What Drives Prices Online?
Last updated: 2019-04-04
Recently I was showing an online service to a friend when he responded "Wow, those prices are really high." It got me asking "What drives prices online?
I know that when I go to the gas station and get my $3.15 a gallon (ouch!) that the supply is lower and/or demand is greater so my per gallon price has risen by $.65 in the last three months.
If something were to magically happen and the oil drills in the gulf were to begin producing twice or three times the amount of crude oil then the price of our gas should go down. But that isn’t how prices are determined online.
My gas price example is simply “Supply and Demand”. The price of something goes up or down depending on how much of a product is in the market and how many people want said product.
That’s what determines the prices in our economy (usually) but what happens with an ebook? Who determines the price when it has an unlimited supply? What about an online service like…oh, I don’t know…uh…a website optimization evaluation?
I can think of countless sites that say you can get something that regularly costs $129.00! but you can get it for free by just entering your email address. How in the world can they mark off that much money? Is your email really that important to them?
Have you ever contacted the owner of one of those sites and asked them how they got their price? If you look too closely into the pricing scheme of many products online your going to find that something else is driving prices online other than the usual “Supply and Demand”.
My conclusion is that online or digital product pricing is determined by “Convenience and Impression” instead of “Supply and Demand”.
An online product’s **convenience **is the first side of the balance. It would probably best correspond with the supply aspect. When a product is inconvenient to a consumer the price goes down. Convenience is the amount of personal time it takes to use the product.
For example: A book will take a lot of personal time to read so it is _usually _priced really low.
On the other side of convenience is the ease of use. What makes Microsoft Office so expensive? The amount of effort you have to put into some of the basic activities of producing a paper is low compared to using Notepad.
Determining what the “impression” of a product is takes some research and time. By my definition, impression is the amount of **influence **or **enjoyment **a product brings to you personally. It would be most closely related to **demand **aspect but still different enough to be called something else.
The best example of this is the cost of an online education. You would think that the little to no overhead for the college they would be able to produce some online degrees that cost next to nothing. This isn’t the case because they bring great value to you.
If you ever look into an online course on internet marketing by one of these self professed “Guru’s”, you will see that outside of the introduction you are going to have to pay a sizable amount of money to go through the course. They have determined that their “product” will help you obtain a bigger **impression **or value online. So they price it accordingly.
When your pricing a product online such as an ebook or a service make sure you consider “Convenience and Impression” so that you price them properly and you don’t end up looking like my friend here in the picture.
This is just a theory based on what I’ve experienced online. What do you think? Am I way off? Did I choose the right terms?