Pricing is an obscure piece of the marketer’s tool kit, the least considered of the 4 Ps (others being product, promotion, and place). Some people are good at it and those who are really good at it practice a fine art.
For the rest of us, pricing is mostly a matter of calculating costs, estimating what the market will bear, looking at the competition, and reaching for a dart board.
But Microsoft has come up with a new approach. The consumer who wishes to purchase tunes for a Zune must buy points. A Zune point is worth $1.25 cents and a track costs 98.75 cents. To buy a single song, the consumer must surrender $5.00. If this consumer never buys another song, this is what the single song will cost them, $5.00.
We can guess that Microsoft thinks it’s doing: incenting the consumer to buy more tunes. Kingsley-Hughes believes this pricing scheme will allow also Microsoft to increase prices much more easily than iTunes can.
But could we consult Marketing 101 for a moment? The first question of every marketing exercise is this: what problem are you trying to solve?
The problem for Zune is clear. Microsoft is trying to break into a market that is occupied by an incumbent who precedes Microsoft by several years, enjoys deep brand loyalty, still has better technology, offers a more attractive product, and gives the consumer entry into a magic circle called "cool." This is what we call an "advantage."
And the advantage is daunting. Chances are Zune will not make it. So the problem is adoption. It is not repeat use. I am quite certain most MBA students would see this. Yes, I can hear someone calling out from the skydeck now.
"Professor McCracken, tune purchase is not the issue. The issue is getting the consumer to buy a Zune in the first place."
The Zune pricing scheme will not merely muddy the waters. It will create confusion and coercion. Let’s consult the Marketing 101 textbook for a moment. Yes, it’s right here. Confusion and coercion, bad. Clarity and engagement, good.
What is it about this corporation? They get into the hardware business. They decide to go toe to toe with a great competitor. They produce (ok, buy) a piece of hardware that just might have a shot. (Hey, I’m giving them the benefit of the doubt). And then they allow someone on the marketing team to screw things up.
Is there something self destructive about Microsoft. Have they reached deep and come up with a will to lose, a wish for failure? Are they now the Bobby Knight of marketing?
Kingsley-Hughes, Adrian. Crazy Zune Marketplace pricing scheme. Hardware 2.0. November 13, 2006. here.