Saturday, April 12, 2008

I wish everything were an auction

A few months ago, I had a discussion with John Ives about his startup, Storage Markets, and the challenge of setting price for an unprecedented offering. I'm now experiencing exactly the same thing with Albeo.

LED lighting is dramatically different from traditional lighting. Here's a list of differentiators we use occasionally:
  • Reduced energy consumption; 10 times less energy than incandescent
  • Reduced maintenance costs; 10 to 100 times less maintenance
  • Reduced thermal loads; 10 to 20 times cooler than other lights
  • Longest lifetimes; for 50,000 to 100,000 hours
  • Highly resistant to shock and vibration; no glass or filaments to break
  • Extremely safe; low voltage, no EMI, low temperature
  • No recycling costs; no mercury
  • Full scale control of light level; adjustable from off to full on
  • Smallest form factors
  • Widest range of operating conditions; -40 to 70 degrees C
  • Easy to integrate with electronics; micros and sensors
  • All colors available; high color purity, all whites
Clearly, LEDs provide a very different lighting solution from traditional lighting. However, they cost maybe 10 times more to manufacture. So, how does one price LED offerings?

I'm going through that process now for several new products we're about to launch. Setting price is one of the most difficult things a marketer does. I strongly believe in setting price before I learn what a product costs to manufacture. It is very easy and common to base price on cost, even if one does so unconsciously because he knows the products' cost. However, our customers don't care what our products cost to make, do they? They care about what the products do for them; the value they deliver.

The ultimate way to determine the price is with an auction. Not that I want to sell our products on eBay, but why can't everything be an auction? It would make my job so much easier.
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