This is my blog about marketing!

http://markrburton.wordpress.com/2010/03/04/the-innovators-pricing-dilemma/

In Mark Burton’s blog “Pricing on Purpose” there is a post titled The Innovator’s Pricing Dilemma that talks about specifically about a new line of IBM servers that are very efficient and can save a company a lot of money but they cost a lot more than the competition. The main point of the post was to discuss how should innovators price their products, which I thought was very interesting.

I believe that if a company creates an innovative product, like IBM’s new eX5 servers, they should not look at what their competitors are charging for products in the same category. An innovation is something that is different than the normal set of products, it has some unique set of features that allows the customer to complete a task more efficiently and in the case of the eX5 servers save a lot of money so it should be priced differently. In most cases innovations are priced higher because of the unique advantages they offer. So, I think its fair that IBM has priced their product so much higher than competing brands, when you want the most premium product on the market such as the eX5 server you must be willing to pay a premium price.

If you look at most new innovations they often use a market skimming pricing strategy. For example, when a new iPhone comes out the price is very high but as the months ago along the price is dropped slowly so that more and more customers can buy it. I believe this could also be very successful for IBM’s servers, at first they could charge an extremely high price for their product but as time passes they can drop the prices. Eventually they could release a second version of the eX5 server and start the same process again.

In the end I believe that pricing should be set on the basis of what the product offers. If the product is the best one and offers the most features on the market it should be priced with respect to that not looking at what the closest competitors are charging. Companies need to communicate why their product is superior to competing brands and if this is done effectively customers will pay the higher price, which is what value-based pricing is.