Price Your Product to Attract Multiple Customer Groups

Many blockbuster products link two groups of users. For example, search engines join Web surfers and advertisers. With "two-sided" offerings, more demand from one user group spurs more from the other. To illustrate, the more video games that developers create for the Microsoft X-Box, the more that players snap up he latest X-Box.

To capture the advantages two-sided markets promise, get pricing right. For instance, "subsidize" one user group while charging the other a premium for access to the subsidized group. Take Adobe's Acrobat PDF market, which comprises document readers and producers. Readers pay nothing for Acrobat software. Document producers, who prize this 500-million-strong audience, pay $299.

Today's Management Tip of the Day was adapted from the HBR article, "Strategies for Two-Sided Markets," by Thomas Eisenmann, Geoffrey Parker, and Marshall W. Van Alstyne.

By washingtonpost.com Editors  |  August 29, 2008; 10:30 AM ET  | Category:  Management Tip of the Day
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