Determining platform value encompasses multiple aspects, but the ultimate price that will yield economic benefit for all parties is one of the trickiest aspects to get right. MPD has years of experience in developing all types of pricing strategies, including detailed implementation and roll-out mechanisms to ensure value creation is optimized. Key components include:
- Total perceived value by each party to create a “win/win” solution – “pricing” goes far beyond the actual rate quoted by the selling party. It encompasses the entire value being delivered by the product. MPD takes an holistic approach to assessing what a buyer is willing to pay (for example based on market conditions, uniqueness of product offering) compared to what the seller is willing to earn as acceptable profits. This can become even more complicated in a two sided platform scenario when some, or all, of the pricing gets transferred to another party. Multiple considerations must be considered such as: Who are all the parties adding value to the equation? Do realistic substitutions exist? Are there any significant barriers to entry?
- Incentive strategies, including market share or revenue growth – When determining the components of pricing, there are multiple levers to consider. There may be a set “price” but the net cost to a buyer is significantly less due to various components such as incentives which achieve mutual goals for both parties. These must be carefully considered, particularly if buyers and sellers are in a position to help each other in a significant way – such as widespread ignition.
- BtoBtoC implications – Will your product ultimately impact consumer pricing? While the first price might be between two business entities, what are the potential downstream effects to consumers? Do you want any control over these price points (particularly if you also a consumer facing brand)?
- Long term vs. short term considerations – Are the price points easy to alter once set or very difficult? Will they set a strong signal to large competitors and strategic direction for the long haul, or make little difference? Short term vs. long term considerations are critical when making pricing choices. It is much easier to establish price points when it is “under the radar” and you are in a test and learn mode than if it sends large signals with potential ripple effects of lasting duration.
- Benchmarking and competitive analysis, including anticipated reactions – After careful analysis of all components, benchmarking of competitive products is crucial to understand product positioning. It is also important to contemplate anticipated reaction by competitors to the planned “value proposition” by the new entrant. Actions may not necessarily include pricing reactions, but could include alternative marketing messages or sales tactics to counter your product launch.
For a global publicly traded company a MPD managing director conducted benchmarking and profitability analysis for a new mobile product. Determined break-even price points based on market segments and likely consumer behavior. Client was given a comprehensive model, by customer segment, with associated revenue and cost drivers to pin-point ideal profit segments.