Content is *not* valued by the media it’s delivered in

Anne Holland:

"If that were the case all CD ROMs and DVDs would cost the same – and all Web sites would be the same price. You should keep your production costs in the equation simply to know what your margins are. However, beyond that you are selling knowledge, a better life, a better business, more satisfied employees, trust in your brand name … etc."

If you don’t understand that, you probably won’t be in the information business for long, because the marketplace will drive your price down to marginal cost per unit, which for electronic products is just so slightly above zero. Cost-plus – as opposed to charging as much as the customer is ready to pay – is a pricing strategy forced by competition upon suppliers of physical commodities. Its natural conclusion for intangibles is very low margins at best.
Start pricing by value (what’s in it for your customers), then compute the impact of competition, but leave your costs out of the picture since they’re typically very low compared to how your product can be sold. There’s of course plenty of related academic material on pricing theory.
The opposite pitfall, equally unforgiving, is to mistake your commodity product for a differentiated, unique offering. I saw this happen several times in the desktop PC market. As far as corporate volume buyers are concerned, a PC is a PC is a PC, and many brands which didn’t see this tried to charge more than competitors for gimmicks (e.g. our power supply is 3% more efficient than the competition) that customers didn’t value at all.
Those nice-to-haves are useful only if you’re at the cheapest price point already, but since they’ll likely increase your costs, you’ll need to be less profitable than the competition to reach the same price point and win deals. Dell drove a lot of wannabes out of the market in part thanks to its build-to-order model, but also because they knew they were in the market of what a friend who used to work with them calls "cheap shit." A sales rep way to say the products are not spectacularly brilliant of innovative, but they work and that’s what customers want.

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