The Mechanics Of Limited Release Pricing
Ever wonder why that cool little indie film you wanted to buy was released on DVD for rental only? Well, it wasn’t exactly, but you wouldn’t want to buy it. Not yet.
There are two radically different ways to price a flick when it first gets released on DVD. Sometimes the cost is 20 bucks. And sometimes it’s 120 bucks. The plot thickens …
Hollywood studios like to get the best …. hmm … buck for the bang.
So sometimes they release a movie to video twice. The first time it’s for an exhorbitant price like 120 bucks. And then, after a few months they’ll simply lower the price down to the 20 bucks we all know and love.
The only people who are willing to pay the high price are the video rental stores. Which is why they don’t put them on the sale shelf at this price. If you really want the video, you can talk to your video store clerk and they’ll order you up a copy, or you can wait it out until the price comes down.
The Pricing Strategy
Popular films are released at the standard price. You can rent them and buy them off the shelf as soon as they come out. If the movie is popular and expected to do well, the studio’s goal is to sell as many as possible as quickly as possible; fill the rental shelves and fill living room collections.
This way they can capitaize on a burst ad campaign and the buzz that follows by getting it out there. And getting everyone to see it and talk about it.
But sometimes a film has limited appeal. Maybe it has a small cult following or just isn’t expected to do all that well in terms of sales. They’re only going to sell one or two copies to each video store. So to maximize the revenue, they’ll sell it high. Very high.
At 120 bucks, selling one is like selling six. And the video stores pay it because they need the wide selection to compete in the market.
The Value Of A Volume Pricing Model
We all know, the more you buy, the cheaper the per unit price is. The DVD pricing structure is a good way to understand one of the behind-the-scenes mechanisms of volume pricing.
Every product or service has a set amount of fixed overhead costs and a variable cost per unit. In actuality, both these costs are variable, and they both go down as the sales volume goes up.
Every business needs to build in a volume pricing structure. This helps you remain competitive on the large deals and still recover your costs on the small ones. It’s also a good way to upsell higher volume when you lay the pricing structure out for a client.
The other lesson here is that early adopters are willing to pay more to be first in line. This is always a very limited demographic, but they’re there. High initial release pricing can be a good way to get the ball rolling on a project that has limited but strong appeal. It helps raise the capital necessary to build the infrastructure that’s needed to bring the price down to a more realistic level.
To do this, you need to offer something new, special, or cutting edge. Or, you need to have something that a select group of people really need now.
One for the price of six, anyone?