The average mobile app reseller makes thousands of pricing decisions every year. And according to one study, 30% of those pricing decisions could use a second look to potentially bring you more revenue.
Mobile app resellers have it tough when it comes to pricing. Since 61% of consumers research the competition online before committing to any purchases, you’re not going to fool anybody into overpaying. You need to look at different pricing strategies, and then find the sweet spot for both your business and your consumers.
Every business is different. Maybe you specialize in reselling to one market, or maybe you have a broad base of different types apps that you work on. Your pricing model will change based on how you run the logistics of your company. But don’t worry, we’re going to describe 9 different pricing strategies, and one of them will work for you.
But before we dive in, let’s look at how pricing in general works in business.
Business and Pricing Strategies
Ideally, your consumer tells you your price via market research, rather than you dictating your price.
As the marketplace becomes more global, you’re going to come up against a lot more products and services where features are pretty close to the same. As a result, it’s often the market that dictates pricing. If you price yourself out of what’s been established as a normal range, you’re going to find yourself on the outside of that market looking in. And since mobile now accounts for 30% of all worldwide e-commerce, that’s not a situation you want to be in.
In these cases, other marketing factors (e.g. branding, advertising, etc.) can be critical to a company’s ability to set a different price point. In other words, companies with brand name recognition can get away with charging more.
Business Level Strategies
Michael E. Porter’s “Five Business-Level Strategies” describes the primary options a company has regarding its business-level strategy. There are two main variables, often presented as two axes: Competitive Advantage, and Competitive Scope.
To break that down into simpler terms, Competitive Advantage shows a range of cost versus uniqueness. In other words, are you trying to sell your apps by saying they’re better than any other, or by saying they’re cheaper than any other?
For Competitive Scope, there’s a range of narrow target market versus broad target market. So are you trying to appeal to a specific type of customer, or are you trying for mass-market appeal?
Using those criteria, here are the five main business-level strategies. For your convenience, we’re equating each of them with common grocery stores.
- Cost Leadership (low price, large target market, low differentiation)
- The Walmart approach. Get as many people in as possible with low prices.
- Differentiation (higher price, large target market, high differentiation)
- Like Whole Foods or Trader Joe’s, appeal to consumers who don’t mind paying more for unique or higher-quality items.
- Focused Cost Leadership (low price, small target market, low differentiation)
- Like Aldi. Not as broad an appeal, smaller locations, but carrying fairly common items.
- Focused Differentiation (high price, small target market, high differentiation)
- Like a local farm-to-table organic produce store, you’re going to pay more for things you can’t get anywhere else, and the reach isn’t very wide.
- Integrated Cost Leadership/Differentiation (varying degrees of price, market size, and level of differentiation)
- It’s not a perfect metaphor, but think Target. They vary in size and scope (some have grocery sections or pharmacies, some don’t), and they are neither the most or least expensive, or unique in their offerings.
What’s most important is matching your capabilities to a segment/consumer. Understand who your audience is and what they want. Know if you want your apps to be specialized and unique, in which case a higher cost is more appropriate. Alternatively, if you want to appeal as broadly as possible, take a more basic approach and cut costs to go for a volume-selling approach.
The 9 strategies to Use
All of this is great in theory, but it’s often difficult in practice because costs, demand, competition, and other external factors can change very quickly. You may not be capable of performing this analysis and producing the best strategy, and even if you do, the market may have changed by the time you analyze it.
Therefore, companies use many other methods of determining price. The following are nine major forms of pricing strategy:
1. Penetration Pricing
You want to attract people to your app business? One sure-fire way to get into the spotlight is to give consumers the cheapest option out there. It’s worth noting that only about a third of smartphone users actually pay for mobile apps. That’s penetration pricing at its finest – driving app prices all the way down to zero for end users. While this obviously isn’t sustainable for mobile app resellers, getting some initial customers in the door can help you build case studies and a stable of references.
2. Pricing in Response to Competition
Two different resellers, A and B, specialize in restaurant apps. Now let’s say they both charge $100 a month manage to maintain a client’s app.
These are two companies that provide the exact same service. If Reseller A suddenly lowered its price to “free,” he’d gain market share like crazy. B would need to do something to stop the bleeding, so the obvious answer would be to lower his price as well. That’s pricing in response to your competition.
3. Market Pricing
Read the market. Know what the normal going rate for your service is. Match that price. If a third restaurant reseller, C, entered the fray, and saw that A and B are both free apps, he’d know to do the same – unless they had some sort of unique advantage over those other two.
4. Price Leadership
This is essentially the goal of “penetration pricing,” but extra low prices aren’t always required. If you are early to the market or just understand the environment, you can be the one that determines what the standard cost is, based on your own expenses and needs. Here’s a great resource if you want to know more about price leadership and penetration pricing.
5. Premium Pricing
Is your company’s product unique, high-quality, and just hands-down better than anyone else’s? More importantly, can you make prospects see that? Then you can get away with a higher price.
6. Freemium Pricing
If you’re familiar with the term “in-app purchases,” this is what that refers to. Most mobile games are like this – free to download, but with optional things to buy once you’re hooked.
7. High-low Pricing
To go back to the retailer metaphor, this is basically the Kohl’s model – higher-than-normal prices, but with frequent sales, coupons, or promotions. This tends to hook bargain-oriented shoppers who get excited at a “30% off” tag before noticing it’s already marked up 40% from what anyone else would charge. Also, it can get you in trouble if used too liberally.
8. Variable Pricing
This is where the price varies depending on some sort of variable, such as time (e.g. time of day, week, month, or year), location, or demand. Airline tickets follow this sort of model, but it’s hard to see how an app reseller could use it, other than perhaps to charge a premium rate for express development service.
9. Cost-plus Pricing
This is where the company determines the product/service’s cost and adds to it the profit that it wishes to receive in order to produce its price. This is one of the easiest pricing methods, but it is not very accurate or effective, as it doesn’t consider the consumer or market.
Pulling Everything Together
For white label app resellers, your price point depends on your business-level strategy. If you want to sell at higher price points for (likely) greater margins, you will have to differentiate in ways that matter to your consumers. That means offering top-tier service, customization, features/functionality, and design. And it’s not enough to simply offer those advantages – you have to be able to communicate them to your clients.
If you want to sell at lower price points for (likely) greater sales volume, you will have to find ways to minimize your costs in order to compete on price.
You may want to price somewhere in-between, producing an app that is somewhat differentiated and at a price that consumers are willing to pay. However, being “average” makes it difficult to stand out, which may just get you lost in the shuffle.
So pricing depends most on you. What are your resources and capabilities, and what can you charge to stay profitable while also attracting business? How are you going to get an edge over your competition – with standout pricing or standout service? The first step is understanding what you do best compared to your competition, and play to your strengths. Do that, and the right price point will show itself.
Barring that, you can always ask the audience.