Working in today’s meeting industry, it is often hard to determine the rationale behind a certain product’s price. It is also difficult to predict whether the tool will continue to remain at a constant high price or if it will decrease over time. As a tech company develops a new product, what are the factors that go into its price as they begin to market it to the public? What are the elements that determine whether a product’s price is initially high or low, or whether it will change over time? Obviously, different companies will have different objectives and strategies in determining product price. MeetingTechOnline has had the opportunity to speak with three industry experts to learn about different objectives in pricing innovative tools.
While researching theories behind price, it is easy to find cookie cutter answers using such terms as ‘market penetration pricing,’ ‘skim pricing,’ or ‘cost-plus pricing.’ But what does this jargon really mean? Are these theories prevalent within the meetings industry? Well, the answer is yes … and no. The real world often is not as easy or clear-cut as textbook definitions, but it is possible to find thought processes behind pricing schematics that reflect aspects of these theories, along with a plethora of other factors such as brand image, feasibility, level of service, and changes in costs.
Roger Lewis: AllianceTech
AllianceTech is a leading provider of innovative technology solutions focused on business intelligence solutions for measuring the value of conference, tradeshows and events. According to Roger Lewis, Vice-President of Sales for AllianceTech, one of the core strategies behind pricing their products stems from their brand strategy. Similar to companies like Lexus and Apple, Alliance Tech offers innovative, high quality, premium set of products with additional value to justify a slightly higher price. Just as consumers would be suspicious of a $15,000 Lexus because they associate the name with status, quality, and deserving of a premium price, many technology companies position their own product pricing based on their brand strategy. Mr. Lewis states, “Only a few products in our industry such as RFID are revolutionary and new. Most come to market because of the market opportunity.”
“When pricing a premium product with innovative features, in general, a solution may be priced slightly higher than competitors with out affecting demand” Lewis says, “When you hit an 18% threshold, businesses start to hit a bar where they start to evaluate whether the additional value and features justifies the premium price.
Other things that need to be considered in pricing novel products are analysis of competitors and the current marketplace. AllianceTech could enter into certain product lines, but prefers not to due to high barriers to entry and an already competitive market. The knowledge needed to produce the product may be hard to obtain and costly. Even before a product exists, the company has already analyzed the market, what can be achieved from market penetration, the competitors, and how much profit can be garnered if priced at certain price points. As for price decreasing over time, Lewis says this is simply due to the concept of costs. If costs to produce a specific product are able to decrease over time, then naturally the price of the product can follow. If however, there is no change in the cost of goods, then subsequently the price of the product could stay the same for years.
Renee Jain: ICCRents
Renee Jain is the National Accounts Manager for ICCRents, a technology rental company that provides services to the Meetings industry. Jain says that for her company, “In terms of pricing, there are some things that are very formulaic.” At a rental company, it is customary to have a particular recovery period to gain the cost of the equipment back. From there, a bi-monthly, weekly, and daily price can be determined and the show price that is advertised is the weekly price, which can be anywhere from 3-5 days. For Jain, the main question concerns how to define a time-period for cost recovery. Some newer products can have a shorter recovery period because customers are willing to pay more initially.
Another main factor in determining price is level of service. While others in the marketplace can compete with very low prices, they will not have the level of service to be as competitive. Jain feels that this is her company’s competitive advantage: “Our service is second to none and our pricing is still competitive.” This is because other companies might not be able to provide the level of service and therefore are able to gain more profit. Keeping a higher price is not going to be feasible forever as others will enter the market. However, any price adjustment needed would be small because of the superior service package provided. Jain sums it all up in one sentence, “You really get what you pay for, in terms of services.”
Overall, while pricing can be formulaic, it is still only a guideline because there are so many factors that go into pricing. Some of these include cost of the product, competitors’ actions, service level that goes along with a specific product, and the support required for a particular product line. If pricing is drastically adjusted downward, it is not necessarily going to increase sales and the company will be stretched when it comes to the level of service. Due to the low barriers to entry for this market, many companies will go under because they simply have not priced correctly. As Jain says, “pricing is truly mind-boggling.”
Debbie Baxter: Advon Technologies
Debbie Baxter is a senior consultant with Advon Technologies, a consulting company focused on the design, implementation and execution of technology in the Meetings industry. She is the former president of an event services provider that provides registration technology and services. Baxter says that the "challenge in pricing is that the customer tends to see registration as a commodity, and therefore expects the lowest price possible." She has often taken a mark-up approach, or for a more textbook definition, cost-plus pricing. With this strategy, it is imperative that the company operations be as efficient as possible and mark-up by X%, trying to keep that number as low as possible. However, she points out that "it is not a positive strategy to compete so low on price to the point that you are not making a profit." Obviously, this arrangement cannot be sustained over time. If customers have come to expect a certain price, they will respond poorly when it increases. This is another reason that inflationary pressures are difficult; customers expect prices to remain fairly constant and often cannot see the connection between company's costs and the final price of the product. For example, increasing fuel prices have had an effect on the cost of badge holders, and many customers do not realize this correlation.
One competitive advantage that makes it easier for clients to differentiate her services from other companies’ was the bundling of many different technology components into one offering. This not only saves her clients time and trouble, but also adds value, enabling her to increase profitability. Baxter takes a penetration approach to pricing: the idea is to enter the market at the lowest possible price, thereby winning business over the competition. Over time, this allows her to handle the relationship management aspect with the client through superior performance, tailoring solutions to their specific needs, and gaining the clients trust. At this point, she can offer other technology solutions to these valued customers to drive up profitability. Many registration companies do not even charge for technology products at all, but only for the services required since it is such a huge component of the business, making relationship management extremely critical to price and profitability. This relationship is also important because annual contract renewals revert the client right back to their original position on the open market, enabling them to choose between many different competitors.
Initially, there tends to be a mismatch between expected price and actual price, making negotiation necessary to reach an acceptable price for both the registration vendor and the client. After that, it is all about managing the customer relationship in such a way that ensures future business. Other effects on pricing are operating efficiencies gained over time and the number of events. The more events a client has increases the profitability of each because some sunk costs can be shared across multiple events.