Hi,<p>Due to a project I am working on, I was thinking a lot about trading formalization and related issues, and it brought me back to a question that was bothering me for many years.<p>There is a lot of companies selling products without a price tag — you simply can't know whether it is within your budget without talking to sales reps.<p>My assumption is that this method is used to get as much as possible off big companies (simply because they have money) and may be sell it to smaller companies at a lower price.<p>Given the product remains the same, it really kind of bothers me that the same product goes for different prices making some buyers having worse deal... just because they have money. Obviously, this is beneficial for sellers as it leads to potentially higher revenues.<p>It usually gives me an impression that such sellers either don't know value of their product OR they are always trying to exaggerate it.<p>I do realize that the same product might yield different values for different companies, but hey, this is definitely not only about how much money the buyer company has (I also realize that seller can actually analyze each buyer's needs and yielded value in order to find a right price).<p>May be I am just to much into trading formalization concept and missing something... is there any other benefits of "no price tag" approach, particularly for buyers?
<i>is there any other benefits of "no price tag" approach, particularly for buyers?</i><p>Yes. Say the marginal cost of a good is $1000. The fixed cost of developing the product was $900,000. There are 100 potential customers. In order to break even, the average sales price must be $10,000. But let's say that some customers can afford to pay $50,000, while most others can only pay $5,000. Without price discrimination, the product simply would not exist. If you charged $10,000 to everyone, the smaller companies simply could not buy. But if you price discriminate, and charge the small companies $5,000 and the big companies $50,000 you can cover your fixed costs and break even. Everyone wins. The producer makes money and both the small customers and big customers get a product that otherwise would not exist.
"sellers either don't know value of their product OR they are always trying to exaggerate it."<p>You have a misunderstanding about value. Sellers CANNOT know the value of their product -- the value of their product is determined by each individual buyer given each individual buyer's circumstances. There is no "universal" value for a product. Products are traded for money all the time at various price points based on millions of criteria.<p>It's this misconception that's causing your problem.
There are combinations of reasons for this.<p>Firstly to impede competitors a little (always worth doing).<p>Secondly because it encourages people to ring your sales line and talk to a human - a sale is a LOT more likely then.<p>Also it is likely the product is in the realms of enterprise or business class. Quotations might need to be customised etc.<p>People looking for this level of product are probably less worried about the price point.<p>And finally it is the kind of behaviour companies expect. They WANT to ring you up and be quoted.
You seem to feel some sort of moral obligation to price things as cost-plus. "This good cost me $90, 10% profit is reasonable, you can have it for $100."<p>You're upset by pricing based on value. "This good cost me $90, but it's going to save you $500 this year alone, so it is a steal at $250."<p>I guess my argument to you is that the goal is (naturally) to squeeze more cash out of customers. But the customers with more money are presumably getting more value out of the product.<p>For my current venture, we're selling software that helps keep students from dropping out of college. Our effects are measured in additional revenue to the school from students retained. Assuming we manage to provide the same percentage improvement to every school, the value we provide to an institution is going to vary widely. A small community college might have a third of the revenue per student as a private institution, and a small school might have a tenth as many students as a larger institution. My incremental costs aren't really all that much greater from school to school, but the value to the schools vary widely. It only makes sense to provide them different prices.
I see a lot of conjecture about how secret pricing is or isn't beneficial, but one thing that seems to be overlooked is the complexity of enterprise class pricing.<p>If I call BEA (now Oracle) for a portal, the application stack is modular down to app functions, such that if I want publishing in my portal, there's a publisher module. Document repository is a seperate cost as well. I could buy 'just portal' if I really wanted, but without speaking to a BEA sales rep, in the absence of a LOT of prior experience, I simply can't know WHAT to buy.<p>That said, I've always found the 'per-seat' pricing model to be a pretty effective form of price discrimination. $10 a seat means that the 100 employee company is only paying $1000, but the 30,000 employee company pays $300,000. It's fair(ish), and it's an effective way to scale support costs as well without having to pay per hour or incident.
<i>My assumption is that this method is used to get as much as possible off big companies</i><p>I think that your assumption is grossly inaccurate, and you should probably put some effort into basic sales and marketing concepts.<p>I will tell you that 9 times out of 10, when you think a corporation is trying to exploit some nefarious tactic to rip off some or all of their clients, that the reality is simply that you don't understand the process or are missing some key data point. IE: corporations are not all dark and evil. It's important to understand this and grasp it. Presumably you (the generic you) would like your venture to become large and sustainable and "big" someday.<p>Anyway, others in this thread have done a good job explaining some of the concepts of value-based selling and other reasons why for some products it is impractical to have a one size fits all pricing model.<p>To answer your question, though, one of the benefits of no price tag is that if you were to publish a median price, you might scare off some of your small or large clients from calling up. They would either think the product is too expensive and complex, or too simple and limited for their needs, when in reality neither is true. By talking with a sales agent a price that is fair and accurate for that customer can be established.
A hidden benefit to consumers might be seen with complicated systems. If you were told that a complicated system was $10,000 base price, you might be upset that the typical price for the complete system is $30,000. You were expecting to pay one amount, but after realizing what your needs are you have a totally different price. The selling company can't expect to know what you need until you meet with them, which is why you have to meet before seeing a price.
I finally registered on HN to make one short comment: Read "Why Popcorn Costs So Much at the Movies: And Other Pricing Puzzles". It's a short, readable book on pricing "for dummies" by Richard McKenzie (UC Irvine).<p>I have zero formal training in economics, and I found the book enlightening. It discusses price discrimination thoroughly - after all, it's a critical component of pricing theory.<p>I, too, find the thought of one buyer paying more simply because s/he can afford the price somehow "wrong". I don't fully buy the explanation in the book (mainly revolving around time opportunity costs, as I see it). But, at the same time, life is not always fair - morality and money are orthogonal to some extent. If this behavior were deemed harmful by society, surely it would be illegal by now?<p>[Edit: Minor Engrish nit.]
A slight side step from the main discussion (do apologise for that), but does anyone know whether price discrimination is regulated/protected for consumers ? Just wondering if there's a legal side to it. i.e. is there a limit to how much a seller can price discriminate ? etc
There are other alternatives to no price tag.. Think Tight-Ass Tuesdays, discount coupons, etc.. Some people will buy your product whatever the cost - others will only at a lower price.. To maximise the value/sales - the price spread is a good idea...
Your question made me think about the topic thoroughly. I wrote a suggestion what to do, by letting the customer suggest the price.<p><a href="http://www.aleveo.com/ideas/voluntary-price-suggestions" rel="nofollow">http://www.aleveo.com/ideas/voluntary-price-suggestions</a>
Even with list pricing, the price does not often represent the costs. For example from Apple:<p>32GB iPhone 3GS costs $100 more than the 16GB model, yet a 16GB microSDHC card only costs $50.