Vendors can destroy their business by making prices too complex.

by Alex Goldman ISP-Planet Managing Editor [April 6, 2006]

Of course, if you're a monopoly like the phone company, you can advertise DSL for $14.99 and neglect to mention all the fees and taxes and surcharges. But if you're a startup tech company and you're trying to sell your new appliance to the ISP market, here's a word of advice: say what the price of the product is.

Surely this isn't too complicated? If you believe your product delivers a better price performance ratio than the competition, provides a disruptive price point, or delivers on ROI in less than a year, you should not be afraid to say what you're charging.

If you want to see what published prices can do for a company, look at Barracuda anti-spam (see Small Fish, Big Name, Right Price). The company's product as initially released several years ago lacked key features for the ISP market. But because pricing was clear (and under $5,000 per box), many ISPs bought the product and worked with it. Some of Barracuda's competitors complain their products are better for ISPs. That may be so, but if the pricing is secret, there's no way to compare value.

At ISPCON a year or two ago, an ISP CEO was complaining about this. He asked why companies do a song and dance instead of quoting a price. I said I have the same problem. He said, "how is that a problem for you?"

It's a problem for me because I'm asking the same questions and getting the same non-answers. It's a problem for me because an article about a product is meaningless without a price. The article is simply not very useful unless the reader can compare the product to its competitors. There's always a tradeoff between features and price. But without price data, no comparison is possible.

A company that refuses to talk about price is asking buyers to trust that it can deliver. All too often, the company asking for the trust is new to the market. The company is caught between the desire to tout its product and the desire to keep trade secrets. But as the entrepreneurial proverb goes, If you keep your secrets from the market, the market will keep its secrets from you.

Companies trying to break into a market shouldn't be worried about price. They should be worried about obtaining and keeping customers. Once you've proved you can solve the problem, once you've proved you're needed (see Marketing Basics 3: How to Determine Customer Wants and Needs), then you can raise prices.

Bigger companies can afford to provide something for nothing, and smaller companies cannot. ISP-Planet always advises ISPs to think seriously about working with any company that's been successful abroad and is trying to break into the U.S. market. Such companies often (but not always) have a good product and will generally work with smaller ISPs briefly, before they obtain larger customers. This is an opportunity for the small business to work with a vendor who would usually ignore them.

Few companies will make a splash in the U.S. the way the world's largest webhost, Germany's 1&1 did (see The Most Aggressive Webhost), but deals will be good at the launch.

Even smaller companies should expect to work with partners rather than customers when their product comes to market. Many companies with good products fail quickly. Pricing is one cause of failure. In the internet appliance market, a clear price is a clear advantage.

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