by Adam Juda on Saturday, March 4, 2017
One lesson has been drilled into my head again and again: sellers of commodity goods have no pricing power. Such vendors are forced to sell their wares at the same price as their least expensive competitors. Any attempt to raise prices will simply cause their customers to buy elsewhere.
I believe that this lesson is misleading at best and an utter untruth at worst. Its continued existence stems from flawed academic models, and the constant parroting of know-nothing charlatans.
Let's take a look at the pricing of one of the most generic commodities on earth: domain name registrations. A domain name is little more than an entry in a database. When a web surfer types in a domain like TapRun.com, the associated internet address is retrieved and sent back by the system. No matter which certified registrar a website owner pays for his registration, the exact same central database is used.
Interestingly, the buyer's choice of registrar is fairly well hidden, unknowable to all but the most technically savvy internet users. So there is little chance of any Veblen signaling to confuse the issue.
Many economic pundits would call the world of domain registrations the epitome of commoditization. Surely, each registrar must charge the same exact price for its offerings, right?
Maybe not. Let's take a look at the prices offered by a handful of popular domain registrars.
|Registrar||Cost to register a new domain for the first year||Cost to renew an existing domain for one additional year|
|Automattic (via WordPress.com)||$35.88 (advertised as $2.99/month billed yearly, includes blog hosting)||$35.88 (advertised as $2.99/month billed yearly, includes blog hosting)|
|Enom||$63.48 (advertised as $13.48 + $50 enrollment fee)||$13.48|
|GKG||$11.61 (advertised as $11.43 + 18¢ ICANN fee)||$11.61 (advertised as $11.43 + 18¢ ICANN fee)|
|GoDaddy||$17.98 (advertised as $2.99 for the first year, $14.99 for the second year, must register for at least 2 years)||$14.99|
As we can see from the table, registrar pricing can vary quite a bit!
Here are a few highlights:
- Automattic (the 2nd priciest of the bunch) displayed its costs on a per-month basis (even though it requires yearly payments) so as to appear less expensive. It also bundled blog hosting with every purchase.
- Several of the firms engaged in what I would deem deceptive advertising, offering relatively low prices for the first year, and then raising their prices for subsequent years to very high levels. I'm not going to suggest that such companies are attempting to sneak hidden fee increases onto unsuspecting buyers, but I will point out that more than a few obscured or even refused to display their prices for domain renewal.
- Two companies (Google and PairNic) opted to use even pricing (whole numbers). Doing so is often a signal of premium status, yet neither appeared to be particularly high priced. I would imagine that a firm with Google's reputation possesses substantial pricing power and could increase its profits by raising prices, though Google likely has a goal other than profit maximization in mind.
I could go on, but I digress.
If companies that are literally selling a single entry into the exact same database are able to thrive with such different pricing techniques, how can you possibly argue that you are forced to use the same pricing as your competitors? Whether you're selling a good or a service, there's always a way to separate yourself from the crowd.
Not sure where to start with your pricing? I'm here to help.