YummyMarie: a place for her random ideas, thoughts, and musings

*Pinch me!* Originally Posted by YummyMarie

I notice a lot of members are from Texas. Originally Posted by Akira

Welcome to ECCIE home of a whole bunch of great people and a dozen ass holes. Originally Posted by tucson

Obviously as customers we want the best quality for the cheapest price. The provider's want to maximize profits for labor expended. The nature of this diametric opposition is the reason many of these threads pop of from time to time and quickly degenerate.


I agree with you Caroline, any business wants to maximize profits. Your advocated approach captures more initial profit margins and still allows her to reduce rates at a later point should she find it unsustainable.

*NERD ALERT*

Particularly when you factor in the reality of capacity constraints, i.e. the inability of a brand new provider to even meet the demand for her services, as well as the fact that there is often an early adopter segment of this market who will pay a premium for new talent on the scene and you arrive at a valid pricing strategy.

In fact, what you and Citizen are debating here is something every business that enters a market has to deal with when pricing its products and services. Two common strategies are Price Skimming (Caroline's position) and Penetration Pricing (Citizen's position)

Price Skimming strategy will price a new product or service at a high rate initially and come down in price over time if necessary as sustainability of demand or the life cycle changes. This strategy works well in markets where there exists an inelasticity of demand, i.e. changing price by 1% results in less than a 1% change in demand.

I would argue that effectively this situation does exist in this thing of ours. New providers seem to have a surplus in demand and therefore starting at a higher price, though it affects absolute demand, when factoring in their supply constraints, does not affect the demand they can actually meet. Therefore, this strategy would maximize initial profits.

Alternatively, Penetration Pricing will price a new product or service often lower than current market rates in order to penetrate a competitively dense market and secure market share. This strategy works well in a highly elastic market but can be very risky as it is sacrifices profit margins in order to gain entry into the market and customers often leave as prices are raised to normal levels.

I would argue that penetration pricing is not necessary in this environment and indeed may be counterproductive in terms of maximizing initial profits and in fact creates additional surplus demand which cannot be met.

Obviously as the "life cycle" of a new provider moves out of the Introduction and into the Growth phase the girl may experience a drop in demand due to not being the shiny new toy, however, if her service level is good and can command whatever price she is charging there may be no need for adjustment at all.

Whether or not pricing model is sustainable is a topic for another post, but as in everything else in life the Dunning-Kruger effect is often present. (google it I have to run) Originally Posted by SpiceItUp

Originally Posted by YummyMarie