I will be reviewing the "Don't Just Roll the Dice" book on pricing software. The great part about this 81 page guide book is that it is available for free!! So you can actually go to the source and not just rely on this review. The book is freely available at :
If you like the book, you should support the author and purchase a real copy from Amazon for 11$: http://www.amazon.com/Dont-Just-Roll-Dice-usefully/dp/1906434387/
Even though the author is targeting a specialized subset: software, a lot of the pricing strategies easily applies to other industries.
Review+Analysis of Chapters 1,2 and 3 - Pricing Economics, Psychology and Pitfalls:
-A very interesting bit of pricing history for technology:
The two Hewlett-Packard founders sold their first oscilloscope in 1938 for 54.40$ because that is the latitude and longitude of the northern border of the United States of America! There was a comparable oscilloscope being sold for 400$ by General Radio at that time. This goes to show you that some very smart people (they were Stanford grads!!) can make some foolish pricing mistakes.
-You should be aware of how increasing the price will affect the demand in quantities sold. The end-goal is to increase revenue (quantity times price) after all..though a more important goal is profit margins and this can affect the desired quantity you want to produce too.
-In software, you are selling more then just the executable code, you are also selling: technical support, on-going documentation needs, re-assurance of new features being implemented (roadmap), and breeding familiarity to your staff...hence the reason why Microsoft dominates so much in the corporate environment while there exists much cheaper alternatives.
-pricing by companies is often done by comparing to existing reference points and what the market will bear
-fives and nines lower's the perceived cost of a product: example: 1,995$ feels significantly cheaper then 2,000$ even though it's only 5$ (0.25% of the cost of the product)