appearances, economists do not know how to answer that question or know it only in theory, and the demand curve behaves differently for different goods … Compare with other products (training in the industry) is difficult – there are products for $ 1,000, $ 100 and for $ 10.

Customers do not respect the products that are too cheap, the strategy of raising prices works only within certain limits, because as we start selling for $ 10 and come to the $ 50 to customers do not want to pay $ 50 for something that someone bought for $ 10. With lowering prices is even worse. Customers have the impression that the price is low because the product sells poorly .

If the demand was infinitely elastic, the profit maximizing price is the highest one. For most products is not the case. Of course, if a reseller has a huge number of products to choose form and this reseller has also a huge number of potential customers or very good access to a market, a very low price may work – it looks like the case of applications for the iPad and iPhone. Of Course, one may say that for the average application developer this is pure lottery. One 100% winner in this strategy is this reseller.

Possible solutions:
- Testing, testing and testing. One of the solutions is a good “mix” list and separating a part of it for testing.
- Rejection of extreme price ($1, $1000 , $ 1000) and the provision of different variants of the product at different prices and using Jey Abraham strategy and up-selling. Basic product for $ 10, and various add ones Price $100 However, this complicates the sale , but maximizes profit .

Of course we do not know if anyone who buys a basic version of the product for $ 10 , and do not buy extras for example another $ 20 would not buy the product for $ 30

In my experience , it is better to sell the product in the medium or higher price than the product cheap. It is easier to have 4 sales per day , than 40 sales per day. This example confirms the business real estate brokers who have relatively few transactions , but these are transactions with a very huge commission .

To have 1, 2 or a pair of transactions or leads a month just small high quality traffic is needed – high quality traffic means traffic generated by those who really need our product or service.

To make 100 sales a day you have to have a really huge traffic.

Low-quality heavy traffic can not be even compared to little traffic of (very) high quality.

Being a small company without large expenditures on advertising is more profitable to have a pair of profitable sales than to try to get a lot of transactions in small amounts in my opinion.