Tuesday, June 23, 2009

Microsoft Windows 7 Pricing Strategy

Microsoft is set to announce its Windows 7 pricing platform any time now. Will they continue with their habit of confusing consumers with multiple levels of segmentation? Or take a simpler approach that will not leave consumers in the dark about what benefits they are actually receiving at each price point? As ZDnet.com reported:
"Any day now, Microsoft should be going public with its long-awaited Windows 7 retail pricing line-up.

"I’m thinking the unveiling should be this week, especially given that the Windows 7 Upgrade program is slated to kick off by week’s end. The Upgrade program will provide consumers and small businesses who buy Vista PCs with a voucher which will entitle them to a copy of Windows 7 once it is generally available, starting October 22.)

"Microsoft is leaving some of the program details — like how much participating PC makers can charge for the “free upgrade to Windows 7″ coupons they are including with Windows Vista machines — up to the OEMs. The length of time during which OEMs and retailers will make the upgrade coupons available is up to their individual discretion, as well."

We covered Microsoft's diverse pricing strategies in our June 2009 newsletter (click here to learn how to receive our publications), with an article by Per Sjofors, Founder and Managing Partner at Atenga Inc. The article, entitled "A Tale of Two Pricing Strategies" compares Microsoft's bazaar pricing of Windows Vista with its more profitable and, to most observers, more logical pricing of other services, such as XBox Live:

"Remember when Microsoft launched their new operating system—Windows Vista—two to three years ago? Not only did the public and media complain about how incompatible it was with existing hardware, but they were also befuddled by Microsoft’s decision to have, if my memory serves me right, six different versions of the product with prices ranging from less than $100 all the way up past $350. A quick price check today indicates that the range has widened, as you can now buy versions of Vista from $97 up to $800. Today there is Vista Starter, Vista Home Basic, Vista Home Premium, Vista Business and Vista Ultimate. Then there are versions of these with or without a Service Pack at an array of different prices along with upgrades from older Windows operating systems at another realm of different prices. Basically, what we’re looking at here is a discombobulated pricing mess.

"Now don’t get me wrong, segmenting the market and having different versions of products to meet different levels of customer requirements is paramount in Best Practice Pricing, and it’s a strategy companies follow every day. But, if that’s the case, then you may be wondering why one should complain about what Microsoft is doing.

"The answer is simple. When you segment your market with various versions of your product or service, at different prices, it is crucial that the segmentation make sense for your customers. If it does not, then they will feel they are being nickeled-and-dimed into paying higher prices for something that they do not value."

Read some early speculation on Windows 7 pricing from Engadget here. Will Microsoft change its pricing strategies? Or will they continue to do as they please (regardless of how much sense it makes to anyone else) because of their strong market share?

As Pers' article goes on to point out, Microsoft has implemented some very intelligent pricing and bundling tactics with some of its other products. I would be interested to hear from other pricers on this topic, especially in light of Apple's "aggressive" pricing tactics, which are getting a lot of coverage in the press:
"Apple Inc. (NASDAQ: AAPL) is having more than its share of free press from the World Wide Developers Conference this week. The big new push here seems to be on revamping the iPhone and MacBook. But the pull to go to Mac is where the risks also come into play. As Apple lowers its pricing threshold, its margins at least theoretically will come down as well. And the new pricing is so far being described as "aggressive."

"The good news here is that Apple’s pricing is still far ahead on many items, and it still has demand. If the company decides to start swooping down too far the price chain then it is likely to dilute its brand and will find out firsthand that it needs more and more tech support personnel to serve its customers.

"There is always a challenge in finding an equilibrium where Apple can maintain a premium product pricing (and margins), yet still keep bringing up millions of more new conversion buyers each year. Going solely for market share at lower and lower prices is not what Apple has been successful at doing. But hard times in the economy calls for more aggressive pricing. We won’t bother telling Apple the risks of pricing things too low in too many words. It has shown over and over how they know what they are doing." (Read more here)

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