Lets say I am selling shoes. These shoes are not meant for the entire world, but for a select few. Lets say shoes for computer gamers. Something that all gamers would want for sure.
Once I have a product to sell, I have a few options of creating a pseudo demand (and inflate prices). Let me call them models.
I create 500 pairs and sell each at say Rs. 100. Like a typical sales process happen.
I create 500 pairs. Sell them in lots of 50 at Rs. 50 each. Once each lot gets over, I jack up the price by Rs. 25. I create that "rush" where everyone would want to buy the shoe when its still 50. If lot 1, gets over, everyone knows that if they dint buy it for 75 (and miss this lot), the price would go up at 100. So on and so forth. Also, since these shoes are limited in number, by raising the "price", I raise the "value" of the shoes that have been earlier purchased. I theoretically sell faster and make more money.
Reverse of Model 2. Lets say I want at least Rs. 100 per pair. I create lots. I sell the first lot for Rs. 200. Every incremental lot, I reduce the price. I think this is the worst of all. This is infact the winners curse. The price for other users falls as a result of actions of the winners. But there is something interesting. Moment I slash the prices from Rs. 200 to Rs. 100, I think a lot of people would compare the two prices and use models like contrast and grounding to buy in herds.
Is there a merit in thinking about pricing and economics before you create a business? Which of the three is advisable in the long run if your product is not a commodity? Is there a fourth, fifth, sixth .. way to think about pricing and generate demand.
Originally posted on Cyntax Blog