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To have a margin, or not to have: that is the question. And the question is undying. If the price is too low, volumes are high but is the margin high enough to handle the situation. If the price is too high, no sell at all. Like dancing on the tightrope. For the companies this is a key parameter for the success. How to solve the formula?

Traditionally, especially with tangible goods the price is the manufacturing costs plus margin. The value of the margin was as big as you dare to use. But the business changes (surprise surprise) and we have moved more and more towards service type of business. With service business the starting point of the pricing is not necessary the costs, it is the value what you are delivering to the customer. Production costs are not any more the main driver although you have to cover them. Business models and value chains are going to be more complicated and the cost control will play a big role.

So called internet economy brought its own caveat to the pricing. The basics of internet economy are:
1. Small fees/portions of huge amount of transactions
2. Auction everywhere/everything
3. Give something for free and sell something
4. Sell advantages/shortcuts (gaming especially)

My guess (or gut feeling) that the mobile operators and the internet economy were catalysts which raised the speed of on current phenomena, monthly fees. Mobile operators introduced bundles, subscription and mobile phone together. Their target was to raise the customer loyalty. Today you can lease a car as a private person. Opticians are already doing market studies for leased glasses/sun glasses. One day all of your life’s purchases are monthly fees. I don’t like this development.

Is the Scientific pricing solution to the issue? What is Scientific pricing? Maybe this short story will open it to you. Story goes back to the time when I was working in Ireland leading business unit which was doing systems for the mobile operators. It was always the case that customer wanted to have features what we didn’t have. So R&D was required. What you charge from the customer? Well, one of my Product Managers (I think it was Kieran) introduced me that term by saying Timo, no it is time for your Scientific Pricing. Method is this; Kieran had work estimates, then I had to guess to how many customers will buy the feature, I had to check the position of the stars, cross my fingers and hope that I’m lucky because P&L was my permanent headache. One critical success factor in Scientific Pricing is that you understand your customer's business. Without understanding, forget it.

Don’t try this at home.
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